Utilization of CENVAT credit for payment of service tax on GTA service by service recipient- whether permissible?

PJ/Case Laws/2011-12/1230

Case:Iswari Spinning Mills versus Commissioner of C. Ex, Madurai

Citation:2011-TIOL-767-CESTAT-MAD

Issue:- Utilization of CENVAT credit for payment of service tax on GTA services by service recipient – whether permissible till 18.04.2006 and even after 18.04.2006?

Brief Facts:- Assessees have made payment of GTA service from cenvat credit account during the period before 18-4-2006 and in some cases after 18-4-2006. Department is objecting to the availment of credit for payment of service tax on GTA.

Appellant’s Contention:- Appellant-assessee contended that the recipients of GTA service are deemed to be output service providers under the law and therefore, they are entitled to pay service tax on GTA service by utilizing CENVAT credit.
For the period beyond 18-4-2006, in respect of this period (from 19-4-2006 but prior to 1-3-2008), appellant has argued that despite the deletion of Explanation to Rule 2(p) of the CENVAT Credit Rules, 2004 on 19-4-2006, they should be deemed as service providers in view of the legal provision imposing the burden of paying service tax on them for GTA service received by them, till the law was further amended on 1-3-2008.

Respondent’s Contention: - Revenue contended that recipients of GTA service are not output service providers and hence, they cannot utilize CENVAT credit for payment of service tax on GTA service.

Reasoning of the Judgment:- The Tribunal noted that all the appeals were kept pending for the reason that the case of Panchmahal Steel Ltd. v. Commissioner of Central Excise & Customs, Vadodara-II - 2008 (12) S.T.R. 447 (Tri. - Ahmd.)was referred to the Larger Bench. However, it was noted that in the recent judgment in the case of CCE, Belgaum v. M/s. Shri Tubes & Steels Pvt. Ltditwas observed that the question referred to the Larger Bench in the Panchmahal Steel Ltd was that whether the said issue needs to be decided by the Larger Bench or not and not for the opinion of the Larger Bench on the said issue itself. Hence, the Tribunal in the present case, has taken up the matter in view of judgment given in Shri Tubes & Steels Pvt Ltd’s case.
It was noted that in the case of Shri Tubes & Steels Pvt Ltd, the detailed reasoning given in the case of CCE, Chandigarh v/s Nahar Exports Ltd [2007-TIOL-1907-CESA-DEL] in relation to the explanation clause to Rule 2 (p) was relied upon. The Tribunal in the said cases have also referred to all the subsequent judgments given in the cases starting from CCE, Chandigarh v/s Nahar Industrial Enterprises Ltd [2007-TIOL-555-VESTA-DEL] till Mahindra Ugine Steel Co. Ltd v/s CCE, Raigad [2008-TIOL-657-CESTAT-MUM]. It was noted that all these cases which related to period prior to 19.04.2006 the consistent view taken was that in view of the Explanation clause the assesse would be entitled to avail the benefit of such service tax in order o claim the cenvat credit thereof.
The Tribunal in the present case held that as regards period prior to amendment to CENVAT Credit Rules made on 19-4-2006, i.e. for the period up to 18-4-2006, the appellants are entitled to utilize CENVAT credit for paying service tax on GTA service. Hence for the period inclusive and upto 18-4-2006, the tax demand along with demand of interest and penalties, wherever imposed are set aside in respect of these appeala.
The Tribunal found that all the decisions which are in favour of the appellants have held them to be service providers for the period upto 18-4-2006 solely on the ground of the Explanation to the definition of output service under Rule 2(p). Hence, with the deletion of the Explanation with effect from 19-4-2006, the benefit of these decisions cannot be extended to them for the period from 19-4-2006.
As far as the period beyond 18-4-2006, the Tribunal in the case of Alstom Ltd. v. CCE - 2008 (12) S.T.R. 23 has also dealt with the issue for this period and has held in that case that the credit cannot be utilized for paying service tax for this period as well. As such, as far as the period beyond 18-4-2006 is concerned, the Tribunal held that the appellant are not entitled to utilize CENVAT credit for payment of service tax on GTA service and therefore, the duty demand and demand of interest are justified.However, considering the disputed nature of the issue; the Tribunal held that imposition of penalty in respect of the period from 19-4-2006 to 28-2-2008 is not justified and wherever penalties have been imposed, the same are set aside.

Decision:- Appeals allowed. Cross Objections disposed of accordingly.

Comments:- This issue has addressed a very important amendment. Firstly, when there are two conflicting decisions of double bench then the matter should be referred to larger bench or the president has to decided whether it should be referred to larger bench or not. We wrote an article on the same titled “Changing face of precedents” on the same.
Secondly, whether the GTA can be paid from Cenvat credit? When the terms “output service”, “provider of output service” as well as “person liable for payment of service tax” has been defined under Cenvat credit then it means that the service recipient can pay tax from Cenvat credit. Further when the GTA is excluded from “output service” w.e.f 1.3.2008 then the service tax on GTA can be paid from Cenvat credit. But the tribunal has held that it is payable till 18.4.2006. The same issue applies for payment of service tax on import of service from Cenvat credit. It will have large implications. But this is not final decision. It will go to High Court also.

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PJ/Case Laws/2011-12/1230

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