Appeal is to be restored on account of apparent mistake of dismissal of appeal for not satisfying condition of pre deposit when the same had been fulfilled.

PJ/CASE STUDY/ 2012-13/32

24 November 2012

PJ/Case Study/2012-13/32

CASE STUDY

Prepared By: CA Neetu Sukhwani &
Shreena Anchaliya

Introduction:- A show cause notice was issued to the noticee alleging that the assessee has discharged its service tax liability as recipient of input services provided from outside India, through Cenvat Credit Account but the same was required to be paid in cash. The assessee replied to the above show cause notice by contending that as per Rule 3(4) of the Cenvat Credit Rules, 2004, Cenvat Credit can be utilized for payment of service tax on any output service and the definition of output service means any taxable service provided by the provider of taxable service and the provider of taxable service includes a person liable to pay tax in relation to any taxable service provided by any person from a country other than India and received by person in India under section 66A of the Act. Therefore, in view of the above provisions, the assessee contended that it had rightly utilized Cenvat Credit for payment of service tax. But, the submissions of the assessee were not accepted and order was passed confirming demand of service tax to be paid in cash and imposing penalty under section 76 of the Finance Act. Thereafter, the assessee filed appeal to Commissioner Appeals but the said order also upheld the demand of service tax to be paid in cash but set aside the penalty under section 76 of the Finance Act. Thereafter, the appellant filed appeal to the Tribunal but the Tribunal dismissed the appeal saying that the assessee has not deposited the amount of interest and penalty and has only deposited the service tax portion. The appellant then filed a ROM application as the mistake was apparent from the record that only service tax portion was confirmed by the Commissioner (Appeals). The application was approved by the Tribunal and appeal was restored. The main issue is still pending before the CESTAT.

M/s Kansara Modler Ltd. v/s Commissioner, Central Excise, Jaipur II
[Misc Order no. 249-252/2012-SM [BR]]

Relevant Legal Provisions:

Rule 3(4) of the Cenvat Credit Rules, 2004: Cenvat Credit may be utilized for payment of service tax on any output service.

Rule 2(p) of the Cenvat Credit Rules, 2004:Output service means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, the expression ‘provider’ and ‘provided’ will be construed accordingly.

Rule 2(r) of the Cenvat Credit Rules, 2004:Provider of taxable service includes a person liable for paying service tax.

Person liable for payment of service tax has the meaning assigned to it in clause (d) of sub-rule (1) of Rule 2 of the Service Tax Rules, 1994.

Person liable for service tax means-

(iv) in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service.

Rule 5 of the Taxation of Services Rules, 2006:Taxable Services provided from outside India and received in India shall not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input services under CENVAT Credit Rules, 2004.

Issue: - Following issue was made before the CESTAT:

Appeal is to be restored on account of apparent mistake of dismissal of appeal for not satisfying condition of pre deposit when the same had been fulfilled.

Brief Facts:-

The appellant is paying service tax as recipient through Cenvat credit Account. The department alleged that the appellant cannot utilize the Cenvat Credit for payment of service tax as recipient under category of “Business Auxiliary Service”. The Department asked for payment of service tax in cash in place of Cenvat Credit and issued Show Cause Notice for irregular payment of service tax. The assessee replied to the above notice but the demand was confirmed along with the penalty by the Adjudicating Authority. Further, the assessee filed an appeal to the Commissioner (Appeals) who set aside the penalty under section 76 but confirmed the demand to be paid in cash. Being aggrieved by the same, the assessee filed an appeal to CESTAT. The Tribunal dismissed the appeal on the ground that the assessee has failed to deposit the amount of interest and penalty and has only deposited the amount of service tax. Thereafter, assessee filed an application for Rectification of Mistake as the Commissioner (Appeals) had dropped the penalties imposed and confirmed the demand for the service tax portion only. The interest was also not confirmed. Thereafter the assessee was allowed the ROM application filed.

Assessee’s Contentions:-

Assessee made following submissions before the Commissioner (Appeal):-

The appellant submitted that they were considered as the provider of output service for the Business Auxiliary Services provided to them by the overseas agents; therefore such service is deemed as an output service for them and so, they can pay it by utilizing the Input Credit. Even the Tribunal has also decided in the favour of this issue. They also submitted that GTA has been removed from the definition of “Output Services” as given under Rule 2(p) of the Cenvat Credit Rules, 2004 by virtue of Budget announced for the year 2008-09. The effect of this is that the GTA cannot be treated as “output service” for the purpose of paying the Service Tax from the Cenvat Credit as per analogy discussed here above. But, no such amendment has been done in case of services received from abroad from commission agents. As such, these services will continue to be deemed as output service for the purpose paying the Service Tax from Cenvat Credit balance. As such, they have rightfully paid the service tax from Cenvat Credit in respect of services received from abroad. The appellant also cited the provisions related to availment of Cenvat Credit given in Rule 3(1) of the Cenvat Credit Rules, 2004. The analysis of above rule makes it clear that the credit rightfully availed can be utilized for the payment of either excise duty or service tax. There is no one to one correlation for utilization of Cenvat Credit. As such, they have rightfully utilized the Cenvat Credit for the payment of Service Tax as service recipient. It was submitted that penalty under this section 76 is imposed for non-payment of service tax. In this regard, it is submitted that in the light of discussion and case laws cited in favour of the appellant, they have duly paid the service tax under the provisions of Finance Act, 1994 read with Cenvat Credit Rules, 2004. As such, no penalty is imposable upon them.

The above contentions were rejected by the Commissioner Appeals and order confirming the service tax demand to be paid in cash was passed. Thereafter, the appellant filed the appeal to Tribunal on the said grounds on depositing the amount of service tax demand in cash. It was noticed that the Tribunal had dismissed their appeal on the ground of non deposit of penalty and interest.
Appellant filed an application for Rectification of Mistake and Restoration of Appeal before the CESTAT when the appeal was dismissed contending that they have not deposited the amount of interest and penalty because the order in appeal demanded only the service tax amount to be deposited and dropped the demand for penalty under section 76. The interest amount was not confirmed as the amount was paid but through a different mode. The assessee did not default in paying service tax, rather he paid the same in cash. Therefore, they mistake was apparent on record. Hence the ROM application was filed.

Reasoning of the Commissioner (Appeals):-

The Tribunal found that the original adjudicating authority did not confirm the interest but imposed penalty under section 76 of the Finance Act on them. The Commissioner (Appeals) dropped the demand for penalty. Therefore, by depositing the service tax amount, the appellants have duly complied with the condition of pre-deposit.

Decision:-

The ROM application and the Application for restoration of Appeal is allowed. The main issue is still pending before the CESTAT.

Conclusion:-

This case definitely points out the negligence and carelessness in the working of our judicial mechanism. The appeal was rejected on account of non payment of pre-deposit of interest and penalty when the same was not confirmed by the lower adjudicating authority. The consequences of not restoring the said appeal through the ROM application filed would have denied justice to the appellant and might have led to meritorious matter being refused for admission to further appeal.

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PJ/CASE STUDY/ 2012-13/32
24 November 2012

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