Cenvat credit could be used for reverse charge service tax on imported services before 20.06.2012

Prior to 20.06.2012, a service recipient liable under reverse charge could utilise already availed Cenvat credit to pay service tax on imported services. The Court treated Rule 5 of the Taxation of Services (provided from Outside India and Received in India) Rules, 2006 as regulating availment of credit for the imported service as an output service, but not as barring utilisation of existing credit toward discharge of the tax liability. The later express prohibition introduced from 20.06.2012 was read as confirming that no such prohibition existed earlier.

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Issues: Whether, prior to 20.06.2012, Cenvat credit could be utilised to discharge service tax liability under reverse charge on import of services notwithstanding Rule 5 of the Taxation of Services (provided from Outside India and Received in India) Rules, 2006 and Rule 3(4)(e) of the Cenvat Credit Rules, 2004.

Analysis: The Court noted that the question stood covered by earlier High Court decisions holding that a person liable to pay service tax under reverse charge may utilise available Cenvat credit for that liability. Rule 5 of the Taxation of Services (provided from Outside India and Received in India) Rules, 2006 was understood as restricting availment of credit for the imported service as an output service, but not as prohibiting utilisation of already availed credit towards discharge of the tax liability. The subsequent amendment introducing an express bar from 20.06.2012 was treated as confirming that such express prohibition was absent earlier.

Conclusion: Prior to 20.06.2012, the service recipient was entitled to utilise Cenvat credit for payment of service tax on import of services under reverse charge.

Ratio Decidendi: In the absence of an express prohibition before 20.06.2012, Cenvat credit already availed could be utilised to discharge reverse charge service tax on imported services, and Rule 5 did not bar such utilisation.

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