Tribunal upholds Service Tax demand on services from foreign company under reverse charge mechanism

The Tribunal upheld the demand for Service Tax, interest, and penalty on the amount paid for services received from a foreign company under the reverse charge mechanism. Additionally, the Tribunal upheld the demand for the reversal of proportionate CENVAT Credit availed on common input services used for trading activities, citing the appellant's failure to maintain separate accounts. The invocation of the extended period of limitation for recovery was also upheld due to the appellant's failure to reverse the credit voluntarily. The appeal was dismissed.

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Issues Involved:
1. Liability to Service Tax on the amount paid for services received from the foreign company under reverse charge mechanism.
2. Liability to reverse proportionate CENVAT Credit availed on common input services used for trading activity under Rule 6(3A) of the CENVAT Credit Rules, 2004.

Detailed Analysis:

Issue 1: Liability to Service Tax on the amount paid for services received from the foreign company under reverse charge mechanism

The appellant was found to have received services from a foreign company and paid consideration without discharging the applicable Service Tax under Section 66A of the Finance Act, 1994. The investigation revealed that the appellant had paid the entire Service Tax amount of Rs. 94,69,097/- along with interest of Rs. 6,61,087/- and penalty of Rs. 5,35,161/- before the issuance of the show-cause notice. The appellant provided a detailed breakdown of the Service Tax paid, which included various services such as Banking and Financial Services, Consulting Engineers Services, Courier Services, Cargo Handling Services, Information Technology Software Services, and Intellectual Property Services for the period 2008-09 to 2012-13. The Tribunal noted that since the appellant had accepted their liability and paid the entire amount of Service Tax with interest and penalty, the issue of proper classification of the services received became an academic exercise. Consequently, the confirmation of the demand for Service Tax, interest, and penalty was upheld.

Issue 2: Liability to reverse proportionate CENVAT Credit availed on common input services used for trading activity under Rule 6(3A) of the CENVAT Credit Rules, 2004

The appellant availed CENVAT Credit on common input services used in manufacturing, providing taxable output services, and trading activities. The Tribunal referred to the amendment made to the definition of "exempted service" under Rule 2(e) of the CENVAT Credit Rules, 2004, effective from 1.4.2011, which included trading activities. The Tribunal cited previous judgments, including Commissioner of Service Tax, New Delhi Vs. AVL India Pvt. Ltd. and AkshOptifiber Ltd. Vs. Commissioner of Central Excise, Jaipur, which held that trading activities are not taxable services and thus not entitled to CENVAT Credit. The Tribunal emphasized that the appellant's failure to maintain separate accounts for common input services used for trading activities necessitated the reversal of proportionate credit attributable to trading activities.

Extended Period of Limitation:

The Tribunal upheld the invocation of the extended period of limitation for the recovery of proportionate CENVAT Credit attributable to trading activities. It was noted that the appellant had not reversed any credit on their own and only did so when investigated. The Tribunal referenced the judgments in Godfrey Philips India Ltd. and AkshOptifibre Ltd., which supported the invocation of the extended period due to the appellant's failure to correctly reverse the credit and maintain proper records.

Conclusion:

The Tribunal upheld the impugned order, confirming the demand for Service Tax, interest, and penalty on the amount paid for services received from the foreign company under the reverse charge mechanism. Additionally, the Tribunal upheld the demand for the reversal of proportionate CENVAT Credit availed on common input services used for trading activities, along with the invocation of the extended period of limitation. The appeal was dismissed.

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