Dr. Sanjiv Agarwal

The nature of taxable services at the service provider’s end decides the classification of taxable services by the service provider as per the provisions of section 65A of the Finance Act, 1994. Based on such classification, service provider obtains the service tax registration, pays service tax and files service tax return. The same classification is used for cenvat credit purpose. The issue which is being discussed is whether the classification of taxable services can be questioned and by the Department at the service receiver’s end, when it comes to Cenvat credit or otherwise?

For example, if a chartered accountant has rendered some service, for a chartered accountant service provider, it is chartered accountant’s services but at the service receiver’s end, can it be treated as management consultancy service or some other service ? The disputes arise or may arise at the receiver’s end when it avails cenvat credit since there are sixteen services on which 100 percent cenvat credit is allowed under Rule 6(5) of the Cenvat Credit Rules, 2004.

Further, it is also true that service tax has been paid by service provider under ‘Management Consultant Service’ and returns filed in form ST-3 under the said classification by service provider . Hence, once the classification of service provider under the category of Management Consultant’s services has been accepted by the Department and service tax paid thereon is also accepted, it is not open to Department to deny the credit of the said service tax paid to the at the service receiver’s end. Department can not dispute this, ie, for changing the classification

or for that matter denying the credit. This also gets substantiated from the ratio of following judgments/CBEC Instructions —

   (i)      Sarvesh Refractroies Pvt Ltd v. CCE & C 2007 (218) ELT 488 (SC)

   (ii)     CCE & C v. Purity Flexpack Ltd 2008 (223) ELT 361 (Gujarat)

   (iii)    CCE & C v. MDS Switchgear Ltd. 2008 (229) ELT 485 (SC)

   (iv)    Hindustan Lever Ltd. -2000 (121) ELT 437 (T)

   (v)     Hindustan Coca Cola Beverages Pvt. Ltd. v. CCE, Meerut-II (2010) 19 STR 280 (Cestat New Delhi).

   (vi)    Manikgarh Cement v. CCE, Nagpur (2010) 20 STR 600 (Cestat, Mumbai)

   (vii)   CBEC Circular No. 877/18/2008-CX dated 17.11.2008-2008 (232) ELT T-3A-45

In Pacific Exports v. CCE, Ahmedabad, (2013) 31 STR 14 (Cestat, Ahmedabad), on rejection of a refund claim due to wrong classification of service, it was held that it is settled law that re-classification of services cannot be done at recipient’s end.

The classification of taxable service can not be altered at the recipient end. The classification of service as provided by service provider to receiver may never have been disputed and challenged at the end of service provider of such service, and in such cases it could not be challenged at the receiver end being out of jurisdiction.

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