Tribunal Rules in Favor of Appellant: Service Tax Under Reverse Charge Unrefunded, Cenvat Credit Retained, No Exchequer Loss

The Tribunal set aside the order-in-appeal, ruling in favor of the appellant. It held that the service tax paid under the reverse charge mechanism, although not required, was not refunded by Revenue, and the appellant's availed cenvat credit did not result in any loss to the exchequer. The Tribunal relied on a similar ruling by the Hon'ble Bombay HC, which supported the appellant's position. Consequently, the Tribunal found the original authority's decision unsustainable, allowing the appellant to retain the cenvat credit and the service tax already paid.

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Issues involved:
The issues involved in the judgment are the payment of service tax under reverse charge mechanism on expenditure incurred in foreign currency for social security contribution, eligibility of availed cenvat credit, and the applicability of the ruling by the Hon'ble Bombay High Court in a similar case.

Payment of Service Tax under Reverse Charge Mechanism:
The appellant paid service tax under reverse charge mechanism on the expenditure incurred in foreign currency for social security contribution towards employees of their overseas holding company working in India. The Revenue contended that the definition of service under Section 65B(44) of the Finance Act excludes payments made to employees by the employer from the definition of service, thus the amount was not required to be paid by the appellant. The Revenue initiated proceedings for recovery of the amount as irregularly availed ineligible cenvat credit, which was confirmed by the original authority and upheld by the learned Commissioner (Appeals).

Eligibility of Availed Cenvat Credit:
The appellant availed cenvat credit of the service tax amount paid under reverse charge mechanism. The appellant argued that even though the service tax was not required to be paid, it was paid and had attained the nature of service tax, as Revenue did not hold through any order that the amount was not payable. The appellant relied on a ruling by the Hon'ble Bombay High Court in a similar case involving central excise duty, where the court held that availing cenvat credit of duty paid on inputs was regular when the assessment of the final product was not reversed by Revenue.

Applicability of Ruling by Hon'ble Bombay High Court:
The Tribunal considered the ruling by the Hon'ble Bombay High Court in a similar case and noted that the service tax paid by the appellant, which was not required to be paid, was not refunded by Revenue. The appellant had availed cenvat credit of the same amount, resulting in no loss to the exchequer. Relying on the cited judgment, the Tribunal held that the impugned order-in-appeal was not sustainable and set it aside, without interfering with the service tax already paid and cenvat credit availed.

Separate Judgement:
The judgment was delivered by Hon'ble Mr. Anil G. Shakkwar, Member (Technical) of the Appellate Tribunal CESTAT Mumbai.

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