Whether service on GTA can be paid through cash instead of CENVAT A/C

PJ/CASE STUDY/2012-13/12

27 June 2012

PJ/Case Study/2012-13/12

CASE STUDY

Prepared By:

                                                                                                CA. Pradeep Jain
                                                                                                CA. Nishit Shah
                                                                                                Arpita Birla

Introduction:-

As per provisions of sec 68(2), service tax on GTA has to be paid through Cash only, however when the assessee has paid the same through CENVAT credit account for the period October 2005 to March 2006, whether the same is allowable or not?? In the case under study the same issue is raised and explained.

Deputy Commissioner, Central Excise, Jodhpur v/s M/s Vinod Industries
[Order-In-Appeal no. 857/ST/2019-10, dated: 30.08.2010]

Brief Facts:-

- A demand of Rs. 1,00,369/- was issued to M/s. Vinod Industries, F-220/221, Mandia Road, Pali (Raj.)(hereinafter also referred to as `Noticee') under Section 73(1) of the Finance Act, 1994 vide show cause notice dated 28.09.2006 for irregular Cenvat credit availment under the category of' Transport of Goods by Road Services' during the period half year ending March 2006. The recovery of interest as per provisions of Section 75 of the Finance Act, 1994 was proposed and penal provisions under Section 76 of the Act were invoked for their failure to pay service tax, furnish service tax return and for suppressing the taxable value with intent to evade payment of service tax.

- The Deputy Commissioner, Central Excise Division, Jodhpur vide impugned order dated 30.08.2010 has dropped the proceedings initiated vide above referred show cause notice in the case of above noticee.

- However, In exercise of the powers conferred upon the Commissioner under Section 84(1) of the Finance Act, 1994, the Commissioner, Central Excise, Jaipur-II, directed the Deputy Commissioner, Central Excise Division, Jodhpur to file an appeal before the Commissioner (Appeals), Central Excise, Jaipur for determination of legality and correctness of the impugned Order-in-Original and to correct the same the extent indicated above on the following reasons -

- The above order of the Deputy Commissioner is not proper and legal to the extent of dropping the demand of Rs. 1,00,3691- for recovery of wrongly availed and utilized Cenvat credit in respect of transport of goods by road services along with interest under Section 73 and 75 of the Finance Act, 1994 on the following grounds.

(i) that as per provisions prevailed during the disputed period the noticee was required to pay the service tax in Cash, being consignee as provided under rule 2(1)(d)(v), since they were not actual service provider but they paid the said service tax by virtue of the liability shifted on them by the said rule. As also clarified by Board vide para 8.1 of the Circular 97/8/2007 dated 23.07.2008, according to which, the consignor or the consignee has to pay service tax in cash on goods transport by road service.

(ii)that prior to Notification No. 10/2008(NT) dated 01.03.2008, rule 2(p) of the Cenvat Credit Rules, 2004 "Output Service" means "any taxable service provided by the provider of taxable service" but as per rule 2 (r) of the Cenvat Credit Rules, 2004 "Provider of taxable service" include a person liable for paying service tax. Therefore, reading the two definitions in conjunction, it is clear that, to form 'output service', taxable service has to be actually provided by the 'provider of taxable service has to be actually provided by the 'provider of taxable service'. Even if due to a legal fiction, a consignor or a consignee qualifies to fall under the definition of 'a person liable to pay service tax' and consequently a 'provider of taxable service', it cannot be said that he has actually provided any taxable service. The service provided by a Goods Transport Agent (GTA) for which the consignor or the consignee is made liable to pay service tax does not become an 'output service' for such consignor or the consignee. Therefore, the service tax payable by the consignor or consignee on transportation of goods by road cannot be paid through credit accumulated by such consignor or consignee. Accordingly, consignor or consignee has to pay service tax in cash on goods transport by road service.

- In view of the above, it is evident that the Deputy Commissioner has erred in dropping the demand of service tax Of Rs. 1,00,369/- and hence demand of service tax to the extent of Rs. 1,00,369/- along with interest is recoverable from them under Section 73 and 75 of the Finance Act, 1994.

-

Respondent’s Contentions:-

Assessee made following cross- submissions before the Commissioner (Appeal):

-      That during the disputed period there was no provision specifically providing that the service tax was required to be paid in cash by consignee of the goods who was made liable to pay service tax therefore it was open to the respondent to pay service tax on GTA services received by him through CENVAT account

- Since they were paying service tax and as such it will be their output service for us and Thus, they can pay the service tax from Cenvat credit amount.

-   That the main contention of the department was that they are manufacturer of   excisable goods and as such GTA is not a output service for them by virtue of explanation to "output service" contained is Rule 2 (p) of Cenvat Credit Rules, 2004.

- Attention was also drawn to Rule 2(q) ibid, which defines "person liable for paying service tax". It reads as follows:-

2(q) "Person liable for paying service tax" has the meaning as assigned to it in clause (d) of Sub Rule (1) of rule 2 of the Service Tax Rules, 1994;

d) "Person liable for paying service tax" means,-

(i) in relation to 6 [a telephone connection or pager or a communication through telegraph or telex or a facsimile communication or a leased circuit]-

(a)         The Director General of Posts and Telegraphs, referred to in clause(6) of section 3 of the Indian Telegraph Act, 1885 (13 of 1885); or

(b)         The Chairman-cum-managing Director, Mahanagar Telephone Nigam Ltd., Delhi, a company registered under the Companies Act, 1956(1of 1956): or

(c)    Any other person who has been granted a licence by the Central Government under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1885 (13 of 1885);

(ii) in relation to general insurance business, the insurer or re-insurer, as the case may be, providing such service;

(iii) in relation to insurance auxiliary service by an insurance agent, any person carrying on the general insurance business or the life insurance business, as the case may be, in India.

(iv)   in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act,   the recipient of such service;

(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;

Thus, we are covered under clause (V) of aforesaid Rules. Hence, we are person liable to pay service tax. Hence, we fall in the ambit of aforesaid explanation.

- Moreover "Provider of taxable service" is defined in 2(r) of Cenvat Credit Rules. For the sake of convenience, it is rewritten as under-

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

- As such, they are provider of output services and hence are person liable for payment of service tax. Hence, they come under main definition of output service. Thus, it is output service for them and have rightly paid the tax from credit amount.

- It was further 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" and so could be paid by utilizing the input credit and following case laws were submitted

-        CCE Chandigarh v/s M/s Nahar Industrial Enterprises ltd. 2007(7) S.T.R. 26 (Tri – Del)
-        R.R.D. Tex Pvt ltd. v/s CCE Salem 2007(8) S.T.R. 186 (Tri – Chennai)
-        Ambattur Petrochem ltd. v/s CCE Raipur 2008 (9) S.T.R. 53 (Tri – Del)
-        CCE Belgaum v/s Flowserve Micropumps pvt ltd. 2008(9) S.T.R. 53 (Tri – Del)

It was also submitted that GTA service has been removed from the output service from 01.03.2008 under Rule – 2(p) of CCR’04, this implies that it was treated as an output service as such they rightfully paid the service tax through CENVAT account

Reasoning of the Commissioner (Appeal):-

Commissioner (Appeal) rejected the appeal of saying that respondent is liable to pay service tax under sec 68(2) of the act is treated as deemed provider of service in relation to services for which he is taxable only for the limited purpose of discharging the service tax liability and not for all the purpose. When the service, in fact, has not been provided by someone how he could be entitled to avail and utilize the service paid in cash on GTA service. This has been elaborately clarified in Boards circular no. 97/8/2007 – ST and has also been confirmed in Decision CCE,Raigarh v/s Santogne exports ltd. (2008 (15) STR 341(Tri- Mum)

Decision -

Order of Deputy Commissioner set aside and department’s appeal allowed

Conclusion:-

Department’s appeal was allowed on the above reasons, the issue of paying service tax on GTA from cash was issue of litigation and in many cases assessee has got relief in tribunal on the same issue.

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PJ/CASE STUDY/2012-13/12
27 June 2012

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