Whether the assessee is liable to pay service through CENVAT or Cash in respect of the GTA services received by him as service recipient?

PJ/Case Laws/2011-12/1275

Case: ITC LTD. v/s COMMISSIONER OF C. EX., GUNTUR

Citation: 2011 (23) S.T.R. 41 (Tri.-Bang.)

Issue:-Whether the assessee is liable to pay service through CENVAT or Cash in respect of the GTA services received by him as service recipient?

Brief Facts: - The appellant was a public company, had obtained Centralized Service Tax Registration at Guntur for their 114 branches located in Andhra Pradesh, Karnataka, Tamil Nadu and Rajasthan. As per the provisions of Section 68(2) of the Finance Act, 1994 read with Rule 2(1) (d) (v) of the Service Tax Rules, 1994, the appellants were liable to pay Service tax on Goods Transport Agency (GTA) Services Received by them from various GTA service providers as service recipient. It was found that while they are neither providing any output service to any customers or client during the period from 1.4.2005 to 31.3.207, nor manufacturing any dutiable final product, they had taken Service tax credit under Cenvat credit Rules, 2004 of the Service tax paid on a number of “input services”, such as Security services, Scientific and Technical Consultancy service, Repair and Maintenance service, Telephone service, Courier services, Accounts services, etc. 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. The department was of view that since GTA service received by them is an “input service” received from various Goods Transport Agencies, and not an output service provided to their clients and since in terms of Rule 3(4) of Cenvat Credit Rules, 2004, the Cenvat credit could be utilized only towards payment of duty on finished excisable goods manufactured by the assessee or for payment of service tax on “output services” provided by an assessee and since the GTA service received by the appellant is not their output service, the service tax should have been paid in cash, not by utilizing the Cenvat credit and to the extent the service tax had been paid through Cenvat credit, the credit had been wrongly utilized.

Appellant’s Contention: - Appellant contended that they, through out the period of dispute, by virtue of Section 68(2) of the Finance Act, 1994 read with Rule 2(I) (d) (v) of the Service Tax Rules, 1994 and Rule 2(q) of the Cenvat Credit Rules, 2004, are a “person liable for paying service tax” and therefore, by virtue of Rule 2 (r) of the Cenvat Credit Rules, 2004 are also “provider of taxable service”, as he was a person liable for paying service tax, that during the period till 18.4.2006, the Explanation to Rule 2 (p), containing the definition of term “output service” provided that for the removal of doubt, it is clarified that if a person liable for paying service tax does not does not provide any service, or does not manufacture any final product, the service on which he is liable to pay service tax as service receiver, shall be deemed to be his “output service”, that in view of this explanation to Rule 2(p), during the period till 18.4.2006, there was absolutely no doubt that the appellant, being the person liable to pay Service tax on GTA service received by him, would have to be treated as provider of taxable service and GTA service would be treated as his output service, that though with effect from 19.4.2006, by Notification No. 8/2006-S.T. (N.T.), dated 19.4.2006, Explanation to Rule 2(p) was deleted. Rule 2 (1) (d) (v) of Service tax Rules, 1994 and Rule 2 (r) and Rule 2(q) of Cenvat Credit Rules, 2004 still remain in force and thus, the appellant continues to be a provider of taxable service, that only with effect from 1.3.2008 by Notification No. 10/2008-S.T. (N.T.), dated 1.3.2008, definition of output service in Rule 2 (p) of the Cenvat Credit Rules, 2004 was amended so as to exclude GTA service, referred to in Section 65(105) (zzp) of the Finance Act, 1994 from its purview and therefore, during the period prior to 1.3.2008, since the appellant, by virtue being person liable to pay service tax on GTA service received by them would be treated as their output service.

Respondent’s Contention: - The respondent argued that just because on the basis of the provisions of Section 68(2) of the Finance Act, 1994, read with Rule 2 (1) (d) (v) of the service tax Rules, 1994, the appellant are the person liable for paying service tax and on the basis, by virtue of Rule 2 (r) of the Cenvat Credit Rules, 2004, they are deemed to be provider of taxable service, this is only for the purpose of charging service tax from them on the GTA service received through reverse charge mechanism and from this, it cannot be concluded that GTA service received by them, in respect of which they were liable to pay service tax, was their output service. They further referred the case of Panchmahal steel Ltd. v. Commissioner of Central Excise& Customs, Vadodara-II, reported in 2008 (12) S.T.R. 447 (Tri.-Ahmd.), the Hon’ble Member (Technical) has also expressed the view that the GTA service received by a person, who is liable to pay service tax on the same as service recipient, cannot be treated as “output service” and the same as service recipient, cannot be treated as “output service” and the tax on the same cannot be paid by utilizing Cenvat credit.

Reasoning of Judgment: -The Hon’ble Tribunal held that since through out during the period of dispute by virtue of Rule 2 (q) read with Rule 2 (r) of the Cenvat Credit Rules, 2004, a person liable for paying service tax on some taxable service received by him as service recipient, was deemed to be provider of taxable services, the services received by him on which he is liable to pay service tax, would have to be treated as his output service. But they did not agree these pleas of the appellant. They held that this legal fiction has been created to enable such person, if he is actually providing some taxable output service or manufacturing some dutiable final products, to take credit of service tax paid as service recipient on the taxable service received and utilize this credit for payment of service tax on taxable output services provided by him or central excise duties on the dutiable final products manufactured and cleared by him.

Decision: - The Appeal was disposed off.

Comments : -It is worthwhile to the note that by virtue of explanation to rule 2 (p), many tribunal decisions are answered in favour of assessee that they are able to pay Service tax on GTA by way of Cenvat. However now the position is, that the explanation has been deleted and also the definition of output service has also been amended. So now, the Service tax on GTA can only be paid through Cash.

Comments

PJ/Case Laws/2011-12/1275

Post a Comment

Query