Cenvat-credit eligibility in reverse-charge cases bars invocation of the extended limitation period.

The appellant, a manufacturer registered for service tax, paid various service providers for manpower recruitment or supply services during 1 July 2012 to 31 March 2014.

The Department alleged that, as recipient, the appellant was liable to pay service tax under reverse charge and issued a show-cause notice demanding Rs. 4,69,087, with interest and penalties.

The adjudicating authority confirmed the demand and imposed penalties. On appeal, the Commissioner (Appeals) upheld a demand of Rs. 2,12,386 with interest and reduced the Section 78 penalty to Rs. 1,06,193.

Before the Tribunal, the appellant argued that the demand was revenue-neutral because it could claim Cenvat credit, and that the extended limitation period was unavailable because the transactions were recorded in its books and the tax liability was disputed bona fide.

The Tribunal applied the reverse-charge provisions of the Finance Act, 1994, including Sections 68(2), 73 and 75, and Notification No. 30/2012-ST, which placed the service-tax payment obligation on the recipient in the circumstances applicable to the case.

Under Rules 3(1)(vii), 4(7) and 9 of the Cenvat Credit Rules, 2004, credit of service tax paid under reverse charge is conditional and becomes available only upon payment; eligibility for credit does not itself extinguish the underlying tax liability. Relying on Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd., the Tribunal treated Cenvat credit as a concession governed by the Rules, rather than an accrued right independent of payment.

However, where a reverse-charge recipient is eligible for corresponding Cenvat credit, the Tribunal held that the extended limitation period cannot be invoked; it relied on South Eastern Coalfields Ltd. v. Commissioner, CGST, Customs & Central Excise.

The Tribunal also referred to Commissioner of Central Excise and Service Tax, Indore v. Cummins Technologies India Ltd. on the applicability of the service-tax provisions to a recipient liable under reverse charge.

The Tribunal rejected revenue neutrality as a defence to the underlying tax liability: the appellant’s obligation to pay tax under reverse charge was not conditional on its entitlement to credit, and credit could arise only after payment in accordance with the Cenvat Credit Rules.

It nevertheless accepted the limitation argument. Because the demand was under reverse charge and the appellant was eligible for corresponding Cenvat credit, the Tribunal applied the principle in South Eastern Coalfields and held that the extended period was not invocable.

It therefore set aside the Section 78 penalty but preserved any demand falling within the normal limitation period.

The appeal was allowed in part. The Section 78 penalty was set aside; any demand for the normal period, with interest, was upheld, as was the Section 77 penalty. The impugned order was modified accordingly.