Mode of Payment of Service tax on GTA service before 18.04.2006

PJ/Case Laws/2011-12/1310

Case: Commissioner of Central Excise & Service Tax v/s The Supreme Industries Ltd.

Citation: 2011-TIOL-1082-CESTAT-MUM

Issue:- Whether service tax on GTA service received is required to be paid in cash even before 18.04.2006?

Brief Facts:- Respondent-assessee is engaged in the manufacture of Moulded Plastic articles such as Furniture, Crates falling under heading 94.01 and 39.23 respectively. They paid service tax on transport of inputs (GTA service) through CENVAT credit.

Department initiated proceedings against them on the ground that respondent had wrongly debited service tax to CENVAT credit amounting instead of paying through PLA. Accordingly, recovery of cenvat credit was ordered and penalty of equal amount under Rule 15(2) of Cenvat Credit Rules, 2004 and penalty of Rs. 3000/- under Rule 15(3) of CENVAT Credit Rules, 2004 and penalty of Rs.4000/- under Rule 25(1)(a)/25(1)(d) of Central Excise Rules, 2002 were imposed.

Respondent challenged the order in original. The Commissioner (Appeals) allowed the appeal. Aggrieved by the same, Revenue filed present appeal before the Tribunal.

Appellant’s Contention:- Revenue contended that prior to 19.04.2006 irrespective of whether a person provided taxable service and/or manufactured dutiable final products or did not provide any taxable service or manufactured any dutiable final products, he was required to pay the service tax on the GTA service received by him in cash, not through CENVAT credit. It was submitted that this issue has been decided by Delhi Bench of the Tribunal in the case of M/s ITC Ltd. vs. Commissioner of Central Excise, Guntur [2011-TIOL-568-CESTAT-BANG].

In rejoinder, Revenue submitted that Panchmahal Steel Ltd. case is referred in the Tribunal decision in the case of M/s ITC Ltd. It was further submitted that the president of CESTAT decides the constitution of Larger Bench and in M/s ITC Ltd.'s case the President was one of the Members. Therefore, it is implied that the issue in the case of Panchmahal Steel Ltd. stands settled.

With regard to issue of jurisdiction, Revenue countered the said submission that the Circular does to relate to appeal to be filed with the Tribunal, in support they also placed reliance on Board's Circular no. 834/11/2006-CX, dated 5.10.2006 which provides that "all show-cause notices pending adjudication, as on the date of issue of acceptance letter will be transferred to the LTU along with all connected case papers. Cases that are in the process of being adjudicated (i.e where personal hearings have been conducted) will be decided by the jurisdictional adjudicating authority only".

Respondent’s Contention:- Contention of the respondent is that the issue has been referred to Larger Bench in the case of Panchmahal Steel Ltd. vs. Commissioner of C.Ex. & Cus., Vadodara-II 2008-TIOL-1606-CESTAT-AHM] and that the case has not been decided so far. Therefore, it was submitted that the case should be remanded to lower authority.

Thereafter, respondent raised objection regarding jurisdiction on the ground that since the case pertains to period prior to them opting for LTU, the same would fall under the jurisdictional Tribunal in view of the Board's Circular dated 10.06.2010.

Reasoning of Judgment:- On the issue of jurisdiction, the Tribunal held that the perusal of the circular clarified that the said circular did not relate to appeal filed with the Tribunal. Objection of respondent assessee was overruled.

On the main issue of payment of service tax on GTA service, it was noted that the issue was discussed at length by the Delhi Tribunal in the case of M/s ITC Ltd v/s Commissioner of Central Excise, Guntur wherein it was held that

“there were two type of persons receiving taxable service who are “deemed provider of taxable service” under Rule 2 (r) by virtue of being the “person liable for paying service tax” under Rule 2 (q) of CCR, 2004 read with Rule 2 (1) (d) of STR, 1994 –

(a)        Those who provide a taxable service/services or manufacture dutiable final products or provide taxable services as well as manufacture dutiable final products.

(b)        Those who do not provide any taxable service or manufacture any dutiable final products – the category to which the appellant belong.

It was further held therein that before 19.04.2006, the legal fiction of explanation to Rule 2 (p) is applicable only to persons of category (b) and not to category (a) persons. Therefore for such persons, the service received by them on which they are liable to pay service tax as service recipient can not be treated as their “output service” and service tax on the same will have to be paid in cash, not from Cenvat credit. As Rule 3 (4) permits utilisation of Cenvat credit for payment of central excise duty on dutiable final products or payment of service tax on taxable output service, it was held that for category (a) persons, the taxable service received by them remained their input service on which credit can be availed and use of the same for payment of duty on their final product being manufactured by them or for paying service tax on taxable output service being provided by them.

With regard to persons falling under category (b), to which assessee belonged, it was held in the said judgment that even though during period prior to 19.04.2006, by virtue of explanation to Rule 2 (p), the service received by them was deemed as output service, they could not take credit in respect if other taxable services received or input duty credit in respect of duty paid goods received, as they are not manufacturing any dutiable final product or providing any taxable service. In terms of provisions of Rule 3 (1) of CCR, 2004, credit of service tax paid on inputs/capital goods received can be taken only if the input services received and inputs and capital goods received are used in or in relation to manufacture of final products or providing of taxable output services. For the persons of category (b), in respect of their deemed output “service” which is the service received by them can not be deemed to be the input services received by them cannot be deemed to be the input services, as for this another legal fiction will be required, which is not there in the CCR, 2004. In the facts of the said case, it was held that since the appellant are not manufacturing any final product or providing any taxable services, the services of telephone, security services, repair and maintenance services, scientific or technical consultancy services etc, cannot be treated as the input services for their “deemed output service” i.e. GTA service received by them. Therefore, in respect of GTA service received by the Appellant, there is no question of payment of service tax through Cenvat credit account and the same has to be paid in cash.

Accordingly, it was concluded in the case of ITC Ltd that during the period prior to 19.04.2006 irrespective of whether a person provided taxable service and/or manufactured dutiable final products or did not provide any taxable service or manufactured any dutiable final products, he was required to pay the service tax on the GTA service received by him in cash, not through Cenvat credit.”

In the present case, it was held that the judgment of the Delhi Tribunal was squarely applicable in the facts of this case. With regard to pendency of the issue before Larger Bench of Tribunal, it was held that the issue was settled.

Thus, it was held that the service tax paid on GTA service received by them by the appellant who was not paid in cash but was paid through CENVAT credit account the same would be recoverable from them. From the above, it is clear that the issue relating to payment of service tax on GTA service through cash was in dispute; the penalty is not sustainable and is liable to be set aside. Therefore, the order-in-appeal dropping the demand along with interest is set aside and Revenue's appeal is allowed to the above extent.

Decision:- Appeal disposed of accordingly.

Comment: - There were many decisions in this case in favour of assessee but this decision has been reversed the same. Even there was High Court decision on this issue but the tribunal has given the decision in favour of revenue. The legal battle will not end here and the matter will go to Court and will be settled there. Let us wait and watch.

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PJ/Case Laws/2011-12/1310

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