Tribunal grants partial appeal, sets aside service tax demand, disallows cenvat credit on fuels, imposes penalty.

The Tribunal allowed the appeal in part, setting aside the service tax demand under "Supply of Tangible Goods Service" and "Manpower Recruitment or Supply Service." The demand for cenvat credit on fuels was disallowed, imposing a penalty, while interest on the reversal of cenvat credit was not upheld. The appeal was granted with consequential relief, except for the disallowed cenvat credit and penalty, which were upheld.

---

---

Issues Involved:
1. Demand of service tax under "Supply of Tangible Goods Service."
2. Demand of service tax under "Manpower Recruitment or Supply Service."
3. Cenvat credit availed on fuels.
4. Demand of interest on reversal of cenvat credit.

Issue-wise Analysis:

1. Demand of Service Tax under "Supply of Tangible Goods Service":
The appellants were charged with a service tax demand of approximately Rs. 21 crores under the category of "Supply of Tangible Goods Service" for hiring dredgers, tug boats, and other equipment from overseas companies. The original authority based its decision on the specific period license obtained from the Ministry of Shipping, which allowed the appellant to use the foreign vessels and equipment during their stay in India, concluding that the transaction did not qualify as a "deemed sale." The Tribunal, however, referred to the precedent set in the case of International Seaport Dredging Ltd. Vs CST Chennai, where it was determined that the transfer of right of possession and effective control of the vessel to the appellant constituted a "deemed sale." Consequently, the Tribunal held that service tax under the "Supply of Tangible Goods Service" was not applicable and set aside the impugned order, allowing the appeal with consequential relief to the appellant.

2. Demand of Service Tax under "Manpower Recruitment or Supply Service":
The appellants were also charged with a service tax demand of around Rs. 1.65 crores under the "Manpower Recruitment or Supply Service" for employing skilled personnel from JDN-Pacific, Mauritius. The appellant argued that the employees were paid salaries directly by them, with Form-16 issued in the appellant's capacity as the employer, and TDS deducted accordingly. The Tribunal cited the case of TPSC India Pvt. Ltd. Vs CST Hyderabad, where it was held that such transactions did not fall under the "Manpower Recruitment and Supply Agency Service" category. The Tribunal concluded that there was an employer-employee relationship, and thus, the service tax demand could not be sustained. The appeal was allowed to this extent.

3. Cenvat Credit Availed on Fuels:
The appellants claimed cenvat credit of around Rs. 34 lakhs on fuels, arguing that the goods used were different from motor spirit and high-speed diesel oil, which are disallowed under the Cenvat Credit Rules. However, the Tribunal noted that the appellants failed to establish the eligibility of the goods as inputs. Therefore, the Tribunal upheld the original order, disallowing the cenvat credit of Rs. 34 lakhs and imposing a penalty of Rs. 2 lakhs.

4. Demand of Interest on Reversal of Cenvat Credit:
The appellants voluntarily reversed the cenvat credit on inputs such as parts and spares after their use and subsequent export. They argued that the requirement for reversal of credit upon removal of inputs as such was introduced in 2013, which was after the period involved in the case. The Tribunal agreed that once inputs are issued for use, there is no need to reverse the cenvat credit, and thus, interest on such voluntary reversal is not payable. The demand for interest was set aside, and this aspect was decided in favor of the appellants.

Conclusion:
The Tribunal partially allowed the appeal, setting aside the impugned order except for the disallowance of cenvat credit of Rs. 34 lakhs with a penalty of Rs. 2 lakhs and the uncontested cenvat credit of Rs. 42,536/-. The operative part of the order was pronounced in open court.

---