Aquapharma Chemicais Pvt. Ltd vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL No.ST/283/11 (Arising out of Order-in-Appeal No. YDB/91/RGD/2011 dated. 31/01/2011 passed by Commissioner of Central Excise (Appeals-II), Mumbai) For approval and signature: Honble Mr.M.V. Ravindran, Member (Judicial) Honble Mr.C.J. Mathew, Member (Technical) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================

Aquapharma Chemicais Pvt. Ltd. Appellant Vs. Commissioner of Central Excise, Respondent Raigad

Appearance:

Ms. Aparna H. Advocate for Appellant Shri. S.V. Nair, Supdt. (AR), for Respondent CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) Date of Hearing : 05/08/2015 Date of Decision : 05/08/2015

ORDER NO Per: M.V. Ravindran

1. This appeal is directed against order-in-appeal no. YDB/91/RGD/2011 dated 31/01/2011.

2. The relevant facts that arise for consideration are the appellants here-in availing services of foreign based on commission agents. During the period in question October 2006 to March 2008 appellants were required to discharge the service tax liability as per the provisions of section 66A of the Finance Act 1994 as a recipient of Services. Appellant discharged the service tax by debiting the same through Cenvat Account. It is the case of the department that appellant should have paid the service tax liability in cash and could not have utilized the Cenvat Credit. Both the lower authorities have held that appellant has to pay the amount in cash coming to the said a conclusion demand was confirmed along with interest and penalties were imposed.

3. Learned Counsel would take us through the provisions of Cenvat Credit Rules more specifically Rule 3 (4) (e) and submit that Cenvat credit may be utilized for payment of service tax of any output service. She would submit that the appellant has done precisely so. She would submit that the issue in this case is now settled by the Honble High Court of Gujarat in the case of Panchmahal Steel Ltd.-2015 (37) S.T.R. 965. It is her submission that this Tribunal in the case of TATA AIG Life Insurance-2015 (37) STR 570 (T) has held the same view. She produces the copies of the said case law.

4. Learned Departmental Representative would submit that the service on which the service tax is discharged is on the basis of reveres charge mechanism. He would submit that appellant has not provided any output service but have paid the service tax as a deemed output service provider. He would submit that the impugned order is correct and relies upon the Tribunals order in the case of Adishiv Forze Ltd.-2008 (9) STR 534.

5. We have considered the submission made at length by both sides and perused the records.

6. The issue involved in this case is whether the appellant is correct in utilizing the credit balance in Cenvat Account for discharging the service tax liability which is cast on the appellant as per provisions of Section 66 A of the Finance Act 1994.

7. It is undisputed that the Cenvat Credit in balance with the appellant is permissible and appellant is eligible to utilize the same. It is also undisputed that the service tax liability on the commission paid by the appellant to the agents situated abroad is on the basis of Reveres Charge Mechanism as provided under Section 66 A of the Finance Act 1994.

8. We have perused the provisions of rule to 3 (4) of the Cenvat Credit Rules 2004. Plain reading of the said sub-Rule 4 of Rule 3 indicates that Cenvat Credit may be utilized for the payment of service tax on any output service. We find from the provisions of Rule 2(r), which provides that provider of taxable service includes person who liable for paying service tax; Rule 2(p) provides that output service means taxable service provided by the provider of taxable service. Reading holistically, if the appellant is required to discharge the service tax under reverse charge mechanism, then it has to be conclude that he is provider of taxable service who provides output service. In our view, the lower authorities were incorrect in interpretation of the provisions and holding that appellant could not have utilised Cenvat Credit for discharge of service tax.

9. Our above views are fortified by this Tribunal in the case of TATA AIG Life Insurance (supra). We reproduce the relevant paragraphs.

5.?We have carefully considered the submissions made by both sides.

5.1?Prior to 19-4-06, Rules 2(p), (q) and (r) read as follows :-

(p)?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, and the expressions provider and provided shall be construed accordingly.

Explanation - For removal of doubt it is hereby clarified that if a person 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.

(q)?person liable for paying Service Tax has the meaning as assigned to it in clause (d) of Sub-Rule(l) of Rule 2, of the Service Tax Rules, 1994.

(r)?provider of taxable service include a person liable for paying Service Tax. w.e.f. 19-4-06, the provisions stood as follows :-

(p)?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, and the expressions provider and provided shall be construed accordingly.

(q)?person liable for paying Service Tax has the meaning as assigned to it in clause (d) of Sub-Rule(l) of Rule 2, of the Service Tax Rules, 1994.

(r)?provider of taxable service includes a person liable for paying Service Tax. 5.2?Thus, the only change in the legal provision is the omission of Explanation under Rule 2(p). An Explanation only clarifies the position. By omission of the explanation, the meaning does not undergo any change. Therefore, both prior to 19-4-2006 as also w.e.f. 19-4-2006, the meaning of the expression output service, provider of taxable service and person liable for paying Service Tax remain the same. Since in the case of Insurance Auxiliary Service, the liability to pay Service Tax is on the service recipient in terms of Rule 2(l)(d)(iii) of the Service Tax Rules, 1994, the appellants are the providers of the output service as defined in law. Therefore, the appellants are entitled to avail Cenvat Credit on the input services used for providing the output service. Consequently, there is no bar in utilization of Cenvat Credit for payment of Service Tax on Insurance Auxiliary Service by the appellants. This is the settled legal position as can be seen from the decisions of the Honble Punjab & Haryana High Court and Honble Delhi High Court in the case of Nahar Industrial Enterprises Ltd., Nahar Spinning Mills and Auro Spinning Mills & Hero Honda Motors Ltd. (supra). The Honble Delhi High Court rejected the contention of the Revenue that recipient of Goods Transport Agency service has to discharge Service Tax liability in cash as they were only recipient of Service and not the provider on the ground that a fiction has been created under Section 68(2) of the Finance Act, 1994 deeming the service recipient as a service provider and, therefore, such legal fiction has to be given full effect. Similarly, in the case of Kansara Modler Ltd. (supra) this Tribunal has held as follows :-

If we read Rule 2(q) of Cenvat Credit Rules with Rule 2(l)(d)(iv), we find that appellant is a person liable to Service Tax. Once appellant is person liable to service tax, he becomes provider of taxable service under Rule 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. We find that Rule 5 refers to availing of Cenvat credit and not to utilization of credit. We are therefore of the view that the finding of the Commissioner not treating the appellant as output service provider, is not correct and accordingly we set aside the impugned order and allow the appeal. 5.3?In view of the above decisions of the various High Courts, the decisions of the Tribunal relied upon by the Revenue become irrelevant. Accordingly, we hold that the appellants in present appeals were entitled to utilize Cenvat Credit of the Service Tax paid on various input services for discharge the Service Tax liability on the output service of Insurance Auxiliary Service.

5.4?We also note that there is no one to one correlation required between the input service and the output service under the Cenvat Credit Scheme and, therefore, the demands confirmed against the appellants for recovery of Cenvat Credit availed by them for discharging Service Tax liability on Insurance Auxiliary Service is clearly unsustainable and accordingly, we set aside the same.

10. We also note that the above said views of the tribunal are endersed by the Honble High Court of Gujarat in another case of Panchmahal Steel Ltd. (supra). We reproduce the relevant paragraph.

8?Rule 3 of the Cenvat Credit Rules, 2004 pertains to Cenvat credit. Sub-rule (1) thereof allows the manufacturer or purchaser of final products or provider of output service to take credit of Cenvat of various duties specified therein. Sub-rule (4) of Rule 3 of the said Rules provides that the Cenvat credit may be utilized for payment of various duties specified in clauses (a) to (e) thereof; clause (e) pertains to Service Tax on any output service. A combined reading of these statutory provisions would, therefore, establish that though the assessee was liable to pay Service Tax on G.T.A. Service, it could have utilized Cenvat credit for the purpose of paying such duty. In view of the decisions of Punjab and Haryana High Court and Delhi High Court noted above, we do not find any error in the view of the Tribunal. Tax Appeal is, therefore, dismissed.

11. In view of the forgoing and the authoritative judicial pronouncement, we hold that the impugned order is incorrect and unsustainable. The impugned order is set aside and the appeal is allowed with consequential relief, if any.

(Dictated in Court)

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

akp

1 APPEAL No.ST/283/11