Cenvat credit could be used for reverse charge service tax on foreign services before 01.07.2012, while one demand was remanded.

For the period before 01.07.2012, service tax payable under reverse charge on services received from abroad could be discharged through available Cenvat credit, so the demand on that ground was not sustainable. On the separate issue of alleged short payment on foreign remittances, the Tribunal found that the documents produced had not been properly examined and remanded the matter for limited reconsideration. The questions of limitation and penalty were left open to be decided afresh on remand, including in light of the plea of revenue neutrality.

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Issues: (i) whether Cenvat credit could be utilised for discharge of service tax payable under reverse charge mechanism on services received from abroad for the period prior to 01.07.2012; and (ii) whether the alleged short payment on foreign remittances required fresh examination on the basis of the documents produced, including the connected questions of limitation and penalty.

Issue (i): whether Cenvat credit could be utilised for discharge of service tax payable under reverse charge mechanism on services received from abroad for the period prior to 01.07.2012.

Analysis: The liability to pay service tax under reverse charge was not disputed. The dispute was confined to the mode of discharge for the pre-01.07.2012 period. The Tribunal followed the view that, for that period, the assessee was entitled to utilise available Cenvat credit for payment of such tax, and held that the demand could not be sustained on this ground.

Conclusion: This issue was decided in favour of the assessee and the corresponding demand was set aside.

Issue (ii): whether the alleged short payment on foreign remittances required fresh examination on the basis of the documents produced, including the connected questions of limitation and penalty.

Analysis: The assessee had produced documents to show that the expenditure may not fall within the service tax net, but that material had not been duly examined by the adjudicating authority. The Tribunal therefore found it appropriate to remit this aspect for limited reconsideration, leaving the questions of limitation and penalty to be decided afresh in the light of the overall facts and the plea of revenue neutrality.

Conclusion: This issue was remanded for limited reconsideration and no final finding was recorded on the merits.

Final Conclusion: The order was interfered with to the extent of the first demand, while the second demand-related issue was sent back for limited adjudication, leaving the connected penalty and limitation questions open for decision on remand.

Ratio Decidendi: For the period prior to 01.07.2012, service tax payable under reverse charge on services received from abroad could be discharged through available Cenvat credit, and where relevant expenditure is not properly examined on record, the matter may be remanded for limited reconsideration.

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