Whether Cenvat Credit utilization by GTA service recipient for payment of service tax legal?

PJ/Case Laws/2012-13/1493

Case:-COMMISSIONER OF SERVICE TAX Versus HERO HONDA MOTORS LTD.

Citation:- 2013(29) S.T.R. 358 (Del.)

Brief Facts:-In these appeals, the question which arises for consideration is whether the Tribunal fell into error in holding that in terms of Section 68(2) of Finance Act, 1994, the respondent was entitled to claim that it had paid or adjusted service tax dues on the basis of Cenvat Credit instead of cash. The brief fact is that respondent in this case was issued a show cause notice on 30-1-2006 proposing recovery of dues (including interest) and penal action in terms of Finance Act, 1994. The Revenue took action on the basis that the assessee had wrongly claimed to have paid service tax on goods transport agency under Section 68(2) of the said Finance Act, by adjustment of Cenvat credit instead of payment in cash. The Appellant contention is that the tax liability had to be discharged by cash and not through a claim of Cenvat credit. The Revenue also contended that the assessee was not a service provider but recipient of taxable service and that the Cenvat credit facility was only provided to a service provider but not to the recipient such as assessee. The adjudicatory authority by order dated 10-5-2006 confirmed the allegations made in the show cause notice and the claim for duty and imposed penalty. The respondent –assessee appealed to the Commissioner (Appeals). The latter, taking note of the provisions of Section 68(2) and the legal fiction provided by it as well as decision of the Commissioner of Central Excise v. M/s. Nahar Industrial Enterprises Ltd. – 2007 (7) S.T.R. 186 (Tri.- Del.) and RRD Tex Pvt.Ltd. v. CCE, salem,2007 (8) S.T.R. 186 (Tri.- Chennai) held that assessee was entitled to the benefit of claiming payment of service tax on GTA services through adjustment of Cenvat credit . The appeal preferred by the Revenue to the CESTAT was rejected following the previous order in Nahar Industrial Enterprises; it also noticed other decisions on the same subject i.e. India Cements v. CCE, Salem, 2007 (7) S.T.R. 569 (Tri.); Bhushan Power & Steel Ltd. v. Visaka Industries Ltd, 2007(8) S.T.R. 231.

Appellant Contentions:- The Revenue claims to be aggrieved by the impugned order. It is stated at the outset that the view expressed by the Tribunal has been carried in appeal to the Supreme Court in Special Leave Petitions.

Respondent Contentions:-The respondent submitted that the Revenue had challenged the CESTAT’s order in Nahar Industrial Enterprises Ltd. (supra) before the Punjab and Haryana High Court and advanced various contentions. The question of law framed by that High Court was identical to what was urged in the present case and the question framed thereon stands answered in favour of the assessee by the High Court.

Reasoning of Judgment:-The High Court relied on the following para of the order reported as CCE v. Nahar Industrial Enterprises Ltd,.2012 (25) S.T.R. 129:
“In the present case also, the service tax was paid out of Cenvat credit on GTA services and, hence, the respondents were well within their right to utilize the Cenvat credit for the purpose of payment of service tax. The commissioner (Appeal) as well as the Tribunal have rightly held that the respondents were entitled to pay the service tax from Cenvat credit.”
As is evident, the Punjab and Haryana High Court had relied on Rule 3(4)(e) of the Cenvat credit Rules, 2004. The operative part of Rule 3(1) states that a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit i.e. Cenvat credit in terms of its provisions. Rule 3(4), to the extent it is material for the present purpose reads with and also reads with Section 68(1) and (2) of the Finance Act, 1994.”
In view of the specific reference to service tax and the benefit allowed to a service provider, read with the fiction created by Section 68(2) of the Finance Act, 1994, this Court is of the opinion that there is no ground to disagree with the judgment and reasoning of Punjab and Haryana High court in Nahar Industrial Enterprises Ltd. The appeal consequently fails and the question of law is answered in favour of the appellant and against the Revenue.

Decision:-The appeal is dismissed.

Comment:-The question whether cenvat credit can be utilised for payment under reverse charge mechanism has been under constant litigation in view of divergent views expressed by court. This is yet another case favouring the contention of the assessee.

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PJ/Case Laws/2012-13/1493

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