Whether during the period Apr 2005 to Mar 2007, when the appellant as recipient of GTA service, service tax on GTA service received by them could be paid through Cenvat credit.

PJ/Case Laws/2010-11/1174

Case:M/s ITC Ltd v/s Comm. of Central Excise, Guntur

Citation:2011-TIOL-568-CESTAT-BANG.

Issue: -Whether during the period Apr 2005 to Mar 2007, when the appellant as recipient of GTA service, service tax on GTA service received by them could be paid through Cenvat credit.

Brief Fact:- As per provision of Section 68(2) of Finance Act, 1994 read with Rule 2(1)(d)(v) of Service Tax Rules, 1994, the appellant (a public ltd. company) were liable to pay service tax on GTA services received by them from various GTA service providers. The appellant were neither providing any output service to any customer or client during the period from 1.4.05 to 31.3.07; nor were they manufacturing any dutiable final product. The appellant had taken service tax credit on a number of input services and had used this credit for payment of service tax on GTA services received by them for which they were liable to pay service tax as service recipient.

Department alleged that the GTA service received by the appellant is not their output service, the service tax should have been paid in cash and not by utilizing the Cenvat credit and to the extent the service tax has been paid through Cenvat credit, the credit has been wrongly utilized. On this basis show cause notices were issued to the appellant for demand of service tax along with interest and also for imposition of penalty. The Adjudicating Authority confirmed the demand with interest and also imposed penalty under Section 78 of the Finance Act, 1994. Against this order, appeal has been filed before the Tribunal by appellant-assessee.

Reasoning of Judgment: -The Tribunal held that the recipient of GTA service who is not engaged in providing any taxable output service or manufacture of dutiable final product is not entitled to utilize cenvat credit account for discharging service tax on GTA services. It was held that Rule 2(r) of CCR, 2004 creates a legal fiction so as to expand the scope of the term “provider of taxable service”, to include the persons covered by clause (d) of Rule 2(1) of the STR, 1994 who by virtue of being recipient of certain taxable services, are liable to pay the service tax on the same.

It was held that the legal fiction created under explanation to Rule 2(p) is applicable only to persons who do not provide any output service or manufacture any dutiable final products and not to persons who provide some taxable service/services and /or manufacture some dutiable final products.

With regard to category of persons neither providing any taxable service not manufacturing any dutiable final product, to which the appellant belong, but liable to pay service tax on some taxable service received by them, while during the period w.e.f. 19.04.2006 such taxable service received by them cannot be treated as their output service, during the period prior to 19.04.2006 while the taxable service received by them, on which they were liable to pay service tax, was deemed to be their output service by virtue of Explanation to Rule 2(p), they were still required to pay service tax on such deemed output service through cash, not through cenvat credit without providing any taxable output service or manufacture of dutiable final products, they could not avail any cenvat credit in respect of any duty paid goods received by them or other taxable services received by them. The duty paid goods received or other taxable service received by such person cannot be deemed to be inputs and input services fir his deemed output service.

It was held that the Service tax on GTA service paid through Cenvat credit account was recoverable from the appellant.

On the issue of limitation, the Tribunal perused the record, and concluded that all the 3 show cause notices were issued within one year from the respective relevant date and therefore were not time barred.

With regard to penalty imposed under Section 78 it was held that penalty under this section was imposed in case of fraud, collusion, willful suppression etc. with an intent to evade payment of duty. But in case of appellant there is no such allegation made in the show cause notice. Also, the appellant were regularly filing ST-3 returns in which payment of service tax through Cenvat credit is declared. The necessary element of invoking Section 78 was not present. Penalty was not sustaianable.

Impugned order confirming the demand alongwith interest upheld. Penalty under Section 78 set aside.

Decision: -Appeal disposed of accordingly.

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