Payment of Service Tax on Outward GTA from Cenvat Credit Account

PJ/Case Study/2011-12/42

CASE STUDY

Prepared By:
CA Pradeep Jain
CA Nishit Shah and
Sukhvinder Kaur LLB [FYIC]

Introduction:-

The issue involved in this appeal is a long drawn issue that whether on GTA service availed on Outward transportation of goods, the assessee, who is recipient of service tax and is deemed to pay the Service tax on GTA by virtue of deemed fiction, can discharge its service tax liability from the cenvat Credit Account? Or is he required to pay the service tax only from PLA Account or cash only?

M/s Uma Polymers Limited v/s C. C. E., Jaipur-II
[Final Order No. 935-936/2011-SM [BR] Dated: 25.11.2011]

Brief Facts:-

- Appellant-assessee is the manufacturer registered under Central Excise and are liable to pay service tax on GTA service received by them as per Rule 4(i)(d)(iv) of the Service Tax Rules, 1994. The period involved in the matter is April and May, 2007. At the time of receipt of service, service tax was not paid by them.

- In November, 2008 the fact was pointed out to the appellant by the Department that they were required to pay service tax on GTA outward by making debit entry in Cenvat Credit Register on 28.11.2008. Appellant paid the service from Cenvat Credit.

- Department objected to payment of service tax from Cenvat credit account on the ground that GTA outward was not an output service for the appellants, in view of the amendments made in the Cenvat Credit Rules, 2004 by Notification No. 10/2008 dated 01.03.2008. Therefore, the appellant should not have paid service tax on the said service by utilizing cenvat credit.

- Department issued show cause notice alleging that the appellant had wrongly paid Service Tax amounting to Rs. 50156/- from Cenvat Credit as a recipient of services under Rule 4(i)(d)(iv) of the Service Tax Rules, 1994. It was contended that the GTA is not their output service and as such they cannot pay the service tax on the same from Cenvat Credit. It was proposed to recover the Service Tax amounting to Rs. 50156/- alongwith interest. Penalty under Section 76 and 78 of the Finance Act, 1994 and under Rule 15 of the Cenvat Credit Rules was also proposed to be imposed.

- The Adjudicating Authority confirmed the demand of service tax with interest and also imposed penalties under Section 76 and 78 of the Finance Act, 1994.

- Aggrieved by the same, the appellant-assessee filed appeal before the Commissioner (Appeal). The Commissioner (Appeal) did not accept the contentions of the appellant and passed the order-in-appeal rejecting the appeal filed by appellant. However, the penalty was reduced by invoking the provisions of Section 80 of the Finance Act, 1994.

- Aggrieved by the impugned order the appellant filed appeal before the Tribunal. Revenue is also in appeal challenging the reduction of penalty amount.

Appellant’s Contention:-

Before the Tribunal, following contentions were raised by the appellant-assessee: -

- That the impugned order is denying the payment of service tax on GTA from Cenvat Credit on the grounds that for payment of service tax on GTA from Cenvat Credit, the taxable service has to be an Output service. It is further alleged that for being an output service the taxable service has to be actually provided by the Provider of taxable service. In this regard it is submitted that a taxable service will be considered as output service when the same falls under the definition of output service – whether actually or by legal fiction. Even if some service falls under the definition of the output service by way of legal fiction, then too, the related benefits cannot be denied to the recipients of such services. This analogy is supported by the series of judgments that were cited by the appellant in the reply to show cause notice and in the appeal memorandum filed with Commissioner (Appeals) which have not been discussed and distinguished while passing the impugned order in appeal.

- That the learned Commissioner (Appeals) is alleging that the intention of the law making authority was not to treat the GTA service as output service and due to this reason only, the amendment was made in the rule 2(p) of the Cenvat Credit Rules, 2004, when the explanation to this rule was omitted w.e.f. 19.4.2006. It is interpreted that by omission of this explanation, it becomes clear that if the person is not actually providing any taxable service and has been paying service tax by way of deeming provision, he would not be considered as output service provider. Thus, learned Commissioner Appeals is talking about the old definition of output service as given in rule 2(p) of the Cenvat Credit Rules, 2004. Prior to 19.4.2006, there was an explanation in the definition of 'output service' as defined in Rule 2 (p) of the Cenvat Credit Rules, 2004. For better analyzing this decision, this explanation (which was omitted subsequently) is re-produced as follows:-

“Explanation.—For the removal of doubts it is hereby clarified that if a person liable for paying service tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay service tax shall be deemed to be the output service;”

The analysis of this explanation makes it clear that the explanation was applicable only in the following two cases: -

·                      The person liable for paying service tax does not provide any taxable service, or
·                      The person liable for paying service tax does not manufacture any dutiable goods.

If any of these two conditions was satisfied, the service for which he was liable to pay the service tax (i.e. GTA or Import of Service, etc.); was deemed to be output service for him. In other words, the said service was specifically mentioned as output service for the recipient of service and he was entitled to act as a normal service provider. Thus, even the recipient of said services was entitled to take the Cenvat Credit and utilize the same even if he was not providing any other service or even if he was not manufacturing any dutiable goods. This explanation was added to the definition of output service in order to take care of the persons who are only liable to pay the service tax under rule 2(1)(d) of the Service Tax Rules, 1994. Thus, the persons receiving such services could take credit and utilize the same even if no taxable services were provided or even if no other dutiable goods were manufactured. However, this explanation was omitted vide Notification No. 8/2006-Central Excise (N.T.) dated 19.4.2006. The omission of this explanation would mean that the recipient of service who is liable to pay the service tax is not entitled to take the credit if he is not providing any other taxable service or if he is not manufacturing the dutiable goods. The case of appellant does not fall in this category as they have not taken the credit as recipient of GTA service. They have availed the credit in the capacity of manufacturer of dutiable goods; and as per rule 3(1) read with rule 3(4) of the Cenvat Credit Rules, 2004; there is no restriction in doing the same. Thus, there was no impact on the case of appellant by this amendment.

- Further, there was no allegation in the impugned order in original that the appellant have wrongly availed the credit and they were not supposed to avail the same. So, the omission of the explanation to rule 2(p) as discussed hereabove has no impact in the case of appellant. The impugned order in original simply alleged that they were not supposed to utilize the credit as the payment made by them was after 1.3.2008. Thus, the case of appellant is not affected in any ways by the amendment made to the definition of output service for omitting the explanation to Rule 2(p) of the Cenvat Credit Rules, 2004. Further, it is alleged that the intention of the government was not to treat the recipients of GTA service as output service provider and hence the definition of output service was once again amended w.e.f. 1.3.2008 so as to specifically exclude them. In this respect it is submitted that the said amendment was effective w.e.f. 1.3.2008; but the services of transporter were availed in year 2007 in which time the GTA was definitely included in the definition of output service. The service tax became due on receipt of service, so the provisions prevailing at the time of availment of service will be seen. Since the amendment was made w.e.f. 1.3.2008 and this amendment was not given retrospective effect, it will be applicable from this date only. In absence of retrospective clause in the notification making the amendment, the effect of this amendment cannot be taken retrospectively. As such, the impugned order in appeal is not justified in doing so and this contention is against the principles laid down by the Supreme Court. It is held by the highest court of India in the case of Truetuf Safety Glass Industries vs Commissioner of Sales Tax, UP [2007 (215) ELT 14 (SC)] that it is a settled principle of law that the Court cannot read anything into a statutory provision which is plain and unambiguous. In the case of the appellant, the amendment made on 1.3.2008 was simple and no retrospective effect was given to the same. Thus, the denial of benefit of paying service tax from Cenvat Credit in the prior period on the basis of this amendment is not justified as the learned Commissioner Appeals has read beyond the plain and unambiguous language of the notification amending the same. Such an interpretation contrary to the principle of literal construction is not justified. Thus the contention of the impugned order in appeal is not sustainable and is liable to be set aside.

- In continuation to above it is submitted that since the amendment made in definition of output services w.e.f. 1.3.2008 was prospective in nature; GTA services were included in the definition of output service during the period of April, 2007 to May, 2007. In the instant case GTA services were availed during the period of April, 2007 to May, 2007 and payment of the service was made on 28.11.2008. Since the applicability of provision is to be seen at the date on which service was provided not on the date of payment of service tax thereon. In the period of April, 2007 to May, 2007 GTA services were very much covered under the definition of output service. So it is justifiable to pay service tax from the cenvat account for the liability relating to that period. Further the exclusion of GTA service from definition of the output service was made on 01.03.2008 which is the date coming after the period of provision of service i.e. April, 2007 to May, 2007. According to the provisions of Rule 3(4) of Cenvat Credit Rules, 2004 the service tax can be paid from cenvat account as the same can be utilized for the payment of service tax on any output service. Hence the appellant have correctly paid the service tax on GTA by way of utilizing cenvat. This is supported by the analogy that even the cases where the old demand is confirmed, the service tax is paid at the old rates applicable at the time of receipt of the consideration. This is due to the fact that the provisions applicable (i.e. rate effective) at the time the service tax becomes due are to be seen rather than at the time the tax is actually paid. It has been held in the case of Reliance Industries Ltd. Vs. CCE, Rajkot – 2008-TIOL-283-CESTAT-AHM that the rate applicable at the time of rendering of service will be considered. In this case, the issue related to leviability of service tax under reverse charge method (section 66A) and there was dispute as to service tax would be levied at which rate – whether the rate prevailing at the time of receipt of service or rate applicable at the time payment is made for the same. In other words, the issue to be decided was that which provisions will be applicable – whether those prevailing at the time of rendering of service or those prevailing at the time of paying consideration for the same. In the case of appellant, the service was provided and the payment for the same was made during the month of April, 07 and May, 07. Thus, in the light of above decision, the provisions applicable at the time of receipt of service would be seen. Going on the same analogy, in the instant case the service tax became due in year 2007 – the time well before 1.3.2008 whereby the GTA was included in the definition of the output service; as such they have rightfully paid the service tax from Cenvat Credit. All this discussion was made in the appeal memorandum filed with Commissioner Appeals and in the written submissions filed during personal hearing. But while passing the impugned order, these submissions have not been considered. The learned commissioner appeals have failed to discuss and distinguish the decision of Reliance Industries ltd. as cited by the appellant; and has passed a non speaking order. Such a decision is not justified in the light of decision given by hon’ble Apex Court in the case of State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]. In this case it is decided as follows:-

Even High Courts are required to pass speaking reasoned orders - The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance. The manner in which appeal against acquittal has been dealt with by the High Court leaves much to be desired. Reasons introduce clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons, howsoever brief, in its order indicative of an application of its mind, all the more when its order is amenable to further avenue of challenge. The absence of reasons has rendered the High Court order not sustainable. The requirement of indicating reasons in such cases has been judicially recognized as imperative. Judicial discipline to abide by declaration of law by this Court, cannot be forsaken, under any pretext by any authority or Court, be it even the Highest Court in a State, oblivious to Article 141 of the Constitution of India. Reasons are live links between the mind of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the Courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out. The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance.: SUPREME COURT;

The analysis of this decision makes it clear that the order passed without giving reasons of decision is not justified in the eyes of law. In the case of appellant also, no reasons has not also been assigned why the case laws cited by them are not applicable. As such, the impugned order passed without assigning the reasons is not justified and is liable to be quashed. The appeal should therefore be allowed.

- The appellant further submit that the issue is relating to the period prior to the amendment made in definition of output service. In that period the payment of service tax on GTA was allowed from the cenvat account. This is also upheld in various cases, some of which are as under:-

·                      PAHARPUR COOLING TOWERS LTD. Versus COMMISSIONER OF SERVICE TAX, KOLKATA [2009 (15) S.T.R. 476 (Tri. - Kolkata)]

Penalty and interest - Cenvat credit of Service tax - Utilisation of credit for payment of Service tax on GTA service - Credit could be used for paying Service tax on GTA services, which was also deemed output service - For period prior to 18-4-2006, impugned service deemed as output service under Explanation to Rule 2(p) of Cenvat Credit Rules, 2004 - Interest and penalty set aside - Rule 2(p) ibid. [para 3]

·                      COMMR. OF C. EX., BELGAUM Versus FLOWSERVE MICROFINISH VALVES PVT. LTD.[ 2008 (10) S.T.R. 21 (Tri. - Bang.)]

Cenvat credit of Service tax - Goods Transport Agency service - Recipient of service - Cenvat credit utilization for payment of Service tax on GTA service - Period of dispute prior to amendment to definition of output service - Impugned issue decided by Tribunal earlier holding that Cenvat credit utilizable for payment of Service tax - Impugned order following ratio of Tribunal decisions sustainable - Rules 2(p), 3 and 14 of Cenvat Credit Rules, 2004. [paras 1, 3]

Recently in the case ofM/S RAIN C-II CARBON (INDIA) LTD Vs CCE, VISAKHAPATNAM [ 2011-TIOL-115-CESTAT-MUM] it is held that,

Service Tax-Tax liability on GTA service payable through CENVAT A/c- Issue no longer res integra-Impugned order not sustainable, liable to be set aside.

Hence it is crystal clear from the above referred cases that the Credit could be used for paying Service tax on GTA services as the same were also deemed output services for period prior to 1.3.2008. Thus in the instant case, for the purpose of payment of service tax, the appellant has to be a treated as a service provider in respect of the GTA Services. When a Section of the Act itself creates a legal fiction as clear as this, there is no room for doubt whether a manufacturer or service provider can or cannot be treated as a “service provider” under Rule 2(p) of Cenvat Credit Rules, 2004. Now, a service provider is entitled to pay service tax through the Cenvat credit account under the law. Further there is no provision in law that a “deemed service provider” shall be barred from this entitlement.

- In continuation to above it is submitted that the recipient of GTA services was also deemed as service provider by virtue of same rule 2(i)(d) of Service Tax Rules, 1994 and as such the GTA services were deemed as output services for such recipient. However, the GTA services have been specifically excluded from the definition of output services w.e.f. 1.4.2008. As such, as from this date, GTA cannot be considered as an output service. But for the period prior to this date, the service received from a GTA was to be deemed as output service, so, one could pay service tax on GTA from Cenvat Credit for the services availed prior to this date. However, if the intention of Government was to restrict the payment of GTA from Cenvat prior to this date, it would have retrospectively amended the definition of the output service. But this has not been done. Therefore, the payment of service tax on GTA service availed prior to 1.4.2008 was rightly made from Cenvat. In support of their contention they have cited the decisions of M/s Anurag Ferro Products Pvt Ltd v/s CCE & CR, BBSR [2009-TIOL-1345-CESTAT-KOL] and Toyota Kirloskar Motors Pvt Ltd, Bangalore v/s Commissioner of Central Excise (LTU), Bangalore [2009- TIOL-1437-CESTAT-BANG in their reply to show cause notice and in the appeal memorandum. But all the above submissions has not been considered at the time of passing the order. It was held by the hon’ble Supreme Court that an order passed without discussing the submissions of appellant is not justified. It has been held in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law. The verdicts of hon’ble Apex court are produced as follows:-

“Appellate Tribunal’s order - Non-speaking order - Facts not analysed in detail in impugned order by Tribunal - Disposal of appeals by mere reference to decisions not proper way to deal with appeals - Applicability of decision cited by Revenue not considered - Appeals involving different goods - CESTAT ought to have examined cases individually and articles involved - Manner of disposal not proper - Impugned order set aside - Question referred to Larger Bench of Supreme Court not answered as matter remitted to CESTAT for fresh decision by appropriate Bench - Section 35C of Central Excise Act, 1944. - By clubbing all the cases together and without analyzing the special features of each case disposing of the appeals in the manner done was not proper. [para 6]”

To support their contention they rely on the case of WIPRO COMPUTERS LTD. Versus COMMISSIONER OF CUSTOMS, CHENNAI [2001 (135) E.L.T. 450 (Tri. - Chennai)] wherein the Tribunal held

“An order not discussing evidence submitted by assessee nor technical literature or trade opinion a non-speaking order and not a legal order - Section 35A of Central Excise Act, 1944”and therefore, the order passed by the Dy. Commissioner is in violation of principles of natural justice and is required to be set aside.

Further in the case of ARBINDO LIQUORS LIMITED Versus COMMISSIONER OF CENTRAL EXCISE, NAGPUR [2001 (133) E.L.T. 631 (Tri. - Mumbai)] says that an order narrates only what the Assistant Commissioner said and not what the assessee said. Such an order does not give any insight to the further appellate authority as to the correctness of the findings. It is for this reason that the principles of natural justice require that any order made in adjudication or in appeal, should be a “speaking” order. So the above order passed against the assessee is not tenable in law because the Learned Adjudicating Authority has not discussed the cases and the submissions that were relied on by the appellant.

- The appellant further like to add here that the Adjudicating authority has allowed the payment of GTA from Cenvat Credit in the case of M/s Vinod Industries. This decision has been given vide order-in-original no 857/ST/2009-10 dated 30.8.10 by holding the view that GTA has been removed from the definition of output service as from 1.3.2008 which indicates that it was included in the definition of output service prior to this period. Thus, the learned Deputy Commissioner was of the view that the payment of GTA from Cenvat credit cannot be made from 1.4.2008 as it is removed from the definition of output service. But the discriminatory order was passed in the case of appellant by contradicting his own decision and such order has been upheld by the learned Commissioner Appeals. The view taken by the adjudicating authority in the case of Vinod Industries was discussed in the appeal memorandum and during written submissions. But it has not been considered by the Commissioner Appeals while passing the impugned order. Such an order is not tenable in the light of decisions of M/s Sardara Singh, M/s Srikumar Agencies, M/s Wipro Industries, etc. as cited hereabove wherein it was held that the order passed without considering the submissions of the assessee is not tenable. Thus, in light of above, the impugned order is not sustainable and is liable to be quashed.

- That they have cited the decision of M/s Grasim Industries in their reply to show cause notice wherein it was held that where the act of assessee was based on bonafide belief, the penalty is not imposable. The appellant have submitted a no. of decisions according to which they had bonafide belief. But the impugned order has been passed without even looking at the decision of hon’ble Supreme Court. This is not sustainable and is liable to be quashed. The appeal should therefore be allowed.

- The appellant further submit that they have already paid the service tax. Payment from Cenvat Credit is also a type of payment, so it cannot be said that the appellant has not paid the service tax. When the service tax is paid then there is no question of payment of interest under section 75 of the Finance Act, 1994. The relevant section is reproduced below for the sake of convenience:-

Section 75 Interest on delayed payment of Service Tax-

Every person, liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest [at such rate not below ten per cent and not exceeding thirty-six per cent per annum as is for the time being fixed by the Central Government, by Notification in the Ofiicial Gezette for the period] by which such crediting of the tax or any part thereof is delayed.

Thus it is clear that the interest is payable when there is failure to pay tax. When the service tax itself has been paid then there is no question of interest. Therefore interest cannot be charged from the appellant when the service tax liability has been discharged through the Cenvat Credit. Further, since the demand itself is not tenable the question of interest does not arise at all.

- The appellant submit that the impugned order is alleging that the penalty under section 76 is imposed for failure to pay Service Tax. It is alleged that the appellant have not paid the service tax in cash, so the penalty under section 76 has been rightly imposed. In this regard, it is submitted that the appellant have paid the service tax from Cenvat Credit and payment from accumulated credit balance is also a type of payment. As such, it cannot be said that there was failure to pay the service tax. So, the penalty confirmed under section 76 is not legally sustainable and is liable to be quashed.

- The appellant submit that the impugned order is confirming the penalty under Section 78 on the grounds that the non-payment was detected during audit and it was not disclosed to department at any stage. It is alleged that this has amounted to suppression and thus, the penalty under section 78 is rightly imposed on the appellant. In this regard it is submitted that hon’ble Supreme court has held in the case of COLLECTOR OF CENTRAL EXCISE Versus CHEMPHAR DRUGS & LINIMENTS [1989 (40) E.L.T. 276 (S.C.)] that mere inaction or failure on part of manufacturer is not sufficient to be called as suppression. There should be deliberate withholding of the information, only then it can be termed as suppression. In the case of appellant, the impugned order has failed to prove that there was deliberate suppression. Hence, in the light of this decision, the penalty under section 78 is not imposable and the impugned order is liable to be set aside.

- The appellant submit that the impugned order has simultaneously imposed the penalties under section 76 and 78 of the Finance Act, 1994. In this regard, it is submitted that the simultaneous imposition of both of these penalties is against the existing provisions of the Act. The proviso to section 78 reads as follows:-

“Provided also that if the penalty is payable under this section, the provisions of section 76 shall not apply.”

Thus, this proviso to section 78 says that where penalty is imposed under section 78, penalty under section 76 is not imposable. Hence, the provisions under Finance Act, 1994 states that the penalties under both of these sections are mutually exclusive. Thus, the impugned order is not justified in imposing both of these penalties as it is contradictory to provisions of Finance Act, 1994. This fact is further affirmed by the no. of judgments given by various appellate authorities. A series of judgments were cited by the appellant in the appeal memorandum in this respect but these judgments have not been adhered to while passing the impugned order. Such an order which is passed without considering the judgments given by Tribunals is not sustainable and is liable to be set aside.

- The learned Commissioner Appeals have relied upon the judgment given by Kerala High court in the case of M/s Krishna Poduval [2006 (1) STR 185 (Ker.)] wherein simultaneous imposition of penalties under section 76 and 78 have been upheld. In this regard, it is submitted that this judgment is contradictory to the language contained in the Finance Act, 1994. As stated in the forgoing paras, the proviso to section 78 says that the penalty under section 78 and 76 cannot be imposed simultaneously. Thus, the judgment of Kerala High Court is made in contradiction to this proviso which is not sustainable. It is held by the highest court of India in the case of TATA CONSULTANCY SERVICES VersusSTATE OF ANDHRA PRADESH [2004 (178) E.L.T. 22 (S.C.)] that Courts should not be over zealous in searching ambiguities or obscurities in words which are plain. Thus, the learned Commissioner Appeals has violated the principle laid down by the Court of last resort. Such an interpretation contrary to the principle of literal construction is not justified. Thus the contention of the impugned order in appeal is not sustainable and is liable to be set aside.

- Moreover, the appellants submit that there was no malafide intention on their part as the service tax liability has already been discharged by them hence penalty cannot be imposed on them. Reliance placed on following decisions:-

Ø                   M/s Chandan Electricals Vs CCE, Ludhiana [2010-TIOL-259-CESTAT-DEL]

ST - Maintenance and Repair Service - While conducting audit of a third party the Revenue comes across service provided by the assessee - demand raised and penalty imposed - Commissioner(A) partly upholds demand but sets aside penalty - held, since no malafide is established and appellant's attitude to comply with law is appreciated, there is no ground for penalty - invocation of Sec 80 upheld - Assessee's appeal allowed: DELHI CESTAT;

Ø                   CST, Bangalore Vs M/s Atria Convergence Technologies Pvt Ltd [2009-TIOL-2020-CESTAT-BANG]

Service Tax - Levy of service tax on activities as cable operator and MSO - No malafide intention to evade tax, penalty not leviable - No infirmity in Appellate Commissioner's order: BANGALORE CESTAT

Ø                   CCE, Coimbatore Vs M/s A P Vivekanandan & Co [2009-TIOL-478-CESTAT-MAD]

Service Tax - Penalty - The respondent had claimed that they were under a bonafide belief that their activity did not attract service tax and therefore did not apply for registration. They paid the service tax amount with interest before the issue of the show-cause notice and had no malafide intention of evading payment of service tax. The provisions of Section 76 of the Finance Act, 1994 are subject to Section 80 thereof and there is discretion to reduce penalty vested in the authorities. In the circumstances, the reduction of penalty by Commissioner (Appeals) is upheld. (Para 3): CHENNAI CESTAT;

Ø                   CCE, Ludhiana Vs M/s Supreme Polytubes (P) Ltd [2009-TIOL-554-HC-P&H-CX]

“Central Excise - Section 11AC - There is no discretion vested in the assessing authority, appellate authority or the Tribunal to reduce the penal amount, even if duty is paid before issue of notice - but penalty can be imposed only if the ingredients of 11AC are satisfied: It is obvious that there is no rule of law applicable in blanket manner to the effect that if the amount of duty due has been paid before the issuance of show cause notice then the provision concerning interest or penalty would not be applicable. In the light of the absence of findings of clandestine removal of goods orany fraud, mis -representation, suppression of facts with the intention to evade duty, Section 11 AC of the Act read with Rule 25of the Rules would not get attracted as has been held by the Hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills's case.”

Ø                   M/s Jocil Ltd Vs CC & CCE, Guntur [2009-TIOL-1169-CESTAT-BANG]: -

“Central Excise - Suo moto availment of credit of excess duty paid in PLA - When there is no malafide intent penalty under Rule 25 not leviable: BANGALORECESTAT;”

Ø                   M/s General Motors India (P) Ltd Vs CCE, Vadodara [2009-TIOL-849-CESTAT-AHM]:-

“Central Excise - Credit to be reversed when capital goods are cleared to ancillary units on non-returnable basis - No malafide attributable as non-reversal was not due to any ulterior motive - Duty confirmed but penalties set aside: AHMEDABAD CESTAT;”

Thus, the imposition of penalty as demanded by the appellant is not sustainable.

- Further, it is submitted that the issue involved pertains to the interpretation of provisions. The department was in the view that the service tax is payable through cash. But the appellant was of view that the same should be paid through cenvat as the issue involved to the period prior to the amendment in definition of output services when GTA services were excluded from the definition of output services. In such cases, penalty cannot be imposed. It has been held in the case of CCE, Goa Vs M/s Betts India Pvt Ltd [2008-TIOL-2057-CESTAT-MUM] wherein it is held that where the issue pertains to interpretation of any provision, penalty is not imposable. Similar decision has been given in the case of M/s Arani Agro Oil Industries Ltd Vs CCE, Visakhapatnam [2008-TIOL-1883-CESTAT-BANG]. In this case, it is held that where the assessee had a bona fide belief of eligibility due to interpretation of provisions, penalty is not imposable.

- The appellant submit that on the basis of above discussion even if the contention of the department is accepted for the argument sake, then also penalty is not warranted as they have acted under the bonafide belief and no penalty can be imposed on the assessee for the acts done under bonafide belief. It has been held in various cases that no penalty is warranted when the assessee has acted on the basis of bonafide belief. Even the highest court of India – hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”

This decision was cited in the reply to show cause notice but it was not adhered to while passing the order in original and the same order in original have been upheld by the learned Commissioner Appeals. Such an order issued by ignoring the Supreme Court decision is not justified and is liable to be quashed. Thus, the hon’ble Supreme Court has held that where the assessee acts under bonafide belief penalty cannot be imposed. Similar decision is given in the case of Sri Krishna Alloys vs Commissioner of Central Excise, Salem [2006 (200) ELT 158 (Tri.-Chennai)]. In this case it was held that:-

“Penalty - Imposition of - A situation where an assessee acted under a bona fide belief does not call for invocation of the penal provisions - No penalty imposable in such a situation - Rule 15 of the Cenvat Credit Rules, 2004. [para 4]”

Some other cases in support of their contention are cited as follows: -

*          Star Neon Singh vs. Commissioner of Central Excise, Chandigarh [2002 (141) ELT 770 (Tri.-Del.)]
*          Straw Products Ltd. vs. Collector of Central Excise, Indore [1996 (87) ELT 115 (Tribunal)]
*          Johnson & Johnson Ltd. vs. Collector of Central Excise, Bombay [1995 (78) ELT 193 (Tribunal)]
*          Indian Explosives Ltd. vs. Collector of Customs [1992 (60) E.L.T. 111 (Cal.)]
*          Tata Engineering & Locomotive Co. Ltd. vs. Collector of Customs [1991 (56) E.L.T. 812 (Tribunal)]
*          Surat Municipal Corpn. Vs. Commissioner of C. Ex., Surat [2006             (4) S.T.R. 44 (Tri. - Del.)]

The analysis of above cited decisions makes it clear that since the assessee has acted under bona fide, no penalty can be imposed on them. Therefore, the benefit of above referred cases should be extended to the appellant and the appeal filed by the department should be set aside.

Revenue’s Contention:-

Revenue contended that the decision in the case of Reliance Industries was in the matter of rate of duty and not the manner of payment.

Reasoning of the Tribunal:-

- The Tribunal held that there are no clear provisions under the Rules on this issue. But considering the overall scheme of the Cenvat Credit Rules, the Tribunal was of the view that the provisions that are applicable on the date of payment would apply. Therefore, The Tribunal did not give any relief in the matter of duty demanded. However, on payment of such amount in PLA alongwith interest, the appellant are allowed to take credit of cenvat credit utilized for the purpose on 28.11.08.

- It was held that the appellate authority had come to the conclusion that there was no mala fide intention on the part of the appellants but he has not given full waiver of penalty. This is not justified. Once Section 80 of the Finance Act, 1994 is invoked, full waiver from penalty is to be given and not just partial relief. It was noted that this was the legal point raised in the appeal by the Revenue. But the legal point is to be resolved by giving full relief from penalty rather than increasing penalty.

- It was held that there is no case for sending the order for de-novo consideration. Appeal was partially allowed by setting aside the penalty imposed on the appellants.

Decision of the Tribunal:-

Appeals disposed of accordingly.

Conclusion:-

The Tribunal rightly allowed the appellant-assessee to utilize Cenvat credit account for discharge of service tax liability of outward GTA service before the amendment in the definition of Output Service. The assessee who has rightfully earned the cenvat credit should be allowed to utilize the same. There is now no controversy remaining as the Hon’ble High Court of Punjab & Haryana has in the case of Commissioner of Central Excise, Chandigarh v/s Nahar [2010-TIOL-868-HC-P&H-ST] has held that Service Tax can be paid from CENVAT Account for receipt of GTA Service.

Further, the Tribunal also considered the fact that this issue was involving interpretation of legal provisions and therefore, full waiver from penalty was required to be granted by invoking Section 80 of the Finance Act, 1994. When the interpretation of legal provisions is involved and the delay or non-payment of service tax is not due to any action/inaction with intent on the part of the assessee, then no penal liability should be imposed on the assessee.

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PJ/CASE STUDY/2011-12/42
25 January 2012

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PJ/CASE STUDY/2011-12/42 25 January 2012

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PJ/CASE STUDY/2011-12/42
25 January 2012