Top Stories Input Tax Credit Can be Claimed on Service Received from a Foreign Service Provider: CESTAT Grants Relief to Ericsson India [Read Order] The bench held that the service received by the appellant from the Foreign Service Provider is clearly an Input Service under the provisions of the Service Tax Rules By Amal Michael – On January 30, 2024 12:02 pm – 2 mins read A two member bench of CESTAT has held that liability of the service tax under reverse charge mechanism will arise only w.e.f. 18.04.2006 in case the services are provided by a person located outside India to a person located in India.

The assessee, Ericsson India Pvt Ltd contended that the challenged order lacks legal sustainability as it was issued without proper consideration of the facts, applicable law, and binding judicial precedents. Additionally, she contends that the Adjudicating Authority, in the impugned order, rejected the CENVAT credit of Service tax paid under the reverse charge mechanism under Rule 2(1)(d). This denial was based on the assertion that the appellant was not obligated to pay service tax on the import of services before 18.04.2006, rendering them ineligible to claim CENVAT credit for the tax paid voluntarily. Furthermore, she emphasizes that there was ambiguity during the relevant period regarding the legal aspect of the service recipient’s liability to pay Service tax under the reverse charge mechanism.

This uncertainty extended from August 2002 to 17.04.2006, particularly concerning services provided by a non-resident service provider. The counsel then proceeded to outline a series of developments that occurred to clarify the legal position on this matter. The assessee argued that through the Finance Act of 2005, an explanation was introduced into Section 65(105) with effect from 16.06.2005. This explanation stipulates that a service rendered by an individual from their office or business location outside India, and received by an entity with its office or business premises in India, shall be considered a taxable service. Revenue contended that the conclusions in the challenged order were supported by citing the decision of the Tribunal in the matter of Swarnandhra IJMII Integrated Township Development Co. Pvt. Ltd. vs. Commissioner of Customs, Central Excise & Service Tax, Hyderabad.

The two judge bench composed of S.S. Garg(Member, Judicial) and P. Anjali Kumar(Member, Technical) held that the assessee is entitled to CENVAT credit for the service tax paid under the reverse charge mechanism for services received from a Foreign Service provider. The bench observed that “ the Board has clarified the issue vide its Circular dated 26.09.2011 declaring that the liability of the service tax under reverse charge mechanism will arise only w.e.f. 18.04.2006 in case the services are provided by a person located outside India to a person located in India.  Further, we find that the service received by the appellant from the Foreign Service Provider is clearly an Input Service under the provisions of the Service Tax Rules.” Assessee was represented by Krati Singh and Shreya Khunteta, Revenue was represented by Sidharth Jaiswal and Nikhil Kumar Singh.