There is no legal bar for utilization of Cenvat credit for payment of Service Tax on GTA service by the deemed service provider.

PJ/Case Laws/2012-13/1516

Case:-COMMR. OF CUS., C.EX. & S.T., HYDERABAD Versus ASTER TELESERVICES (P) LTD.

Citation:-2013(29) S.T.R. 475 (Tri.-Bang.)

Brief Facts:- The respondent was engaged in the manufacture of excisable goods during the material period (April 2007 to February 2008). During the said period, they were utilizing the service of “Goods Transport Agencies” (GTA) for bringing inputs in their factory as well as clearing final product from factories. They were also paying the service tax on the       GTA service by the virtue of the relevant provisions of the Service Tax Rules, 1994. They took Cenvat credit of the service tax so paid and utilized the same for payment of duty of excise on their final products. A dispute arose between them and the department as to whether, for payment of service tax on GTA services to the extent CENVAT credit of service tax paid on other input services and duty of excise paid on inputs, such inputs service and inputs having been utilized in, or in relation to, manufacture of final product. The dispute made its way into Show Cause Notice wherein service tax of Rs. 2,00,274/- (education cess included) was demanded as service tax short paid on GTA services to the extent CENVAT credit was utilized, and penalties were proposed. It appears from the order- in-original that the demand was raised on GTA services used for outward transportation of final products from factory. Aggrieved by that order, the assessee preferred an appeal to Commissioner (Appeals) and obtained relief. The appellant authority considered the assessee as provider of GTA services and, accordingly, held services/inputs credit, for payment of service tax on GTA services was in order. The appellant Commissioner’s order was reviewed in the department and, accordingly, the present appeal was filed.

Appellant Contentions:- The learned Superintendent (AR) refers to the definition of “output service” [Rule 2(p) of the CENVAT credit Rules,2004] as also to the definition of “input service”[Rule 2(1) of the CCR, 2004] and submits that , with the omission of explanation to Rule 2(p), GTA service availed by a manufacturer of excisable products for clearance of such goods from factory can hardly be treated as “output service” and consequently no CENVAT credit (whether of service tax paid on any input service or of excise duty paid on input) could be utilized to pay service tax on the GTA service .
According to learned Superintendent (AR) has relied on a few decisions also, cited below:

·         ITC Ltd. v. Commissioner of C. EX., Guntur [2001(23) S.T.R. 41 (Tri.-Bang.)]

·         UNI Deritend Ltd. v. Commissioner of Cus. & C.EX., Nagpur [2012(25) S.T.R.-475(Tri.- Mumbai)]

·         CCE, Ghaziabad v. M/s. BPL Display Devices Ltd.[2011-TIOL-841-CESTATE-DEL= 2011 (23)S.T.R. 356(Tri.)]

Respondent Contentions:- The learned counsel for the respondent refers to a few definitions given under Rule 2 of the CCR, 2004 viz. “output service” , “person liable for paying service tax”, “provider of taxable service” etc. She also points out that the demand raised in the show-cause notice was apparently based on the then existing Explanation to Rule 2(p) of the CCR, 2004. It is submitted that this Explanation was applicable only to a person who was neither manufacturer of final products nor provider of output service and was not applicable to the respondent who was a manufacturer of excisable goods. Further it is submitted that the definition of “output service” itself was substantially amended with effect from 1-3-2008, whereby GTA service came to be specially excluded from ambit of the definition. Impliedly, before the said amendment of the definition of “output service”, GTA service was very much within the ambit of “output service”. In this context, it is further submitted that the definition of “person liable for paying service tax” and “provider of taxable service” have ever remained unchanged. The respondent was admittedly liable for paying service tax on GTA service by virtue of Rule 2(1) (d) of Service Tax Rules, 1994 and, for that matter, squarely fell within the scope of the definition of “provider of taxable service”. It would follow that the respondent should be deemed to have provided GTA service during the period of dispute and, consequently, be entitled to utilize CENVAT credit for payment of service tax thereon. The following decisions have been cited in support of these arguments:
·         Commissioner of C.Ex., Chandigarh v. Nahar Exports Ltd. [2008(9) S.T.R. 252 (Tri.- Del.) = 2008 (223) E.L.T.205 (Tri.- Del.)]

·         Commissioner of C.EX., Chandigarh v. Nahar Industrial Enterprises Ltd. [2012 (25) S.T.R. 670(Tri.-Del.)]

·         Shree Rajasthan Syntex Ltd. vs Commissioner of C.Ex., Jaipur [2011(24) STR 670 (Tri.-Del)]

·         Final Order No. 838/2011, dated 11.11.2011 in Service Tax Appeal No. 1583 of 2010 (M/s Hind Spinners vs Commissioner of C.Ex., Bhopal)

Reasoning of Judgment:- We have considered the submission from both sides and we have peruse the record. The period of dispute in this case is from April 2007 to February 2008. As both sides elaborately argued with reference to an Explanation to Rule 2(p) (definition of ‘output service’ ) this provision is reproduced below:

“(p) “output service” means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions ‘provider’ and ‘provided’ shall be construed accordingly;

Explanation – For the removal of doubts it is hereby clarified that if person liable for paying service tax does not provide any taxable service or does not manufacture final product, the service for which he is liable to pay service tax shall be deemed to be the output service”

The above Explanation was omitted with effect from 19-7-2006.i.e., prior to the period of dispute. The definition of “output service” itself was amended with effect from 1-3-2008,i.e. after the period of dispute. Though this amendment does not have retrospective effect.

“(p) output service” means [any taxable service, excluding the service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act provided by the provider of taxable service], to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions ‘provider’ and ‘provided’ shall be construed accordingly”

It has been argued by the learned counsel for the respondent that, as GTA service (the taxable service referred to in Section 65(105)(zzp) of the Finance Act, 1994) was specially excluded from the definition of “output service” with effect from 1-3-2008, the said service should be held to have been included in the definition prior to the said service tax on GTA service, they were doing so on an “output service” and, therefore, they were entitled to utilize CENVAT credit for the payment of such tax.

We also find that the Hon’ble High Court’s decision is to effect that there is no legal bar to utilization of CENVAT credit for the purpose of payment of service tax on GTA service by “deemed provider “ thereof. The Hon’ble high court answered the following question of law in the affirmative:
“Whether a person who is not an actual service provider, but discharges the service tax liability on the Taxable services, under Section 68(2) of Finance Act, 1994, as a deemed service provider, is entitled to avail the CENVAT credit on inputs/input service/ capital goods for the payment of GTA service tax, even if he is not using such inputs/input service/ capital goods for providing taxable services by virtue of deeming legal fiction?”
It is pertinent to note that the Hon’ble High Court was dealing with the above issue for a period prior to 19-4-2006, the date on which the Explanation to Rule 2(p) of the CCR,2004 was omitted. Even for a period subsequent to the omission of the said Explanation, as rightly argued by learned counsel for respondent, the amendment would have little impact on the present case inasmuch as the respondent was a manufacturer of excisable goods and not one of the persons referred to in the text of the Explanation. In any case, the view taken by the learned Commissioner (Appeals) is squarelysupported by the Hon’ble High Court’s judgment. Accordingly, there is no merit in the appeal filed by the revenue.

Decision:- Revenue appeal gets dismissed.

Comment:- The essence of this case is that cenvat credit can be utilised for payment of service tax under GTA service for the period prior to the amendment specifically excluding “GTA service” from the definition of ‘output service”.

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PJ/Case Laws/2012-13/1516

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