Before 19.04.2006 - Payment of service tax on service received from abroad from Cenvat Credit

PJ/CASE STUDY/2011-12/34

30 November 2011

Before 19.04.2006 - Payment of service tax on service received from abroad from Cenvat Credit - Allowed

PJ/Case Study/2011-12/34

CASE STUDY

Prepared By:
CA Pradeep Jain,
CA. Nishit Shah
And Megha Jain, B. Com

Introduction: -

- Basically, the liability of providing service tax on service provided is of service provider. But, if the service provider is situated outside India, then in terms of section 68 (2) of the Finance Act and in terms of Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994, the service receiver is deemed as service provider and liable to pay service tax . In this case Assessee discharges the service tax liability on Intellectual Property Service received from outside India by using Cenvat credit available from other input services such as advertisement, freight, manpower recruitment, courier service, maintenance, repair and construction services.

Commissioner of S. Tax versus M/s Arvind Fashions Ltd.
[2011-TIOL-748-HC-Kar-ST]

Relevant Legal Provisions:-

Rule 68 of Finance Act, 1994 – Payment of service tax:
(1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed.
(2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.
Rule 2(1)(d)( iv ) of the Service Tax Rules, 1994
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

Brief facts of the case: -

-          The assessee is a Company engaged in the manufacture and sale of readymade garments bearing the brand names like 'Wrangler' and 'Lee' which belong to foreign Companies. The foreign Companies provided Intellectual Property Service (IPS) with effect from 10.9.2001 to the assessee and the assessee Company being the service provider was made liable to pay service tax in terms of Section 68(2) of the Finance Act and 2(1)(d)( iv ) of the Service Tax Rules, 1994. The Service Tax liability was discharged by the assessee using Cenvat credit availed on 'Intellectual Property Service' which was objected to by the Department.
-          The assessee filed a revised returns and used credit relating to other input services such as advertisement, freight, manpower recruitment, courier services, maintenance, repair and construction services for discharging Service Tax under the category of 'Intellectual Property Service' in the capacity of the service receiver. The Revenue proceeded against the assessee on the ground that Cenvat was wrongly used for paying Service Tax on 'Intellectual Property Service' purported service when he is not a service provider but the receiver of service. Therefore overruling the objections of the assessee the demand was confirmed.
-          Aggrieved by the said order the assessee preferred an appeal to the Tribunal. The Tribunal held that though the assessee is a recipient of services in law as the service provider is outside the country he is deemed to be the service provider and tax is levied on him. But to discharge that liability he can use the Cenvat credit which is to his credit and therefore they set aside the order passed by the Commissioner.
-          Aggrieved by the said order the Revenue filed this appeal.

Issue:

(i) Whether Cenvat credit can be utilized for the payment of service tax on service received from the abroad?

Judgment of the Appellate Authority:-

- In the instant case, though he is the recipient of service tax, the service provider is outside the country. In law, he is treated as a service provider and is levied tax. It is also can be said that the liability to pay tax on the service which he has received is foisted on him under law.
- So, the tribunal’s order of allowing the assessee to pay the service tax from the Cenvat Credit is sustainable.

Decision:-

. Revenue appeal dismissed.

Conclusion:-

- In the instant case, the service provider is situated outside India, so the liability to pay tax on the service which he has received is foisted on him under law. So, he is allowed to pay duty from Cenvat credit. However, the period involved in the above case was before 19.4.2006 when the imported services were not taxable. It would be interesting to see the implications of the above decision.

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PJ/CASE STUDY/2011-12/34
30 November 2011

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