TaxTMI 
TaxTMI 
2014 (7) TMI 1018
X X X X Extracts X X X X
X X X X Extracts X X X X
....er of the Commissioner (Appeal) the appellant filed this appeal along with stay application for waiver of pre-deposit of dues for admission of the appeal. On hearing the stay petition, this Tribunal vide MISC Order No.41434/2013 dt. 10.5.2013 ordered the applicant to make a pre-deposit of Rs. 2 lakhs within a period of 6 weeks and report compliance on 28.6.2013. On the date of compliance i.e on 28.6.2013, the appellant reported that they had deposited the amount ordered to be deposited by debiting their Cenvat credit account. Ld. AR for Revenue submitted that a liability of service tax as recipient of service under reverse charge mechanism as per section 66A of Finance Act, 1994 has to be paid in cash and not by debiting Cenvat credit and therefore the compliance reported is not a proper compliance. 2. Since the matter involved a legal dispute, both the parties were requested to give their written submissions and parties were heard in the matter. 3. We have heard both sides, and considered the written submissions of both sides. There is no dispute on the fact that in the normal course pre-deposit on account of stay order for admission of appeal can be made by debit to Cenvat ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erson liable for paying service tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay service tax shall be deemed to be the output service, Rule 2(r) of the Cenvat Credit Rules, 2004 "provider of taxable service" include a person liable for paying service tax; Rule 3(1) of Cenvat Credit Rules, 2004 "3(1). A manufacturer of final product or provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENV AT credit) of------" Rule 3(4) of Cenvat Credit Rules, 2004 (4) The CENVAT credit may be utilized for payment of- * any duty of excise on any final product; or * an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or * an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or * an amount under sub-rule (2) of rule 16 of Central Excise Rules, 2002; or * service tax on any output....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; "Explanation.- Cenvat credit cannot be utilized for payment of service tax in respect of services where the person liable to pay tax is the service recipient" 5. Against such background, Ld. Advocate for Appellant relies on Rule 3 (4) (e) which permits utilization of Cenvat credit for payment of service tax on any output service. Thereafter she refers to definition of "output service" as defined under rule 2(p) of Cenvat Credit Rules, 2004 reading as under :- "(p) Output service means any service, excluding the taxable service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act, provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions 'provider' and 'provided' shall be construed accordingly." 6. She argues that there is no exclusion in respect of services received from abroad from definition of output service unlike in the case of Goods Transport Agency service made taxable under section 65(105) (zzp). 7. She argues that as per rule 2 (d) (iv) of Service Tax Rules, 1994, the recipient of service is the person liable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in India and that person by virtue of this provision of Rule 2(g) of Cenvat Credit Rules, 2004 is deemed to be provider of taxable service. The question arises as to whether the service received from offshore service provider on which the service recipient is liable to pay service tax can be treated as his 'output service' for the purpose of Cenvat Credit Rules, 2004. In our view, this service received from outside offshore service provider cannot be treated as output service as while by the legal fiction of Section 66A this service is deemed to have been provided by the service recipient in India so as to make him liable to pay the Service Tax, it does not satisfy the second condition of the definition of output service in Rule 2(p), that the service has to be provided to a client, customer, subscriber policy holder or any other person as there is no client or customer in this case. Just because the person receiving a taxable service from an offshore service provider, by virtue of being liable to pay service tax in respect of the same is deemed to be "provider of taxable service" under Rule 2(r) of Cenvat Credit Rules, 2004, there is no justification for invoking another legal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Let us take a case where an assessee who is not manufacturing any excisable product or providing any taxable service. But he has to pay service tax on royalty service received from abroad valued at Rs. 1 crore in an year. As per provisions of section 66A and assuming a tax rate of 10% the assessee has to pay tax of 10 lakhs in an year and this tax cannot be utilized for payment of any other tax liability because the assessee is not manufacturing any dutiable product or providing any taxable service and the tax collection of Rs. 10 lakhs accrues to government account. But if the assessee is permitted to take Cenvat credit considering the assessee to be a provider of the service and permitted to utilize such credit on services received, considering it to be an output service the assessee can get the amount of one crore to be paid for royalty to be billed by the foreign party split into four different quarters. The assessee may pay tax of first quarter using cash, take credit of such tax paid and utilize it for paying tax liability for the next quarter and again take credit. So at the end of the year he pays only Rs. 2.5 lakhs to the exchequer as compared to Rs. 10 lakhs otherwise.....