2016 (7) TMI 1709 - AT - Service Tax

Whether the Cenvat Credit availed on manufacturing activity can be utilized for discharging the deemed liability on payment made for technical know-how to the provider of service located outside India - Held that - the issue is squarely covered by the precedent ruling of this Tribunal in the case of Kansara Modler Ltd. Vs. CCE 2014 (1) TMI 1095 - CESTAT NEW DELHI and the Hon ble High Court of Punjab and Haryana in Nahar Industrial Pvt. Ltd. 2010 (5) TMI 608 - PUNJAB AND HARYANA HIGH COURT . Accordingly the appellant is the person liable to pay service tax for the technical know-how which is received from outside India as such he is provider of taxable service under Rule 2(r) and consequently becomes output service provider under Rule 2(p) of CCR. Further Rule 5 of Taxation of Service (Provided from Outside India & Received in India) Rules 2006 refers to availing of Cenvat Credit and not to utilization of credit. Accordingly I hold that the Ld. Commissioner (Appeals) is in error in not treating the appellant as output service provider. Therefore the impugned orders are set aside. - Decided in favour of appellant

Summary

Issues:
Whether Cenvat Credit on manufacturing activity can be used for paying for technical know-how received from a foreign provider.

Analysis:

The manufacturer-assessee filed appeals against an Order-in-Appeal passed by the Commissioner (Appeals) regarding the utilization of Cenvat Credit for payment made for technical know-how received from a foreign provider. The appellant argued that the technical know-how received should not be subject to service tax as it involved a permanent transfer of intellectual property rights. The Department demanded service tax on the know-how received, which the appellant paid using Cenvat Credit and also paid interest to avoid disputes. The issue revolved around whether the Cenvat Credit could be utilized for such payments. The Joint Commissioner demanded service tax again, alleging incorrect utilization of Cenvat Credit, which the Commissioner (A) upheld based on certain circulars. Another show cause notice was issued for denying Cenvat Credit taken, as it appeared the service tax was not paid in cash but debited from the Cenvat Credit account.

The appellant argued that the impugned order was flawed as it did not consider previous Tribunal rulings that stated Rule 5 of Import of Service Rules does not restrict Cenvat Credit utilization. The appellant cited cases where it was held that once an assessee becomes an output service provider, they are eligible to use credits for discharging service tax liability. The Tribunal in a previous case set aside an order that did not treat the appellant as an output service provider, emphasizing that Rule 5 refers to availing, not utilization, of Cenvat Credit. The appellant sought the appeals to be allowed with consequential benefits.

After considering the arguments, the Tribunal found that the issue was covered by precedent rulings. It held that the appellant was liable to pay service tax for the technical know-how received, making them an output service provider under the Cenvat Credit Rules. The Tribunal clarified that Rule 5 of Taxation of Service Rules pertains to availing, not utilization, of Cenvat Credit. Consequently, the Commissioner (Appeals) erred in not treating the appellant as an output service provider. The appeals were allowed with consequential benefits, and the impugned orders were set aside.