CENVAT credit allowed on service tax paid under reverse charge mechanism including pre-2006 voluntary payments

CESTAT Kolkata upheld respondent's entitlement to CENVAT credit on service tax paid under reverse charge mechanism. For payments after 18.04.2006, credit was legally available under Rule 3 of CENVAT Credit Rules, 2004. For pre-18.04.2006 payments, though import services taxability was unsettled, respondent voluntarily paid service tax which was accepted by department, making credit denial impermissible. Revenue's appeal challenging credit availment for 2004-05 to 2007-08 period was rejected.

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Issues:
1. Whether the Respondent wrongly availed CENVAT Credit in contravention of Rule 3 (1) (ix) of CENVAT Credit Rule, 2004Rs.
2. Whether the Service Tax paid under Reverse Charge Mechanism before 18.04.2006 is eligible for CENVAT CreditRs.
3. Whether the impugned order dropping the demands raised in the Show Cause Notice is justifiedRs.

Analysis:
1. The appeal was filed by the Revenue against the Order-in-Original passed by the Principal Commissioner alleging that the Respondent wrongly availed CENVAT Credit of Rs. 4,20,21,467/- under Section 66A of the Finance Act, 1994. The Revenue contended that prior to 18.04.2006, the credit of Service Tax paid under Reverse Charge Mechanism was not justified as per Rule 3 of CENVAT Credit Rules, 2004.

2. The Revenue argued that before the enactment of Section 66A, there was no provision to levy Service Tax on services received from abroad. They cited a Bombay High Court case to support their claim that no legal basis existed to avail CENVAT Credit against Service Tax paid on input services before 18.04.2006. The Revenue prayed for setting aside the impugned order.

3. In response, the Respondent highlighted that a specific provision in Rule 3 of CENVAT Credit Rules, 2004 allowed CENVAT Credit of service tax paid under Section 66A after 18.04.2006. They argued that for the period before 18.04.2006, they paid service tax on import services due to legal uncertainty. The Respondent relied on previous decisions by CESTAT to support their stance that credit for service tax paid on import services before 18.04.2006 should be allowed.

4. The Tribunal observed that the Respondent had paid Service Tax under Reverse Charge Mechanism and availed CENVAT Credit for the period 2004-05 to 2007-08. They noted the insertion of a specific provision in Rule 3 allowing credit after 18.04.2006. The Tribunal also acknowledged the legal uncertainty regarding taxability of import services before 18.04.2006 and the Respondent's compliance with paying service tax during that period.

5. Citing decisions by CESTAT in Mumbai and New Delhi, the Tribunal held that the Respondent was eligible to avail the credit of service tax paid under Section 66A for the period in question. Consequently, the impugned order dropping the demands raised by the Revenue was upheld, and the appeal was rejected.

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