2016 (10) TMI 241 - AT - Service Tax

Appellants Liable for Service Tax on Foreign Services: Penalties Waived, Cenvat Credit Upheld

The Tribunal held the appellants liable to pay service tax on services received from foreign entities on a reverse charge basis from 18.04.2006 onwards. ... Service tax on reverse charge - foreign service provider - introduction of Section 66A - Penalty waiver under Section 80 - absence of mala-fide - Cenvat credit of service tax - TR-6 challan as primary document - Rule 9(1)(a) of the Cenvat Credit Rules, 2004Service tax on reverse charge - foreign service provider - introduction of Section 66A - Appellant's liability to pay service tax on services received from a foreign entity on reverse charge basis - HELD THAT: - The Tribunal applied the settled position in the cited High Court and Supreme Court decisions and its own earlier order in the appellant's case to hold that reverse charge liability in respect of services provided by a foreign service provider having no office in India arose only after the statutory amendment introducing Section 66A. Accordingly, demands for periods prior to 18.04.2006 are not sustainable and are set aside, while service tax on reverse charge basis is payable with effect from 18.04.2006.Demands prior to 18.04.2006 set aside; service tax on reverse charge payable from 18.04.2006.Penalty waiver under Section 80 - absence of mala-fide - Whether penalties imposed on the appellants for non-payment of service tax on reverse charge basis should be sustained - HELD THAT: - The Tribunal found no mala-fide or intention to gain financial benefit in the appellants' non-payment, given the genuine contest on the legal position of reverse charge liability involving foreign providers. As the liability question had been a matter of interpretation and litigation, the Tribunal exercised its discretion under the statute to invoke Section 80 and waive the penalties levied in the appeals.Penalties imposed in the appeals are waived under Section 80.Cenvat credit of service tax - TR-6 challan as primary document - Rule 9(1)(a) of the Cenvat Credit Rules, 2004 - Validity of denial of cenvat credit of service tax paid on reverse charge basis - HELD THAT: - The Tribunal held that Rule 9(1)(a) of the Cenvat Credit Rules, 2004 applies to supplementary invoices by manufacturers and that TR-6 challans evidencing payment by the service recipient are primary documents for availment of credit. Relying on earlier Tribunal and High Court authorities recognizing TR-6 as a primary document, the Tribunal concluded that cenvat credit availed on the basis of TR-6 challans for the eligible period was allowable and the denial was unsustainable.Denial of cenvat credit set aside; cenvat credit availed on TR-6 challans for the eligible period upheld.Final Conclusion: The appeals are disposed: demands for service tax on reverse charge set aside for periods prior to 18.04.2006 and sustained only from 18.04.2006; penalties waived under Section 80; and cenvat credit claimed on the basis of TR-6 challans for the eligible period is upheld. Issues:1. Liability to service tax on reverse charge basis for services received from foreign entity.2. Imposition of penalties under Sections 76, 77, and 78 of the Act.3. Denial of cenvat credit of service tax paid on reverse charge basis.Issue 1: Liability to Service Tax on Reverse Charge BasisThe appeals addressed the liability of the appellants on reverse charge basis for services received from a foreign entity. The Tribunal referred to the legal position established by the Bombay High Court in Indian National Shipowners Association and affirmed by the Supreme Court. It was noted that the demand of service tax for the period before 18.04.2006 was not valid as service tax on reverse charge basis became payable from that date with the introduction of Section 66A in the Finance Act, 1994. The Tribunal emphasized that no mala-fide intent was evident in the non-payment of service tax, considering the complex legal interpretations surrounding service tax liability involving foreign service providers. The appellants were also entitled to credit for any tax paid on reverse charge basis, leading to the waiver of penalties under Section 80.Issue 2: Imposition of PenaltiesRegarding the imposition of penalties under Sections 76, 77, and 78 of the Act, the Tribunal found merit in the appellant's plea against the penalties. It was observed that there was no malicious intent demonstrated in the case, and the legal complexity surrounding service tax liability on reverse charge basis was acknowledged. Consequently, the Tribunal deemed it appropriate to waive the penalties imposed on the appellants in the appeals related to service tax liability on reverse charge basis.Issue 3: Denial of Cenvat CreditThe third appeal dealt with the denial of cenvat credit of service tax paid on reverse charge basis. The Tribunal examined Rule 9(1)(a) of the cenvat credit Rules, 2004, and cited a previous decision by the Tribunal in JSW Steel Ltd, emphasizing the availability of cenvat credit for service tax paid on input services. The Tribunal disagreed with the reasoning of the Commissioner that the decision had not attained finality due to a pending appeal by the department. It was highlighted that the appellants had paid service tax as service recipients, and the TR 6 challans served as primary documents evidencing payment of duty, allowing for cenvat credit. Consequently, the impugned decision was set aside, affirming the availability of cenvat credit for the eligible period based on TR-6 Challans.In conclusion, the Tribunal held the appellants liable to pay service tax on services received from foreign entities on a reverse charge basis from 18.04.2006 onwards. Penalties imposed on the appellants were waived under Section 80, and the cenvat credit availed based on TR-6 Challans for the eligible period was upheld. The appeals were disposed of accordingly.