TMI Blog2012 (8) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 4-7-2011 - Justice R.M.S. Khandeparkar, Shri Rakesh Kumar, JJ. REPRESENTED BY : Shri R.K. Hasija, Advocate, for the Appellant. Shri I. Beg, DR, for the Respondent. [Order per : Rakesh Kumar, Member (T)]. The appellant are manufacturers of manmade blended yarn chargeable to Central Excise Duty under Chapter 55 of the Central Excise Tariff. They are also registered for payment of service tax as they are liable to pay service tax as service recipient in respect of receipt of the taxable services of goods transport agency service and business auxiliary service received from overseas agents for procuring export orders. The appellant are also availing the facility of Cenvat credit of Central Excise Duty paid on inputs and capital goods and service tax paid on input services as per the provisions of Cenvat Credit Rules, 2004. The point of dispute is as to whether business auxiliary service of procuring export orders received from overseas agents, not having any office or business establishment in India, can be paid through Cenvat credit or whether the same are required to be paid in cash. The department is of the view that the business auxiliary service of procurin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uxiliary service received from foreign service providers, are deemed providers of taxable service , that since they are deemed providers of taxable service , the service of business auxiliary service received from foreign service providers would be deemed to be their output service , that if the intention was not to allow the person liable for paying service tax on the service received through Cenvat credit, there would be no requirement for defining the term provider of taxable service to include a person liable for paying service tax, that any interpretation that makes any part of the statute redundant is to be avoided, that adopting an interpretation that the person liable to pay the service tax is not entitled to Cenvat credit would lead to absurdity and injustice, that in the present case, the appellant are receiving services of procuring export orders (Business Auxiliary Service) from overseas commission agents who do not have a office or business establishment in India and the case is covered under Section 66A of the Finance Act, 1994, that, therefore, the appellant are the person liable for paying service tax as per Rule 2(1)(d)(iv) of Service Tax Rules, 1994 through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and in this regard reliance is placed on Hon ble Supreme Court s judgment in the case of CCE, Jaipur v. Raghuvar (India) Ltd. reported in 2000 (118) E.L.T. 311 (S.C.), that even if the appellant are required to pay the service tax on business auxiliary service received from foreign service provider in cash they would be eligible for Cenvat credit and thus the entire exercises is revenue neutral and hence there is no question of sustaining the duty demand, that no penalty under Section 76 or 77 is imposable on the appellant, that the appellant have a strong prima facie case and, hence, the requirement of pre-deposit of service tax demand, interest and penalty may be waived for hearing of these appeals. 2.2 Shri I. Beg, the learned Departmental Representative, opposed the appellant s plea for waiver from the requirement of pre-deposit and reiterating the findings of the Commissioner (Appeals) pleaded that the service of receiving export orders from the agents abroad (business auxiliary service) is an input service for the appellant not an output service, that term output service is defined in Rule 2(p) of Cenvat Credit Rules, 2004 according to which the output service m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 1994 readwith Rule 2(1)(d)(iv) of Service Tax Rules, 1994, cannot be treated as their output service and, hence, service tax on the same is required to be paid through cash and not through Cenvat credit. It is on this basis that the service tax demands have confirmed against the appellant alongwith interest and penalties have been imposed on them. For deciding the question of waiver from the requirement of pre-deposit of service tax demand, interest and penalty, it is necessary to see whether the appellant have a prima facie case or not. For considering this question, it will be worthwhile having a look at some of the relevant provisions. 4.1 While Section 66 of the Finance Act, 1994, the charging section provides for levy of service tax at the rate specified in it on the value of taxable services referred to in various clauses of Section 65(105) of Finance Act, 1994, Section 66A provides that where any of the services specified in Section 65(105) are provided by an offshore/foreign service provider having fixed establishment or permanent address or usual place of residence in country other than India and which is received by a person having place of business, fixed es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envat Credit Rules is to enable a service receiver, who is liable to pay service tax on the service received, duties to avail Cenvat credit of the service tax paid by him. 4.1.2 Rule 2(p) during the period of dispute defined output service as 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 expression provider and provided shall be constitute accordingly. Thus, the output service is the service which has been provided by provider of taxable service and it has been provided to some customer, client subscriber, policy holder or any other person or in other words to some clients or customers of the provider of taxable service. As discussed above, the term provider of taxable services would include not only the person who actually provides some taxable service but would also include the person who has received some taxable service in respect of which he is liable to pay the service tax by virtue of the provisions of Rule 2(1)(d) of Service tax Rules. 5. A service for being called out for output service under Rule 2(p) must satisfy two conditions - (i) it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as output service for the purpose of availing credit of excise duty paid on any input or service tax paid on any input services under Cenvat Credit Rules, 2004. When a person in India, receiving taxable service provided from outside India, on which he is liable to pay the service tax, is by the legal fiction of Rule 2(r) of Cenvat Credit Rules, 2004 is deemed to be the provider of taxable service and by virtue of this legal fiction he can avail the Cenvat credit of the service tax paid on this imported service, for treating the service so receive from offshore service provider as his output service another legal fiction would be required which is not there in the rules. Therefore, treating the service received from offshore service provider as output service of the service recipient would amount to invoking another legal fiction for which there is no provision. 6. The appellant in support of their contention that the business auxiliary service being received by them from offshore service providers, in respect of which the appellant are liable to pay service tax, must be deemed to be their output service , have cited a number of judgments. We have gone through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived by him cannot be treated as the service provided to his client, a customer. Since in terms of Rule 3(4) of Cenvat Credit Rules, 2004 the Cenvat credit can be utilised for payment of - (a) any duty of excise on any final product or; (b) an amount equal to Cenvat credit taken on inputs, if such inputs are removed as such or after being partly processed; (c) an amount equal to Cenvat credit taken on capital goods if such capital goods are removed as such or ; (d) an amount under sub-Rule (2) of Rule 16 of Central Excise Rules, 2002 or ; (e) service tax on any output service. and since payment of service tax on service received is not mentioned in Rule 3(4), we are of the prima facie view that the service tax payment by a service receiver cannot be made by utilising the Cenvat credit. The appellant have also cited the Board s letter No. B-1/4/06-TRU, dated 19-4-2006 clarifying that internationally, the services provided by a foreign supplier to a domestic customer are subjected to VAT/GST under reverse charge or tax shift mechanism, that under reverse charge mechanism a legal fiction is created treating as if the recipient has himself provided has t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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