Payment of Service Tax on GTA from Cenvat credit

PJ/Case Laws/2010-11/1063

Case: Commissioner of Central Excise, Chandigarh v/s M/s Winsome Yarns Ltd

Citation: 2011-TIOL-105-CESTAT-DEL

Issue:- Payment of GTA can be made from cenvat credit.

Brief Facts:- Respondent are engaged in the manufacture of cotton yarn and cotton blended yarn. They were also registered with the department for service tax in respect of goods transport agency, as deemed provider of services.

Respondent discharged their service tax liability for GTA service for the period from January 2005 to November 2005 by utilizing cenvat credit on inputs/input services/capital goods.

Revenue was of the view that the respondent was not entitled to use the otherwise earned cenvat credit for payment of central excise tax on GTA services so availed by them. Show cause notice was issued to the respondent and order was passed confirming the demand and imposing penalty.

In appeal, the Commissioner (A) set aside the impugned order and held that a person who is liable to pay service tax is considered to be providing an output services, as such the deemed services provider is liable to pay service tax, so the output service provider could utilise the cenvat credit earned for discharge of service tax on such output services. The Commissioner (A) had considered the explanation under Rule 2 (p) of CCR, 2004 which was omitted w.e.f. 19.04.2006. Accordingly, it was held that as demand pertaining to the period from Jan 2005 to November 2005 i.e. before such Rule was omitted, there was no restriction for utilizing Cenvat credit for discharge of service tax on GTA services.

The Commissioner (A) had also relied upon the judgments given in the cases of Bhushan Power & Steel Ltd v/s CCE [2008 (10) STR 18 (Tri-Kol)], India Cement Ltd v/s CCE [2007 (7) STR 569 (Tri-Chennai)], Andhra Pradesh Paper Mills v/s CCE [2007 (8) STR 1669 (Tri-Bang)], Soundaraja Mills Ltd v/s CCE [2008 (223) ELT 203 (Tri-Chennai)], CCE v/s Rishabh Spinning Mills Ltd [Final order No. 1070-71/2008-SM (BR) dated 03.07.2008], CCE hd v/s Nahar Exports Ltd [2008 (223) ELT (Tri-Del)].

Revenue is in appeal against the order of the Commissioner (A).

Appellant’s Contentions:- Revenue contended that the decisions relied upon by the Commissioner (Appeals) have not been accepted by the department and appeal is filed and pending before the respective High Courts against such decisions.

Respondent’s Contentions:- Respondent-assessee relied upon the judgment dated 06.05.2010 of the Punjab & Haryana High Court wherein the appeal of Revenue in the case of M/s Nahar Industrial Enterprises Ltd and number of other judgments was dismissed.

Reasoning of Judgment:- The Tribunal noted that the High Court had observed that in terms of Para 2.4.2 pf CBEC Excise Manual of Supplementary Instructions, there is no legal bar to the utilisation of cenvat credit for the purpose of payment of service tax on GTA services. It was further observed that apart from the above, even as per Rule 3 (4) (e) of the Cenvat Credit Rules, 2004 the cenvat credit may be utilised for payment of service tax on any output services. Accordingly, the High Court had dismissed the Revenue’s appeal by observing that the Commissioner (A) as well as the Tribunal have rightly held that the respondents were entitled to pay service tax from cenvat credit.

The Tribunal held that the issue involved in present appeal is decided by the Punjab & Haryana High Court. Order of the Commissioner (A) upheld.

Decision:- Appeal rejected.

Comment:- This issue is still raised by audit parties in many cases. Even after the High Court decision in the matter, the Commissioner (Appeal) is deciding in favour of revenue. Thus litigation is being continued.

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PJ/Case Laws/2010-11/1063

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