Whether cenvat credit can be utilised for discharging service tax liability under reverse charge?

PJ/Case Study/2013-14/

CASE STUDY

Prepared by:-CA Neetu Sukhwani &
Bharat Rathore

Introduction:-

The assessee received services from foreign nationals for which they were liable to pay service tax as per section 66A of the Finance Act under reverse charge basis. The assessee paid the service tax by utilising the cenvat credit balance. Department objected the payment of service tax under reverse charge basis from Cenvat Credit and the assessee was issued with a Show cause notice alleging that they had wrongly paid service tax from cenvat credit as a recipient of services under the category of “supply of tangible goods services” and that they were suppose to pay service tax in cash. The assessee contested the above show cause notice by contending the deeming fiction of law by elaborating the definitions of “Output Service”, “Provider of taxable service’ and “Person liable for paying service tax”. But the submissions made by the assessee were not accepted and the proposed service tax demand was confirmed along with interest but no penalty was imposed on the assessee in view of divergent views on the issue. The assessee preferred an appeal to the Commissioner Appeals which also upheld the order in original by passing a non speaking order. Aggrieved by the order in appeal, the assessee knocked the doors of Tribunal for justice wherein the appeal was allowed.

Relevant Legal Provisions:-

RULE 2(p) of Cenvat Credit Rules, 2004

Rule 2(p) of the aforesaid Rules, which is produced as follows:-

“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(q) of Cenvat Credit Rules, 2004

Person liable for paying service taxis defined in Rule 2(q) of aforesaid Rules, which is produced below:-

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

RULE 2(r) of Cenvat Credit Rules, 2004

The ‘Provider of taxable service’ is defined in Rule 2(r) of the Cenvat Credit Rules, 2004. The definition is produced as under:-

“Provider of taxable service includes a person liable for paying service tax.”

RULE 2(1)(d) of Service Tax Rules, 1994

Rule 2(1)(d) of the Service Tax Rules, 1994 says that:-

(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 Taxation of Services (Provided from Outside India and received in India) Rules, 2006,

“RULE 5. Taxable services not to be treated as output services. — The 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.”

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Issue: - Whether cenvat credit can be utilised for discharging service tax liability under reverse charge?

Brief Facts:- The appellant is engaged in the manufacture of Bearing rollers falling under chapter 84 of the Central Excise Tariff Act, 1985. The appellant has received services from M/s Aschaffenburger Maschinenfabrik Johhann Modeler GMBH, Germany and paid an amount of Rs. 2,58,94,160/- during the financial year 2008-09 towards lease charges of “Grinding Line” supplied by them. These services are chargeable to service tax w.e.f. 16.05.2008 under category of supply of Tangible goods services as defined under Section 65(105) (zzzzj) of the Finance Act, 1994. The appellant irregularly paid service tax on the amount calculated as service tax amounting to Rs. 32,00,518/- by utilising Cenvat Credit, not paying the same in cash. Department is of the view that service tax is payable in cash and not by utilizing the Cenvat credit as appellant was not eligible to utilize the Cenvat Credit in terms of Rule 3(1) and 4 and 2(p) of the Cenvat Credit Rules and Rule 5 of Taxation of Services (provided from outside India and received in India) Rules. Accordingly Show Cause Notice was issued to them which was adjudicated by original authority vide order-in-original no. 77/CK/JP-II/2011-ADC dated 20.05.2011. Appellant preferred an appeal to the first appellate authority which was also rejected vide impugned order in appeal no. 115 (RDN) ST JPR-II/2012 dated 11.10.2012 by Commissioner of Central Excise (Appeal). Thereafter, appellant filed appeal before Tribunal against the order of Commissioner (Appeal) on the following grounds as stated herein below.

Appellant’s Contentions:- The appellant made following submissions before the Tribunal to defend their case:-

The appellant submit that the impugned Order in Appeal passed by the learned Commissioner (Appeals) is wholly and totally erroneous and is liable to be quashed.

2. The appellant submit that the learned Commissioner (Appeals) had accepted the contentions of the lower adjudicating authorities that service tax payment should have been made in cash as the appellant was a specified person made responsible for payment of service tax under section 68(2) ibid read with Rule 2(1)(d)(iv) of Service tax Rules, 1994 and has not provided any output service, thus was not eligible to utilize Cenvat Credit taken as manufacturer of excisable goods.

In this regard, it is submitted that once the credit is availed lawfully in accordance with the provisions of Cenvat Credit Rules, 2004; there is no prohibition in utilizing the same. In the instant case, the credit is availed in the capacity of manufacturer of dutiable final products and as also affirmed in the impugned order, there is no doubt regarding the availability of the credit. However, it is alleged that since the appellant had not provided any output service, they are not eligible to utilize the same. In this respect it is submitted that according to Rule 3(4) of the Cenvat Credit Rules, 2004 one can utilize the Cenvat Credit in payment of Service Tax on any Output Service. The term ‘Output Service’ is defined in Rule 2(p) of the aforesaid Rules, which is produced as follows:-

The ‘Provider of taxable service’ is defined in Rule 2(r) of the Cenvat Credit Rules, 2004. The definition is produced as under:-

“Provider of taxable service includes a person liable for paying service tax.”

Person liable for paying service taxis defined in Rule 2(q) of aforesaid Rules, which is produced below:-

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

And Rule 2(1)(d) of the Service Tax Rules, 1994 says that:-

“Person liable for paying the service taxmeans,-

                  (i)         …….
                   (ii)        ……..
                 (iii)       ……..

                 (v)       …….
                (vi)      …….
                (vii)      …….

Therefore, it is clear that is the appellant is considered as the provider of output service for the said services; therefore such service is deemed as an output service for them and thus, they have rightfully paid the same by utilizing the Input Credit legally availed.

Further, GTA has been specifically 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 will be 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. As such, these services will continue to be deemed as output service for the purpose paying the Service Tax from Cenvat Credit balance as discussed here above. This analogy has been favoured by hon’ble Tribunal in the following cases:-
M/s Anurag Ferro Products Pvt Ltd v/s CCE & CR, BBSR [2009-TIOL-1345-CESTAT-KOL]: -In this case it was held as under:

ST – Cenvat credit – Amendment in CCRs w.e.f. 01.03.08- GTA service excluded from the definition of output service - assessee claims earlier to this amendment there was no such restriction – held, assessee has prima facie a strong case- waiver from pre-deposit granted: Kolkata CESTAT;

Toyota Kirloskar Motors Pvt Ltd, Bangalore v/s Commissioner of Central Excise (LTU), Bangalore [2009- TIOL-1437-CESTAT-BANG]: -

In this case it was held that:-

“…GTA services have been excluded from the scope of output services w.e.f. 01.03.08.” The assessee in this case had utilised credit for paying service tax on GTA service received by them. Stay and waiver from pre-deposit was granted by holding that prima facie, appellants has a strong case on merits.”

An analysis of these decisions makes it clear that GTA has been excluded from the definition of output services w.e.f. 1.3.2008. As such, it was very well covered in the definition of output services upto this date. Similar analogy is applicable on the imported services which are not removed from the definition of output services till date. As such, imported services are still included in the definition of output services. As such, they have rightfully paid the service tax from Cenvat Credit and the same should be upheld. The above submissions with the case laws were discussed in the appeal memorandum but these have not been considered and the impugned order in appeal has been passed ignoring the same. Such an order being a non speaking order is not sustainable in the light of the decision of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] wherein it is heldthat an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law.

It has also been held in the impugned order that as per the provisions of Rule 5 of the Provision of Taxation of Services (Provided from Outside India and received in India) Rules, 2006, any service received from outside India shall not be treated as output service for availing credit under the provisions of CENVAT Credit Rules, 2004. It means for the purpose of CENVAT Credit Rules, 2004, it is not in the category of output service for availing credit on any inputs and input services. Once the service is not an output service, no cenvat credit can be utilized for payment of service tax payable on such taxable services received from outside India. In this regard, the appellant would like to reproduce the language of this rule which reads as follows:-

The analysis of the above rule makes it clear that:-

This rule is applicable in case of the import of taxable service;
The import of taxable service will not be treated as output service for the purpose prescribed in this rule;
The purpose prescribed is the availment of Cenvat Credit on inputs/input services.

Thus, the import of taxable services is not considered as output service for the purpose of availment of Cenvat Credit on inputs/input services. In other words, if the assessee is registered with service tax department only in respect of import of the taxable services; then he cannot avail the Cenvat Credit. If he is providing certain other taxable services alongwith import of taxable service, then this rule is not applicable. Same thing applies to the manufacturer of dutiable goods who has imported the service. The manufacturer of dutiable goods can avail the Cenvat Credit in the capacity of manufacturer. Thus, there is no restriction on availment of Cenvat credit to the service provider providing taxable services and manufacturer of dutiable goods who has received the taxable services from abroad.

In the instant case, they are manufacturer of dutiable goods and hence have availed the Cenvat Credit as a manufacturer of dutiable goods which is duly allowed to them in accordance with the provisions of Cenvat Credit Rules, 2004. As discussed above, this rule does not apply on those manufacturers or service providers who are otherwise allowed to avail the credit in terms of Cenvat Credit Rules, 2004. Therefore, the credit availed by us cannot be questioned in terms of rule 5 ibid. Also,rule 5 ibid doesn’t impose any restriction on a manufacturer of dutiable goods, it only forbids the recipient of taxable service from abroad from taking of Cenvat credit where he is otherwise not allowed to avail the same.

Further, rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 does not have overriding effect on Cenvat Credit Rules, 2004; as such, it cannot be said that the assessee who is recipient of taxable services from abroad will not be allowed to avail the Cenvat Credit even if he is manufacturing the dutiable goods and is eligible to take the credit under provisions of Cenvat Credit Rules, 2004. Therefore, the contention of the impugned order that they have availed the credit as a recipient of taxable services from abroad is not sustainable and is liable to be set aside.

The appellant further submit that the impugned order has held that definition provided in rule 2(r) only provides to include the person liable for paying service tax as provider of output service and it does not mean that the person has provided any output service and Cenvat credit can be utilized for payment of service tax. In this regard, it is submitted that by following this legal fiction, service tax payment from Cenvat Credit has been allowed in a no. of cases by hon’ble Tribunal and High Court. They had also placed the reliance on the following decisions in their appeal memorandum:-
Commr. Of C. Ex., Chandigarh Vs M/s Nahar Industrial Enterprises Ltd. [2007 (7) S.T.R. 26 (Tri.-Del.)]
CCE, Vapi v/s M/s Bhilosha Tex-N-Twist Pvt Ltd [2009-TIOL-352-CESTAT-AHM]
CCE, Ludhiana Vs M/s Nahar Fibre [2009-TIOL-332-CESTAT-DEL]
R.R.D. Tex Pvt. Ltd. vs Commissioner of C. Ex., Salem [2007 (8) STR 186 (Tri.-Chennai)]
Ambattur Petrochem Ltd. vs Commissioner of C. Ex., Raipur [2008 (9) S.T.R. 53 (Tri. - Del.)]
Commr. Of C. Ex., Belgaum vs Flowserve Microfinish Pumps Pvt. Ltd. [2008 (9) S.T.R. 278 (Tri. - Del.)]
Pallipalayam Spinners Pvt. Ltd. [2008 (9) S.T.R. 544 (Tri. - Chennai)]
BHUSHAN POWER & STEEL LTD. Versus COMMR. OF C. EX., CUS. & SERVICE TAX, BBSR-II [2008 (10) S.T.R. 18 (Tri. - Kolkata)]

But these decisions cited by the appellant had not been discussed and distinguished, rather the impugned order has placed reliance on the decision given by the CESTAT in case of M/s ITC Ltd. v/s CCE, Guntur [2011(23) STR 41 (Tri.- Bang)] wherein it was held that cenvat credit cannot be utilized for payment of service tax on the GTA service received. In this regard, it is submitted that the totally wrong reliance has been placed by impugned order in the decision of M/s ITC Ltd. as passed by hon’ble Bangalore Tribunal as on the even issue, the decisions of hon’ble High Court are available which are binding precedents over the decisions of Tribunal. The hon’ble High court has decided the issue in favour of assessees in the following cases:-

Commissioner of Service Tax v/s M/s Aravind Fashions Ltd [2011-TIOL-748-HC-KAR-ST]-

Service tax – Tax payable on services received from abroad – tax can be paid from CENVAT Credit: 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. In other words, the liability to pay tax on the service, which he has received, is foisted on him under law. It is to discharge the liability he is entitled to use the Cenvat Credit, which was available with him, and therefore the Tribunal was justified in interfering with the order passed by the Commissioner. As there is not liability to pay tax, the question of imposing penalty would not arise.

Commissioner of Central Excise, Chandigarh v/s Nahar Industrial Enterprises [2010-TIOL-868-HC-P&H-ST]–

Service Tax – GTA – Service Tax can be paid from CENVAT Account: a person who is not actual service provider but discharges he service tax liability on the Taxable services, under Section 68 (2) of Finance Act, 1994, as a deemed service provider, is entitled to avail the CENVAT credit on inputs/input services/capital goods for payment of GTA service tax, even if he is not using such inputs/input services/capital goods for providing the taxable services by virtue of deeming legal fiction.

Commissioner of Central Excise v/s M/s Nahar Spinning Mills Ltd [2011-TIOL-413-HC-P&H-ST] -

Service Tax – Cenvat Credit can be utilized for paying Service Tax on GTA service – 2010-TIOL-868-HC-P-H-ST – followed: “Whether a person who is not actual service provider, but discharges the Service tax liability on the Taxable Services, under Section 68 (2) of the Finance Act, 1994, as a deemed service provider, is entitled to avail the Cenvat credit on inputs/input services/capital goods for payment of GTA service tax, even if he is not using such inputs/input services/capital goods for providing the taxable services?’ Counsel for the revenue fairly states that the matter is covered against the revenue by order of this Court dated 6.5.2010 in CEA No. 99 of 2008 CCE v/s M/s Nahar Industrial Enterprises Ltd -2010-TIOL-868-HC-P-H-ST etc.

Thus, in the above cases, hon’ble High Court has held that the service tax can be paid by service recipient from Cenvat Credit. Out of above three cases, the decision of M/s Aravind Fashions is related to the services received from abroad which is exactly the case of appellant. Thus, its ratio is squarely applicable in their case. Further, since the decision of hon’ble High Court is available in their case, the decision of hon’ble Tribunal cited by the learned Commissioner (Appeals) is not applicable in their case. Therefore, extending the ratios of above cited High Court decisions, the impugned order is not sustainable and is liable to be set aside.

It is submitted that the learned Commissioner (Appeals) has referred the clarification issued by Director General under F. no. 381/23/2010/862 dated March 30, 2010 as cited by the appellant in their appeal memorandum. While referring this clarification, the learned Commissioner Appeals has held that this clarification is applicable only when the appellant has also provided the output service and since no output service is provided by them, this clarification is not applicable here. In this respect the appellant is reproducing the abstract of exact language contained in this letter:-

“………………….The CENVAT credit on inputs, capital goods and input services which are used for manufacture of goods or for provision of services is available in a common pool and can be used for payment of excise duty and/or service tax……………..”

Thus, the language contained in this letter clearly says that the credit so availed is available as a common pool and it can be used for payment of EXCISE DUTY and/or SERVICE TAX. Therefore, it is ample clear that this letter nowhere states that it is applicable only if any output service is provided. It simply clarifies if the credit is availed legally, it can be used for payment of service tax, it does not exclude the service recipient therefrom. Thus, the benefit of this letter is extendable to them and the payment of service tax from Cenvat Credit should be allowed setting aside the impugned order.

It is further submitted that the Cenvat Credit Rules, 2004 have been amended vide notification no. 28/2012-ST dated 20.6.2012 so as to restrict the utilization of Cenvat Credit in specified cases. This notification has added an explanation to the rule 3(4) of the Cenvat Credit Rules, 2004 which reads as follows:-

“Explanation. - CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient”

This notification is applicable as from 1.7.2012 and the effect of this explanation is that as from this date, Cenvat Credit cannot be used to pay the service tax where the person liable to pay the service recipient. But prior to this explanation, there was no such provision in the Cenvat Credit Rules, 2004 which debarred the utilization of credit in paying the service tax by the service recipient. Since this explanation is applicable as from 1.7.2012, Cenvat credit cannot be used for paying the service tax by the service recipient as from this date. But since there was no such provision prior to this date and the notification is also not applicable retrospectively, Cenvat Credit could be used for paying the service tax by the service recipient. Since the period in appeal is prior to 1.7.2012, the appellant had rightfully utilized the credit in paying the service tax as a recipient of service and there was no provision restricting their act. Thus, the impugned order in appeal is not viable and is liable to be quashed.

It is further submitted that there could not have been any intention to evade payment of service tax on the part of the assessee in cases where service tax paid is admissible as credit to them. In their case also, the service tax paid is available as credit as these are input services for us. Thus, this is a revenue neutral situation. It has been decided in following cases that the demand is not sustainable in the revenue neutral situations:-
CCE, Madurai Vs M/s L S Mills Ltd [2011-TIOL-931-CESTAT-MAD]-

Service Tax - Penalty under Section 78 - Service tax paid under Section 66A along with interest - The entire tax amount paid was available as CENVAT Credit to the respondents - The belief entertained by the respondent cannot be held other than bonafide especially in the context of Revenue neutrality - No reason to interfere with the order of Commissioner (Appeals) setting aside the penalty under Section 78: CHENNAI CESTAT;

CCE, Raigad Vs M/s Navnitlal Pvt Ltd [2009-TIOL-1972-CESTAT-MUM]

Credit under rule 9(1)(b) of CCR, 2002 can be denied only if duty was not paid due to suppression of facts, willful mis-statement etc. and subsequently paid - since there was no suppression and there could not have been any inducement to evade duty, when credit was admissible on de-bonding, entire exercise revenue neutral - denial of credit incorrect - accordingly imposition of penalty and interest does not arise - Revenue appeal rejected :MUMBAI CESTAT;

CCE, Vadodara Vs M/s Sicgil Industrial Gases Ltd [2008-TIOL-1793-CESTAT-AHM.]

Central Excise - valuation of goods cleared to sister unit - since the duty paid is available as credit and issue is revenue neutral, charge of suppression of facts with intention to evade payment of duty is not sustainable - no infirmity in the order of the Commissioner (Appeals) - revenue appeal has no merit.:AHMEDABAD CESTAT;

Thus, in case of revenue neutral situations demand is not sustainable. Similar is their case, therefore, in the light of these decisions, demand is not tenable.

It is further submitted that the service tax department is taking differential stands on the same issue. The payment of GTA from Cenvat Credit has been allowed in the case of M/s Vinod Industries vide order-in-original no 857/ST/2009-10 dated 30.8.10 passed by Deputy Commissioner of Central Excise and Service tax division of Jodhpur. While allowing the payment of GTA from Cenvat it is held that GTA has been removed from the definition of output service as from 1.3.2008 which indicates that it was included in the definition of output service prior to this period. Thus, it is absolutely clear that the payment of GTA from Cenvat credit is clearly allowed prior to 1.3.2008. This stand taken by the adjudicating authority of the same Central Excise and Service tax Commissionerate is not appealed and hence have become binding on the department. Further, as from 1.3.2008, GTA was specifically removed from the definition of output service but no such amendment has been done in the case of imported services. As such, this analogy still works here. Therefore, the same view as taken in the case of M/s Vinod Industries was to be expressed in their case also, but it has not been done. Such a discriminatory approach is not justified in the light of decision of hon’ble Calcutta High Court in the case of FITWELL FASTNER (INDIA) PVT. LTD. VERSUS COLLECTOR OF CUSTOMS [1993 (68) E.L.T. 50 (CAL.)]. In this case it is held that the discrimination as between two assessees located in two different cities is unfair and improper and violative of Article 14 of Constitution of India. There cannot be discrimination between the assessee who are similarly placed and Department cannot take a different stand for different assessee. Reliance is placed on the following case laws:-

DAMODAR J. MALPANI V. CCE [2002 (146) ELT 483 (SC)]
MALLUR SIDDESWARE SPINNING MILLS (P) LTD. VS. CCE [2004 (166) ELT 154 (SC)]
QUINN INDIA LTD. VS. CCE [2006 (198) ELT 326 (SC)]
SPL SIDDHARTHA LTD. VS CCE [2006 (204) ELT 135 (TRI.-DEL.)]
JAYASWALS NECO LTD. VS. CCE [2006 (195) ELT 142 (SC)]
FITWELL FASTNER (INDIA) PVT. LTD. VS CC [1993 (68) ELT 50 (CAL.)]
CCE VS. AMAR BITUMEN & ALLIED PRODUCTS PVT. LTD. [2006 (202)ELT 213(SC)]
INDIAN OIL CORPORATION LTD. VS CCE [2006 (202) ELT 37 (SC)]
U.O.I. & OTHERS VS. KAUMUDINI NARAYAN DALAL & ANOTHER [2001 (10) SCC 231]
CCE VS. TATA ENGINEERING & LOCOMOTIVES CO. LTD. [2003(158) ELT 130 (SC)]
BIRLA CORPORATION LTD. VS. CCE [2005 (186) ELT 266 (SC)]

Similar views has been held by the Hon’ble CESTAT in the case of COLLECTOR OF CENTRAL EXCISE, BANGLORE AND OTHERS VERSUS UNITED GLASS AND OTHERS [1987 (31) ELT 786 (Tribunal)] as follows:-

“Excise is an indirect tax, uniformity in valuation and assessment of the goods ought to be ensured so that different manufacturers producing similar goods in the country are not discriminated. With this object in view, it has been the practice of the Tribunal to respectfully follow the Judgment delivered by a High Court on particular issue so long as there is no contrary Judgment by another High court on the same issue. [para 10]”

In the light of above decisions, no discrimination is required to be made between the assessees placed under similar circumstances. As such, service tax payment from Cenvat was to be allowed as imported services have not been specifically excluded from the definition of output services. Thus, the analogy on which the payment from credit was allowed in case of M/s Vinod Industries still holds good in their case. As such, they should have been allowed the payment of service tax from Cenvat. But this has not been done and they have been placed at a discriminatory side which is not justified in the light of decisions cited hereabove. This was their submission right from the beginning of the proceedings. But it has not been considered anywhere, neither while passing the impugned order in original, nor while passing the impugned order in appeal. Such an approach is totally against the principles of natural justice. As such, the impugned order is not sustainable and is liable to be set aside.

It is further submitted that the impugned order is alleging that interest is payable by them under the provisions of section 75 of the Finance Act, 1994. This section is reproduced as follows:-

“Every person, liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below ten per cent and not exceeding thirty-six per cent per annum as is for the time being fixed by the Central Government, by Notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed.”

As such, interest is imposable for the delay/failure to pay the service tax. In this regard, it is submitted that they have duly paid the service tax from Cenvat Credit. It has also been held in the case of STERLITE INDUSTRIES (INDIA) LTD. Versus COMMISSIONER OF C. EX., VAPI [2008 (225) E.L.T. 397 (Tri. - Ahmd.)] that payment from Cenvat is also a type of payment. Since the interest is imposed for delay in payment of service tax and they have paid the service tax on time and the payment is not disputed at all. It is only the mode of payment that is disputed. As such, it cannot be said that there is any non levy or short levy of service tax. Since interest is leviable only for non levy or short levy, no interest is imposable in the instant case as the conditions prescribed under section 75 are not fulfilled. AS such, the impugned order upholding the demand of interest is not justified and is liable to be quashed.

Reasoning of the Tribunal:-

The Tribunal held that contention of the revenue is that appellant is a recipient of services and cannot be treated as provider of output service. Hence appellant cannot be treated as provider of output service. Hence appellant cannot utilize Cenvat account for payment of service tax on services received from abroad. On the other hand appellant claims that they are provider of output service as per definitions under Rule 2(p), Rule 2(q), Rule 2(r) of the Cenvat Credit Rues read with Rule 2(1)(d)(iv) of services tax rules 1994 which reads as follows:-

Rule 2(p) “Output service” means [any taxable 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, the expression ‘provider’ and ‘provided’ will be construed accordingly.”
Rule 2(q) “Person liable for paying service tax” has the meaning as assigned to it in clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994.”
Rule 2(r)- “Provider of taxable service includes a person liable for paying service tax.”

Rule 2 (1) (d) (iv)
“(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”
The Tribunal finds that as per Rule 2(q) of Cenvat Credit Rules with Rule 2(1) (d)(iv), the appellant is a person liable to service tax. Once the appellant is person liable to service tax, he becomes provider of taxable service under Rules 2(r) and consequently becomes output service provider under Rule 2(p) of the Cenvat credit rules. Revenue is also relying on rule 5 of Taxation of services (provided from outside India and received in India) Rules). It is found that Rule 5 refers to availing of cenvat credit and not to utilization of credit. Tribunal is therefore of the view that the finding of the Commissioner not treating the appellant as output service provider, is not correct and accordingly Tribunal set aside the order of revenue and allow the appeal.

Decision:- Appeal was allowed.

Conclusion:- The substance of this case is that due to deeming fiction of law, the assessee is eligible to utilise its cenvat credit balance for discharging its service tax liability under the reverse charge mechanism except for the service of GTA as it is being specifically excluded from the definition of output service. Moreover, there has been an amendment in the Cenvat Credit Rules wherein credit cannot be utilised for making payments for service tax under reverse charge mechanism but this amendment has prospective application only and so the cases before amendment are at advantage.

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