Whether service tax liability under GTA could be discharged by ultilising Cenvat Credit prior to its exclusion from the scope of output services?

PJ/Case Study/2012-13/37

CASE STUDY

Prepared By: CA Neetu Sukhwani &
Arpita Birla

Introduction:- This case study covers the most controversial issue i.e., regarding utilisation of Cenvat Credit for making payment of service tax in respect of GTA services. This issue has been under constant litigation and amendments in this respect have further added to the controversies rather than resolving the same.

M/s JAIN METAL COMPONENTS PVT. LTD. v/s CCE Jaipur-II
[ORDER IN APPEAL NO. 525(CB)ST/JPR-II/2011]

Relevant Legal Provisions:

Rule 3(4) of the Cenvat Credit Rules, 2004: Cenvat Credit may be utilized for payment of service tax on any output service.

Rule 2(p) of the Cenvat Credit Rules, 2004:Output service means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, the expression ‘provider’ and ‘provided’ will be construed accordingly.

Rule 2(r) of the Cenvat Credit Rules, 2004:Provider of taxable service includes a person liable for paying service tax.

Person liable for payment of service tax has the meaning assigned to it in clause (d) of sub-rule (1) of Rule 2 of the Service Tax Rules, 1994.

Person liable for service tax means-

(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.

Issue: - Following issue was made before the adjudicating authority:

Whether service tax liability under GTA could be discharged by ultilising Cenvat Credit prior to its exclusion from the scope of output services?


Brief Facts:-

1.                  M/s Jain Metal Components Pvt. Ltd. located at 16(B) (II), Heavy Industrial Area, Jodhpur (hereinafter referred to as Appellant) is engaged in manufacturing brass components and hypodermic needles. The Appellant is registered with the Service Tax under GTA having Service Tax Registration no. 6031/ST/GTA/JDR/04. The appellant has paid the service tax for the period Oct, 04 to March, 05 on the goods transport by road by utilising the Cenvat Credit of Rs. 77078/-.

2.         The Department issued Show cause no. V (ST) 708/ SCN/ JDR/ 06/ 4842-43 dated 19.4.06 alleging that the Cenvat credit availed cannot be utilised for discharging the service tax liability on the goods transport agency. The service tax liability on the above has to be discharged through cash only.

3.                  However, the assessee paid service tax in cash in order to avoid conflict with the department and during Personal hearing, TR 6 challan as the proof of paying the Service Tax on GTA in cash was also submitted. Other submissions in favour of the Appellant were also given by the authorized representative.

4.                  The learned Adjudicating Authority did not consider the submissions made by the Appellant and passed the impugned Order-In-Original no. 2280/ST/2007 in which the demand of Rs. 77078/- was confirmed alongwith the interest of Rs. 20040/-. It was held that the service tax needs to be appropriated to Government account but the interest was confirmed. The penalty was set aside in order to encourage the trade to come forward and discharge the service tax liability.

5.                  The appellant filed an appeal to the Commissioner (Appeals) aggrieved by the Order-In-Original no. 2280/ST/2007. Their main ground of appeal was that they have paid the service tax on the GTA services in cash in order to avoid conflicts but instead of welcoming it department has demanded the interest also. The other grounds were stated that they are very well eligible to pay the service tax on GTA services from Cenvat Credit and the service tax was paid in cash just only to avoid the conflicts.

6.         The personal hearing was granted on 11.8.2008 and the Commissioner Appeals remanded the case vide order in appeal no. 134 (DK) ST/JPR-II/2008 dated 28.8.2008. While remanding the case, hon’ble Commissioner Appeals has held that the appellant have made the payment of service tax in cash just to avoid the conflicts. The case was remanded on the ground that the order was non speaking as it did not give any reasons why the service tax was not payable from credit.

7.         Thereafter, the department issued a fresh Show Cause Notice V (ST)SCN/708/JDR/06/14404 Dt. 18.08.2010, on remand of the matter for de-novo proceedings. It was alleged that for the period they had wrongly paid service tax on GTA service from Cenvat account and thereby wrongly utilized the cenvat credit amounting to Rs. 77, 078/- contravening the provisions of sub-rule 4(e) of Rule 3 of the Cenvat Credit Rules, 2004 read with Rule 2(k) (ii). The appellant was asked to show cause as to why

(i)      their claim for payment of service tax of Rs. 77, 078/- on GTA from Cenvat credit account treating the same to be their output service may not be rejected, and

(ii)     the interest at the appropriate rate on the subsequent adjustment of the amount of Rs. 77, 078/- as service tax paid from cenvat credit account in Cash may not be recovered from them under Section 75 of Finance Act, 1994.

8.         The above show cause notice was replied by giving various submissions in their favour. The submissions made in reply to the show cause notice were reiterated.

9.         The learned Adjudicating Officer did not accept the submissions and passed the impugned Order in original no. 907/ST/2009-10 dated 28.09.2010 against the appellant. The demand of service tax of Rs. 77078/- was ordered to be paid in cash alongwith interest. Penalty under section 76 of the Finance Act, 1994 was also imposed.

10.       Aggrieved by the said impugned order, appellant further filed appeal to the Commissioner Appeals but the learned Commissioner (Appeal) did not adhere to submissions made by the appellant and upheld the demand of service tax with interest and imposition of penalty under Section 76 of the Finance Act, 1994 vide Order-in-Appeal No. 525(CB)STJPR-II/2011 dated 31.10.2011.Hence, the appellant is in appeal to CESTAT.

Assessee’s Contentions:-

Assessee made following submissions before CESTAT:-

1.                  The appellant submit that the impugned Order in Appeal passed by the learned Commissioner (Appeals) is wholly and totally erroneous and is liable to be quashed.

2.                  The appellant submit that the impugned order is liable to be set aside as it is passed in violation of the settled tenets of law. It is submitted that the issue raised in the impugned show cause notice had already been raised in the earlier proceedings initiated vide show cause notice no. V (ST) 708/ SCN/ JDR/ 06/ 4842-43 dated 19.4.06 wherein the Order-In-Original No. 2280/ST/2007 was passedin which the demand of Rs. 77078/- was confirmed alongwith the interest of Rs. 20040/-. It was held that the service tax deposited by the appellant in cash needs to be appropriated to Government account but the interest was confirmed. The penalty was set aside. The appellant had deposited the service tax in cash to avoid conflict on the issue with the department. However, the learned Adjudicating Authority had confirmed the interest liability and against this, the appellant had filed appeal before the learned Commissioner (Appeal). The learned Commissioner (Appeal) vide order-in-appeal no. 134 (DK) ST/JPR-II/2008 dated 28.8.2008 had remanded the matter back on the ground that the order was non speaking as it did not give any reasons why the service tax was not payable from credit. However, instead of following the direction given in the Order-in-Appeal No. 134 (DK) ST/JPR-II/2008 dated 28.8.2008, the Department has issued a fresh show cause notice to the appellant. In the proceedings initiated in accordance with the second show cause notice, the learned Adjudicating Authority has passed the impugned Order in original no. 907/ST/2009-10 dated 28.09.2010 against the appellant confirming the demand of service tax of Rs. 77078/- to be paid in cash alongwith interest. Penalty under Section 76 of the Finance Act, 1994 was also imposed.Appellant submit that aggrieved by the Order-in-Original no. 907/ST/2009-10 dated 28.09.2010, the appellant have filed appeal before the learned Commissioner (Appeal). However, the learned Commissioner (Appeal) has not taken into consideration any of the facts enumerated hereinabove and has passed the Order-in-Appeal dated 31.10.2011 upholding the order-in-original. That the fact was mentioned before the Commissioner (Appeal) that service tax was paid in cash. But the Commissioner (Appeal) has not considered this fact while passing the impugned order and therefore, a wholly void order has been passed which once again the demand the amount which is already paid by the appellant.

3.                  The appellant submit that the impugned order is arising out of proceedings initiated once again due to remand back of the case from office of Commissioner Appeals. The impugned demand has already been adjudicated in year 2007 vide order in original no. 2280/ST/2007. In this order, the good office of Deputy Commissioner has confirmed the demand of service tax (which was already paid and hence was ordered to be appropriated to the credit of government). The penalties were also set aside but the demand of interest was confirmed. The submissions of appellant that Cenvat Credit can be duly used to pay the service tax on GTA and the payment in cash has simply been done to avoid the conflicts with department, were given simply to mean that since the demand in cash was not justified, the question of interest does not arise. Thus, the appeal was only against the interest portion as the service tax was already paid and penalties were set aside. The remand order of Commissioner Appeals was simply saying to give reasons as to why the interest was confirmed when the demand itself was not justified. Since the remand back of case was done to give reasons for confirming the interest; the learned Deputy Commissioner was to surround his proceedings around this corner only. But instead of this, the learned adjudicating authority has passed away an entirely new order which is demanding the service tax already paid, interest and also the penalty. Thus, in the same facts and circumstances, the same office has passed an entirely new order which is not justified. In the same facts and circumstances, the same office cannot take differential stand even in case of two assessees as held in the case of BIRLA CORPORATION LTD. Versus COMMISSIONER OF CENTRAL EXCISE [2005 (186) E.L.T. 266 (S.C.)] . In this case it was held that revenue is not allowed to take a different stand in the two identical situations. The verdicts of hon’ble Supreme Court are produced as follows:-
            “Judicial discipline - Discrimination - When question arising for consideration and facts are almost identical to previous case, revenue cannot be allowed to take a different stand.”
Similar decision was given in the following cases:-
Ø       JAYASWALS NECO LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NAGPUR [2006 (195) E.L.T. 142 (S.C.)]

Ø       COMMISSIONER OF C. EX., HYDERABAD Versus NOVAPAN INDUSTRIES LTD. [2007 (209) E.L.T. 161 (S.C.)]

Thus, in the light of above decisions, the adjudicating authority is not allowed to take differential stand where the facts and circumstances are the same but the parties are different. But in the instant case, everything is the same – the facts, circumstances and even the assessee. Then too, the differential stand has been taken. In the initial order no. 2280 passed in year 2007 the demand so paid was appropriated and the penalties were set aside while now, in year 2010; the same case has been adjudicated by demanding the service tax, interest and penalties. And to the utter surprise of the appellant such an erroneous order is upheld by the learned Commissioner Appeals. Such an order is void ab initio in the light of above stated decisions and is liable to be set aside.

4.                  The appellant submit that in the impugned order the learned Commissioner (Appeal) has referred to Rule 2 (p) and observed that the Explanation to the Rule 2(p) was omitted by Notification No. 08/2006-CE(NT) dated 19.04.2006. On the other hand, the period for which the impugned order was passed pertains to October, 2004 to March, 2005. The learned Commissioner (Appeals) has alleged that during the period in dispute, the explanation to Rule 2 (p) was in force and due to this Cenvat credit cannot be utilized for paying Service tax on GTA. In this regard, the appellant would like to reproduce the rule 2(p) 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 above explanation makes it clear that GTA will be deemed to be output service even for those persons who does not provide any other taxable service or who does not manufacture any dutiable goods. Thus, this explanation is not applicable on the appellant as they were manufacturing the dutiable goods during the said period. Further, this explanation was mere clarificatory in nature and enhanced the scope of rule 2(p). In the nutshell, the provision of deemed output service as given in main body of rule 2(p) is extended to even those people who doesn’t provide taxable services or doesn’t manufacture any dutiable goods. The deletion of this explanation had impact on only those persons who were not providing any taxable service or not manufacturing any dutiable goods. For all other persons (including the appellant) the situation was the same even after removal of this explanation. Therefore the contention of the impugned order in appeal was not justified as the said explanation was not applicable on them.

5.            The appellant further submit that the Commissioner (Appeals) has placed reliance on the decision of ITC Ltd. vs CCE, Guntur [2011 (23) STR 41 (Tri-Bang.)] wherein it is held that legal fiction under rule 2(p) is only for the persons who do not provide any taxable service or manufactures any dutiable products. In this respect it is submitted that this contention is totally erroneous. If this was the intention of the legislation, there was no need to insert the explanation to said rule 2(p) as referred hereabove. The said explanation was meant solely for the recipient of GTA service who does not provide any taxable service or doesn’t manufacture any dutiable goods. It is to be noted that the intention of keeping an explanation is to clarify what is already included therein the main body of a provision. Hence, the legal fiction under rule 2(p) was applicable on all the recipients of GTA service (including those who doesn’t provide any taxable service or manufacture any dutiable goods). This is further clarified by the fact that this legal fiction is specifically deleted from the legislation w.e.f. 1.4.2008 whereby GTA has been removed from the definition of “Output Services” as given under Rule 2(p) of the Cenvat Credit Rules, 2004. This has been done by virtue of amendment made in the definition of output service given in rule 2(p) vide Notification No. 10/2008-CE(NT), dated 01.03.2008. Therefore, the impugned order in appeal is not sustainable and is liable to be set aside.

6.            The appellant further submit that that the learned Commissioner (Appeals) has held that the case of M/s Vinod Industries (order in original no. 857/ST/2009-10 dated 30.8.2010) was identical but it pertains to the period when the explanation to the notification was deleted vide notification no. 8/2006-CE(NT) dated 19.4.2006. It is held that due to this, the analogy of this case cannot be applied in the case of appellant. In this regard, it is submitted that the said explanation was not applicable on the appellant in the light of discussion made hereabove. Even if it is accepted for the sake of argument also that this explanation was applicable, then too the case of M/s Vinod industries pertained to period October, 2005 to March, 2006 which is well before the amendment which was applicable w.e.f. 19.4.2006. This is clear from the following para taken from the order of M/s Vinod Industries -

At page no. 1 of said order of M/s Vinod Industries -
“BRIEF FACTS OF THE CASE:-
               Briefly stated the facts of the case are that noticee having Service Tax Registration no. 6435/ST/GTA/JDR/04 received GTA services and in view of Notification no. 36/2004-ST dated 3.12.2004 read with rule 2(1)(d)(v) of Service Tax Rules, 1994 filed ST-3 Return for the half year ending March, 2006. On scrutiny it came to notice that in contravention to Rule 3(4) of the Cenvat Credit Rules, 2004 it used the Cenvat credit against the GTA service received by it…..”

Therefore, the said order had arisen out of scrutiny of half yearly service tax return for the period October, 05 to March, 06. Thus, this period is well before deletion of the said explanation. As such, even if it is accepted that the explanation to rule 2(p) was applicable then too the case was decided in the favour of appellant. As such, its ratio should be applied in the instant case and the impugned order should be set aside.

7.            In continuation to above it is submitted that in the said order of M/s Vinod Industries, the assessee was allowed to pay the service tax on GTA from Cenvat credit by placing reliance on Legal Aid Col. Of CENTAX Publication (2006 (1) STR/J-341-342) and Circular no. 345/4/2005-TRU dated 3.10.2005 which says that service tax on GTA can be paid through Cenvat. It was further held that the Government belatedly vide notification no. 10/2008-CE(NT) dated 1.3.2008 deleted the GTA service from output service which means prior to 1.3.2008-GTA was under output service and was entitle to use Cenvat credit. Thus, as per this decision, prior to 1.3.2008, the GTA was deemed to be output service and its payment could be made from Cenvat credit. This analogy is further supported by hon’ble Tribunal in the following cases:-
·          M/s Anurag Ferro Products Pvt Ltd v/s CCE & CR, BBSR [2009-TIOL-1345-CESTAT-KOL] : -In this case it was held as under:
ST – Cenvat credit – Amendment in CCRs w.e.f. 01.03.08- GTA service excluded from the definition of output service - assessee claims earlier to this amendment there was no such restriction – held, assessee has prima facie a strong case- waiver from pre-deposit granted: Kolkata CESTAT;
·          Toyota Kirloskar Motors Pvt Ltd, Bangalore v/s Commissioner of Central Excise (LTU), Bangalore [2009- TIOL-1437-CESTAT-BANG]: -
In this case it was held that:-
“…GTA services have been excluded from the scope of output services w.e.f. 01.03.08.” The assessee in this case had utilised credit for paying service tax on GTA service received by them. Stay and waiver from pre-deposit was granted by holding that prima facie, appellants has a strong case on merits.”
An analysis of these decisions makes it clear that 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 in issue is before this date, their ratio should be allowed and impugned order should be set aside.

8.            In continuation to above it is submitted that the payment of service tax from GTA was allowed to an assessee falling under same jurisdiction under same facts and circumstances. But an entirely different stand has been taken in the case of appellant. It has been held in the case of Lumax Samlip Industries that the order passed by an office is binding on it and department cannot take stand contrary to that decision. This decision was cited asCOMMISSIONER OF SERVICE TAX, CHENNAI Versus LUMAX SAMLIP INDUSTRIES [2007 (6) S.T.R. 411 (Tri. - Chennai)]. This decision was confirmed by hon’ble Madras High Court which was reported at 2007 (8) S.T.R. 113 (Mad.). This decision is also affirmed by the highest court of India and was reported at 2008 (11) STR J34 (Supreme Court). In the instant case, the appellant is also working under the similar circumstances. They have also paid the service tax from the Cenvat credit as in the case of M/s Vinod Industries, so the department cannot take a different stand while passing the order in the case of the appellant. Therefore in the case of the appellant also the GTA payment through the Cenvat credit should be allowed and the impugned order should be set aside.

9.            The appellant further submit that the impugned order in appeal has only discussed the rule 2(p) and decision of M/s Vinod Industries, all the other submissions given in the appeal memorandum has not even been touched. But the submissions so given and cases referred by the appellant are just not distinguished by the Learned Commissioner Appeals while passing the order. Thus, the learned Commissioner (Appeal) has neither given reasons for maintainability of proceedings initiated by second show cause notice nor any reasons have been records for rejecting the submissions of the appellant on this issue. It is submitted that the impugned order amounts to a non-speaking order and is passed in violation of principles of natural justice and therefore, the same is not tenable and is liable to be set aside.
It is submitted that M/s Nisha Cements Vs. CCE, Calicut [2010-TIOL-1255-CESTAT- BANG] it was held that the order passed by lower Appellate Authority confirming duty demand by neither addressing various grounds raised by assessee nor discussing case law cited and without giving proper findings thereon, not sustainable. So going through the analogy given in the above decisions the impugned order passed against the assessee is not tenable in law because the Learned Commissioner (A) has not discussed the submissions made by the appellant.
The appellant further submit that 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 appellant further relies upon the judgment given in 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 anorder 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. Similar decision is recently given in the following case;-

·          M/s S Kushalchand & Co Vs CC, Mangalore (Dated : September 9, 2009) [2010-TIOL-138-CESTAT-BANG] :
Customs - Adjudication - Imports of cocoa powder classified under Chapter 1805 without adequate reasoning resulted in denial of DFIA benefits - Letter issued without any proper reasoning detrimental to rights and privileges of assessee - Commissioner directed to hear appellants and pass a speaking order - Matter remanded :BANGALORE CESTAT;

In the instant case also, the submissions of the appellant have not been discussed nor any reasons have been given to reject them and therefore it is liable to be set aside.

10.        The appellant submit that the service tax on GTA can be paid from the cenvat credit. In this regard, reliance is placed on the judgment given by the Hon’ble High Court of Punjab and Haryana in the case of Commissioner of Central Excise, Chandigarh v/s Nahar [2010-TIOL-868-HC-P&H-ST] wherein it was held as under:
Service Tax – GTA – Service Tax can be paid from CENVAT Account: a person who is not actual service provider but discharges he service tax liability on the Taxable services, under Section 68 (2) of Finance Act, 1994, as a deemed service provider, is entitled to avail the CENVAT credit on inputs/input services/capital goods for payment of GTA service tax, even if he is not using such inputs/input services/capital goods for providing the taxable services by virtue of deeming legal fiction.
The Hon’ble High Court held that a perusal of Para 2.4.2 of CBEC’s Excise Manual of Supplementary Instructions shows that there is no legal bar to the utilization of Cenvat Credit for the purpose of payment of service tax on the GTA services.
It was further held that “Apart from the above, even as per Rule 3 (4) (e) of the Cenvat Credit Rules, 2004, the Cenvat credit may be utilized for payment of service tax on any output service.”
Hence, it is clear that the Hon’ble High Court has allowed the utilization of Cenvat credit for payment of service tax.

11.        This judgment was recently followed in the case of Commissioner of Central Excise v/s M/s Nahar Spinning Mills Ltd [2011-IOL-413-HC-P&H-ST] where in it was held as under:
Service Tax – Cenvat Credit can be utilized for paying Service Tax on GTA service – 2010-TIOL-868-HC-P-H-ST – followed: “Whether a person who is not actual service provider, but discharges the Service tax liability on the Taxable Services, under Section 68 (2) of the Finance Act, 1994, as a deemed service provider, is entitled to avail the Cenvat credit on inputs/input services/capital goods for payment of GTA service tax, even if he is not using such inputs/input services/capital goods for providing the taxable services?’ Counsel for the revenue fairly states that the matter is covered against the revenue by order of this Court dated 6.5.2010 in CEA No. 99 of 2008 CCE v/s M/s Nahar Industrial Enterprises Ltd -2010-TIOL-868-HC-P-H-ST etc.
On the basis of the afore-said judgments of the High Court, it is clear that the issue is no longer res-integra and has been settled in favour of the assessee.
12.        It is further submitted that the Delhi Tribunal in the case of M/s Dhillon Kool Drinks & Beverages Ltd v/s CCE, Jalandhar [2011-TIOL-307-CESTAT-DEL] has followed the judgment of the High Court and held as under:
   Service Tax – CENVAT Credit – The appellants are eligible to pay service tax on GTA from Cenvat Credit – Question of law answered in favour of the appellants by the High Court.”
Following the same the appeal should be allowed. On the basis of above submissions it is ample clear that the person liable to pay the service tax, who have availed the credit in the capacity of manufacturer, can definitely utilize the Cenvat Credit for paying the service tax on the GTA services. A no. of judgments in favour of this contention were cited in the reply to show cause notice, in the appeal memorandum and in the written submissions. In addition to those cases, reliance is also placed on the following cases:-
·          COMMR. OF S.T., MUMBAI Versus PHILLS ENGINEERING CORPORATION [2010 (20) S.T.R. 692 (Tri. - Mumbai)]
Cenvat credit of Service tax - Utilisation of credit - Credit utilised for payment of Service tax on GTA for period between October 2006-September 2007- Facility of utilisation of credit withdrawn by Notification No. 10/2008-C.E. (N.T.) - Prior to notification ibid, as per Tribunal’s decisions in 2007 (7) S.T.R. 569 (Tribunal), 2007 (8) S.T.R. 186 (Tribunal), 2007 (7) S.T.R. 26 (Tribunal) etc. assessee entitled to utilise Cenvat credit account for payment of Service tax on GTA service - No ambiguity in impugned order - Revenue’s appeal contending that such utilisation not available from 19-4-2006, rejected - Rule 3 of Cenvat Credit Rules, 2004. [paras, 3, 5]
·          MOHINI INDUSTRIES Versus COMMISSIONER OF C. EX., RAIPUR [2009 (247) E.L.T. 735 (Tri. - Del.)]
Cenvat/Modvat - Utilization of credit - Cenvat credit can be utilized for payment of Service tax on GTA service - Finding of Commissioner that since appellants are manufacturer of excisable goods they cannot be treated as provider of output service, is not sustainable - Rule 3(4) of Cenvat Credit Rules, 2004. [paras 2, 3]
o         CCE, Ludhiana v/s Nahar Spg. Mills Ltd [2010 (99) RLTONLINE 157 (CESTAT-DEL)] wherein it was held as under:

Service Tax – Cenvat credit – Utilisation – Rule 3 of the Cenvat Credit Rules, 2004 – Goods transport agent service – accumulated cenvat credit can be utilised for paying service tax on output goods transport agent service – Revenue’s appeal dismissed

Therefore in all the above cases it is held that the Cenvat credit can be utilised for the payment of service tax on the services as a recipient of service. The stand of Commissioner (Appeal) is not acceptable. Therefore the appeal should be allowed.

13.        Further, regarding the payment of interest which was the key issue in the case, the appellant submit that interest liability arises in case of non payment of service tax on the date when it became due. But in the case of the appellant the service tax was paid on the due date therefore, interest is not chargeable from them. It is submitted that the only bone of contention is that the Revenue Department is insisting that payment of Service tax was to be done in cash instead of from cenvat credit. Thus clearly the dispute relates to mode of payment of service tax and it is not a case of non-payment of service tax. Therefore, interest cannot have been recovered from them. Appellant submit that the provisions of Section 75 read as under:

“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 Official Gazette for the period by which such crediting of the tax or any part thereof is delayed.”

As such, interest is imposable for the delay/failure to pay the service tax. The appellant have duly paid the service tax from Cenvat Credit. It has also been held in the case of STERLITE INDUSTRIES (INDIA) LTD. Versus COMMISSIONER OF C. EX., VAPI [2008 (225) E.L.T. 397 (Tri. - Ahmd.)]that payment from Cenvat is also a type of payment. . Since the interest is imposed for delay in payment of service tax and we have paid the service tax on time; no interest is imposable on the appellant under section 75 ibid.

In this regard the appellant also relied on the judgment given in the case of M/s Paharpur Cooling Towers Ltd v/s Commissioner of Service Tax, Kolkata [2009-TIOL-417-CESTAT-KOL] wherein it was held as under:
Service tax – No infirmity when service tax is paid in r/o GTA service through CENVAT A/c – Issue no longer res integra – Imposition of penalty and demand of interest set aside: Appeal allowed.

In the said case also, the period disputed was July, 2005 i.e. prior to 18.04.2006 when the Explanation to Rule 2 (p) of the Cenvat Credit Rules, 2004 was deleted. And it was held that no interest was required to be paid. Similarly, in our case also the relevant period was from October 2004 to March 2005. Therefore, the afore-said decision is squarely applicable to us.

Similarly, in the case of Hindustan Coca Cola Beverages Pvt Ltd v/s CCE, Jaipur–I [2008-TIOL-2051-CESTAT-DEL] wherein it was held as under:

ST- interest –assessee pays service tax on GTA service from cenvat account – when Revenue objects, assessee pays the same in cash after few months – interest demanded – pre-deposit waiver granted.

Further, in the case of M/s Bhushan Power & Steel Ltd v/s Commr of Central Excise, Customs & Service Tax, BBSR-II [2007-TIOL-1828-CESTAT-KOl] it was held that interest was not payable. It was held as under:

Service Tax – Goods Transport Agency service – Assessee pays tax on GTA Services by utilizing Cenvat Credit on GTA Services – Revenue disallows and ask for cash deposits – Tax deposited but Revenue levies interest for delayed payments – Since the issue is no longer res integra, assessee’s appeal allowed.

Allowing the ratio of these decisions, the order in appeal should be set aside allowing the appeal.

14.       The appellant further submit that the learned Commissioner (Appeal) has upheld the imposition of penalty under Section 76 of the Finance Act. However, no reasons have been given as to why the penalty imposed by the Adjudicating Authority is upheld. It was further submitted that it has recently been held by hon’ble Mumbai High Court that the order should specify the reasons for which the order is so passed. This decision has been given in the following case:-

CCE Vs M/s Cable Corporation of India Ltd [2010-TIOL-607-HC-MUM-CX]:

“CESTAT - Tribunal is expected to pass a reasoned order following principles of natural justice dealing with all contentions - matter remanded: while deciding the case, Court is under an obligation to record reasons, however, brief, the same may be as it is a requirement of principles of natural justice. Non observance of the said principle would vitiate the judicial order.:BOMBAY HIGH COURT; “

It is submitted that penalty under Section 76 of the Finance Act cannot be imposed on us as there no failure on the part of the appellant in making payment of service tax on due date. Moreover, the learned Commissioner (Appeal) has not taken the fact into consideration that the appellant had already deposited the service tax amount in cash even before the adjudication order was passed. This was done to avoid conflict with the Department. This fact also proves the bona fides of the appellant and therefore, the penalty under Section 76 could not have been imposed on the appellant. It is also submitted that the in the previous adjudicating proceedings, the Adjudicating Authority had also not imposed any penalty on the appellant.

15.       The appellant submit that penalty is not warranted as the appellant 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. It is submitted the learned Commissioner (Appeal) in the impugned order has also accepted that there were several case laws wherein various Tribunals have passed judgments which favoured the appellant’s contention. It was also observed that the legal aspects of the case are contentious one. It is submitted that when it is clear that there were several decision favouring the appellant and that the issue involved was one of legal interpretation, then no penalty could have been imposed on the appellant-assessee.
It is submitted that even the highest court of India – hon’ble Supreme Court has held in the case ofCOMMISSIONER 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]”
The analysis of above decision makes it clear that since we have acted under bonafide, no penalty can be imposed on us. Therefore, the benefit of above decision of hon’ble Supreme Court should be extended to us.

Reasoning of the CESTAT:-

The dispute involved in this case is whether service tax payable on services of goods transported agency received by the appellant could be paid from Cenvat credit account. Prima facie, the issue is decided by Punjab & Haryana High Court in the case of CCE Vs. Nahar Industrial Enterprises 2012 (25) STR 129 (P&H). Hence, stay is granted for pre-deposit of dues arising from the impugned order and stay collection thereof during the pendency of the appeal.

Decision:- Stay application has been allowed while the appeal is still pending in CESTAT.

Conclusion:- The essence of the case is that there is a lot of dispute as regards utilisation of Cenvat Credit for discharging the service tax liability as it is contended by the department that service tax under GTA is required to be paid in cash. However, it is commonly contended by the assessees that such service is deemed output service and they can utilise the credit for making payment of service tax as regards this service also. Furthermore, it can be said that the issue is more in favour of the assessee on account of amendment that took place by virtue of Budget announced for the year 2008-09 wherein GTA has been specifically removed from the definition of ‘output services’ the effect of which is that w.e.f. 01.03.2008, GTA cannot be treated as ‘output service’ for the purpose of paying service tax from the Cenvat Credit. The amendment strengthens the contention of the assessee that prior to amendment, credit could have been utilised for payment of service tax in respect of GTA service. Moreover, this analogy has also been accepted in number of decisions given by the courts. Hence, the said amendment has extended benefit to the assessee.

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PJ/CASE STUDY/ 2012-13/37
05 January 2013

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PJ/CASE STUDY/ 2012-13/37 05 January 2013

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PJ/CASE STUDY/ 2012-13/37
05 January 2013