Whether credit be denied on ground that service tax was not required to be paid?

PJ/Case Law /2016-17/3274

Case:- GHAZIABAD PRECISION PRODUCTS P. LTD. VERSUS C.C.E. & S.T., GHAZIABAD

Citation:- 2016 (42) S.T.R. 369 (Tri. - Del.)

Brief Facts:-The facts of the case are that the assessee is an exporter of goods and availed certain input services outside India. The assessee was under the impression that as the services have been availed outside India, therefore, the assessee is not required to pay service tax on the services under reverse charge mechanism, did not pay the service tax. During the course of audit, it was pointed out to the assessee that assessee is required to pay service tax on the input services availed outside India under the reverse charge mechanism. The assessee paid service tax as directed by the Audit team and took the credit of the same in PLA. Subsequent audit also took place, wherein it was directed to the assessee that they were not required to pay service tax under reverse charge mechanism, therefore, whatever the service tax they had paid, they are not entitled to credit of same. In these set of facts, the show cause notice was issued to the appellant to deny the credit availed by them which he was adjudicated and proposal made in the show cause notice was confirmed by the adjudicating authority. On appeal, learned Commissioner (Appeals) held that the assessee has to reverse the credit along with interest availed by them but the assessee can file refund claim of the service tax paid by them. In consequence to the said order, the assessee reversed the Cenvat credit and filed refund claim.

Appellant’s Contentions:- In the appeal filed, the assessee is requesting for setting aside of demand of interest confirmed by the learned Commissioner (Appeals) by reversal of credit during the intervening period.

Respondent’s Contentions:-The Revenue has challenged the impugned order on the premise that the assessee is not entitled to take Cenvat credit in their PLA account and refund claim filed by the assessee is barred by limitation.

Reasoning Of Judgement-The Tribunal heard both the parties.
In this case, initially the assessee was not paying the Service Tax under reverse charge mechanism and on being pointed out by the Audit team have paid the Service Tax and taken credit in their PLA account. In subsequent audit, it was observed that as the assessee is not required to pay Service Tax, therefore, they are not entitled to avail Cenvat credit. Infact, on the Service Tax paid by the assessee under reverse charge mechanism, the assessee has taken the credit. On being pointed out by the later audit team, the Service Tax they were asked to reverse the credit of service tax taken by them.
As per Rule 3 of the Cenvat Credit Rules, 2004, the assessee is entitled to take the credit of Service Tax paid. Therefore, the observation of the audit team in subsequent audit is not correct. If that has been taken care of at that time, this allegation was not required. Further, the observations made by the learned Commissioner (Appeals) in the impugned order directing the assessee to reverse the said credit and file refund claim is also not warranted. As the entire exercise is revenue neutral, in these circumstances, the following order was passed :
The service tax paid by the assessee initially as directed by the Audit team under reverse charge mechanism, the assessee is entitled to take Cenvat credit of the same in their Cenvat credit account. There is no requirement of reversal of Cenvat credit and consequently, the assessee is not required to file Refund claim.
With these observations, appeals are disposed of.

Decision- Appeal disposed of.

Comment-The gist of the case is thatassessee having paid Service Tax under reverse charge mechanism, is entitled to avail credit of same in Cenvat credit account .Therefore, merely because service tax was erroneously paid cannot be the reason for denying credit as far as service tax has been paid by assessee.

Prepared By- Praniti Lalwani

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PJ/Case Law /2016-17/3274

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