Payment of service tax on GTA from Cenvat Credit Account

PJ/CASE STUDY/2010-11/29

13 November 2010

PJ/Case Study/2010-11/29

Case Study

Prepared By:

CA. Pradeep Jain and

Sukhvinder Kaur LLB [FYIC]

Introduction:

The controversy has always surrounded the Goods Transport Agency service. By deemed fiction, the service recipient has been made liable to pay the service tax on GTA service received by him instead of the service provider. As the service recipient is made liable to pay the service tax, a question has arisen that can the service tax on GTA service can be paid by him from cenvat credit account or is the payment required to made in cash only. This issue was resolved in 2008 when the GTA service was specifically excluded from the purview of output service. The case under study pertains to the said issue relating to the period prior to 2008.

Relevant Legal Provisions:

Rule 2 (1) (d) (v) of Service Tax Rules, 1994: -

(d) "person liable for paying the service tax" means-

(v) in relation to taxable service provided by a goods transport agency, where the consignor or consignee of goods is, -

(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

(b) any company formed or registered under the Companies Act, 1956 (1 of 1956);

(c) any corporation established by or under any law;

(d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India;

(e) any co-operative society established by or under any law;

(f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder; or

(g) any body corporate established, or a partnership firm registered, by or under any law,

any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage;

(vi) in relation to business auxiliary service of distribution of mutual fund by a mutual fund distributor or an agent, as the case be, the mutual fund or asset management company, as the case may be, receiving such service;

(vii) in relation to sponsorship service provided to any body corporate or firm located in India, the body corporate or, as the case may be the firm who receives such sponsorship service;

Rule 2 (r) of Cenvat Credit Rules, 2004:

2(r) “Provider of taxable service” include a person liable for paying service tax.

In the case of M/s Vinod Industries

[Order-in-Original No. 857/ST/2009-10, dated 30.08.2010]

Brief Facts:

- Noticee is manufacturer who was registered with service tax for paying the service tax for the service of GTA availed by them.

- On scrutiny of ST-3 Return filed for half year ending March, 2006, Department noted that Noticee had made payment of service tax on GTA service from the cenvat credit account.

- Accordingly, show cause notice was issued to the Noticee alleging irregular availment of cenvat credit. It was alleged that Noticee was required to pay the service tax in cash and not from cenvat account. It was alleged that they had contravened the provisions of Section 66 & 68 of the Finance Act, 1994.

Noticee’s Contentions:

¨ Noticee contended that they were specified person as listed under Notification No. 35/2004-ST dt. 3.12.04 as person liable to pay service tax. We are covered under the same and therefore, we are registered under the service tax and are paying service tax.

¨ It was contended that since they are paying service tax and as such it will be their output service they can pay the service tax from Cenvat credit amount.

¨ Reference was made to Rule 2 (q) of the Cenvat Credit Rules, 2004 which defined “person liable for paying service tax” and to Rule 2(1)(d) of Service Tax Rules, 1994 and it was contended that the Noticee were covered under clause (V) of the said Rule 2(1) (d) and hence they were person liable to pay service tax. It was contended that ““Provider of taxable service” is defined in 2(r) of Cenvat Credit Rules included a person liable for paying service tax. Therefore, the Noticee were provider of output services and hence were liable for payment of service tax. The definition of “output service” reads as “any taxable service provided by provider of taxable service…….”. Consequently, they were covered under the definition of output service. Therefore, GTA service is an output service for them and they have rightly paid the service tax from credit account.

¨ It was contended that GTA service was a deemed output service. It was submitted that there are two bodies of words incorporated in said explanation i.e. “does not provide any taxable service” and “does not manufacture kind products”. These are connected with word “or” which cannot be read as “and” and this presence of either coordination will under the taxable service as “deemed output service”.

¨ It was submitted that if the contention of department is accepted them the Noticee were not able to pay the duty as it is not output service for them. Then who will covered under aforesaid “output service definition.” An argument could be framed that a person who is neither providing taxable service nor a manufacturer. But he is not entitled to avail the credit it is also clarified by Board Circular no. 345/4/2005-TRUdt. 3.10.2005. It was contended that hence no body will avail the benefit. This will render this definition as absurd. Following the principle of homogenous construction, it was contended that the argument put forwarded by the Noticee had to be accepted.

¨ Reference was made to Legal Aid Column of renowned periodical of Centax Publications. It has clarified that service tax on GTA can be paid though cenvat credit amount by a manufacture of excisable goods. It is reported at 2006(1) STR J 341-342. It has also interpreted the same Board Circular no. 345/4/2005-TRU dt. 3.10.2005.

¨ Noticee further submitted that this explanation has been deleted by the Board by Notification no. 8/2006-CE(NT) dt.19.04.2006. This explanation was absurd and conveying the wrong meaning. This deletion will have same effect and as such that credit is rightly utilized by them.

¨ Further, Rule 3(4) of Cenvat credit says that the cenvat credit can be utilized for payment of service tax on any output service. Since it is established from above that GTA service is “output service” for us. As such, we can pay the service tax from Cenvat credit.

¨ Further, a number of decisions have been given by the Highest Tribunal in cases of custom and excise wherein it is held that the payment of service tax on GTA can be made from cenvat credit. Reliance was placed on following case laws:-

- Commr. Of C. Ex., Chandigarh Vs M/s Nahar Industrial Enterprises Ltd.[2007 (7) S.T.R. 26 (Tri.-Del.)]

- CCE, Vapi Vs M/s Bhilosa Tex-N-Twist Pvt Ltd [2009-TIOL-352-CESTAT-AHM]

- CCE, Ludhiana Vs M/s Nahar Fibre [2009-TIOL-332-CESTAT-DEL]

- R.R.D. Tex Pvt. Ltd. vs Commissioner of C. Ex., Salem [2007 (8) STR 186 (Tri.-Chennai)]

- Ambattur Petrochem Ltd. vs Commissioner of C. Ex., Raipur [2008 (9) S.T.R. 53 (Tri. - Del.)]

- Commr. Of C. Ex., Belgaum vs Flowserve Microfinish Pumps Pvt. Ltd. [2008 (9) S.T.R. 278 (Tri. - Del.)]

- Pallipalayam Spinners Pvt. Ltd. [2008 (9) S.T.R. 544 (Tri. - Chennai)]

- Bhushan Power & Steel Ltd. v/s Commr. of C. Es., Cus. & Service Tax, BBSR-II [2008 (10) S.T.R. 18 (Tri. - Kolkata)]

- CCE, Ludhiana Vs M/s Nahar Fibre [2009-TIOL-332-CESTAT-DEL]

- Scan Synthetics Ltd. v/s Commissioner of Central Excise, Jaipur-I [2008 (12) S.T.R. 766 (Tri. - Del.)]

- Andhra Pradesh Paper Mills Ltd. v/s Commr. of C. Ex., Visakhapatnam-II [2007 (8) S.T.R. 166 (Tri. - Bang.)]

- Mahindra Ugine Steel Co. Ltd. v/s Commissioner of C. Ex., Raigad [2009 (13) S.T.R. 373 (Tri. - Mumbai)]

- MRF Ltd. v/s Commr. of C. Ex., Pondicherry [2010 (18) S.T.R. 147 (Tri. - Chennai)]

GTA has been excluded from the definition of output services w.e.f. 1.3.2008. As such, it was very well covered in the definition of output services upto this date. Since the period covered in the given show cause notice is prior to his period. As such, we have rightfully paid the service tax from Cenvat Credit and the same should be upheld.

Issue Involved:

The issue involved in this case was that

Whether GTA service received by Noticee was an output service, so that service tax on the same was payable in cash or could be paid from the Cenvat Credit Account?

Decision of the Deputy Commissioner:

Ø The Deputy Commissioner held that GTA service was not the output service of the Noticee. And in view of Notification No. 36/2004-ST dated 03.12.2004 and Rule 2 (1) (d) (v) of Service Tax Rules, 1994 for the limited purpose of paying service tax the Noticee has become service provider liable to pay service tax.

Ø The Deputy Commissioner relied upon the Legal Aid column of CENTAX Publication (2006 (1) STR/J-341-342) and Circular No. 345/4/2005-TRU dated 03.10.2004 wherein it is said that service tax on GTA can be paid through cenvat.

Ø It was also noted the Government had belatedly vide Notification No. 10/2008-CE(NT) dated 01.03.2008 deleted the GTA service from output service. This leads to an inference that prior to 01.03.2008, GTA was under output service and was entitled to use cenvat credit.

Ø It was held that in Noticee’s case as the services are for provided during the period half year ending September, 2006 therefore it was squarely covered under Notification No. 10/2008-CE(NT).

Order of the Deputy Commissioner:

Proceedings initiated by impugned show cause notice were dropped.

Conclusion:

The Deputy Commissioner rightly held that before the amendment in the provisions in the year 2008, the GTA service was covered under the scope of output service and as the assessee who is receiving the service has been made liable to pay the service tax by deeming fiction, he was entitled to pay the service tax from cenvat credit account.

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PJ/CASE STUDY/2010-11/29
13 November 2010

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