Admissibility of Service tax paid on Non-taxable service of Goods Transport by rail before 01.05.2006

PJ/Case Laws/2011-12/1534

Case: Sterlite Industries (I) Ltd. V/s Commissioner of C. Ex., Tirunelveli

Citation: 2012 (25) S.T.R. 66 (Tri. – Chennai)

Issue:- Cenvat Credit taken on Goods Transport by Rail service before 01.05.2006 when no service tax levied – whether available?

Brief Facts:- During March 2006 to April 2006, the appellants entered into a con-tract with the transport agencies to carry copper anodes from Tuticorin to Sil-vasa. For this period, the appellants paid Rs. 85,51,033/- towards transportation charges to the transport agencies and on such transport charges, as a service recipient, they paid service tax of Rs. 2,25,702/-. The appellants subsequently took credit of the service tax amount. During audit it was found that the transport of goods was done in container by rail. It is the contention of the Department that transport by rail was not liable for payment of service tax prior to 1-5-2006 and hence for the impugned period the appellants were not eligible for taking service tax credit for the service which was not taxable.

Appellant’s Contention:- It has been argued on behalf of the appellants that they had entered into contracts with the transporters for carrying the impugned goods through road transport only but due to transport strike the road transporters on their own carried the goods from Tuticorin to Vapi in Gujarat by rail and from the appellant's factory to the rail head and from the rail head at Vapi to Silvasa the goods were carried by road partly. It has also been argued on behalf of the appellants that they have taken credit of only the tax amount which they have paid and therefore the demand against them is not sustainable nor are they liable to pay i any interest or penalty.

Reasoning of Judgement:- It has not been contested by the appellants that service tax was not payable in respect of rail transports. The Department has also proceeded on the basis that rail transport service was not taxable prior to 1-5-2006. Hence, the tax amount of Rs. 2,25,702/- which was paid by the appellants was not at all due to 1 the exchequer. However, the amount has been paid by the appellants mistakenly believing that the same was payable and they have also taken the credit of the same under the bona fide belief that such credit was available. Considering the . fact that the appellants have taken only credit of tax paid by them which in the first instance was not payable, there can be no demand against them as no revenue has been lost to the exchequer by merely taking credit of the amount which in the first place not recoverable from them. Hence, ends of justice would be met if the demand is set aside along with the demand of interest and penalty. The view taken by me above finds support from the decision of the Hon'ble High Court of Punjab and Haryana in the case of M/s. V.G. Steel Industry v. C.C.E., 2011-TIOL-338-HC-P&H = 2011 (271) E.L.T. 508 (P & H), where it has been held that when duty was paid in excess of what was payable, CENVAT credit cannot be denied unless the excess duty paid has been refunded.

Decision:- Appeal allowed.

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PJ/Case Laws/2011-12/1534

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