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Cenvat credit may be utilized for payment of service tax on any output service

CLR Editorial Notes: This case is related to an audit conducted by the Central Excise team at the appellant’s factory. The appellant is a manufacturing unit and transfers the produce to their depot which in turn has been equated to GTA services. The transportation being an input service, it was observed that the appellant was paying service tax from their input service tax credit account which is not admissible as the service tax credit can be utilised on output services only. The appellants had utilized the CENVAT credit given to them for their manufacturing activities for payment of service tax on the GTA service. The revenue department hence contended that the appellant cannot pay the service tax from the Cenvat credit availed by them.  However, As per Rule 3(4) of the Cenvat Credit Rules, 2004, the cenvat credit may be utilised for payment of service tax on any output service.

The Tribunal based on facts of this matter and also with reference to judgments made by High Courts in relation to similar cases, allowed the appeal.

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2013-ITS-127-CESTAT-M/s. Saurashtra Iron Forging Limited -Vs- Commissioner of Central Excise Rajkot , Decision : 05.02.2013

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Zonal Bench, Ahmedabad

Appeal No. : ST/607 of 2011

Arising out of : OIA No. 139/2011/Commr(A)/RBT/Raj dt. 19.09.2011

Passed by : Commr. (Appeals) C. Excise & Customs, Rajkot

For approval and signature : Hon ble Mr. M.V. Ravindaran, Member (Judicial)

Appellant (s) : M/s. Saurashtra Iron Forging Limited

Represented by : Shri P.V. Seth, Advocate

Respondent (s) : Commissioner of Central Excise Rajkot

Represented by : Shri K.N. Joshi, A.R.

CORAM :

Hon ble Mr. M.V. Ravindaran, Member (Judicial)

Date of Hearing / Decision : 05.02.2013

Bottom line:-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.
In the present case also, the service tax was paid out of the Cenvat credit on GTA services and hence the respondents were well within their right to utilize the Cenvat credit for the purpose of payment of service tax. The Commissioner (Appeals) as well as the Tribunal have rightly held that the respondents were entitled to pay the service tax from the Cenvat credit.

ORDER No. _____________ /WZB/AHD/2013

Per : Mr. M.V. Ravindaran;

This appeal is directed against Order in Appeal No. 139/2011/ Commr(A)/RBT/Raj dated 19.09.2011.

2. Briefly stated the facts of the case are that the audit for the period from April 2004 to March 2007 of appellant was conducted by the Central Excise officers wherein it was observed that they were transferring the goods to their Depot at Pune and were paying the freight from the factory to Depot. The transportation is an input service and the appellant was paying service tax from their input service tax credit account which is not admissible as the service tax credit can be utilised on output services only. The appellant was required to pay the service tax in cash and thus the cenvat credit to the tune of Rs. 85,734/- utilised by the appellant for payment of service tax covering the period from May 2005 to March 2007 towards GTA has resulted into non payment of service tax. As per Rule 3(4) of the Cenvat Credit Rules, 2004, the cenvat credit may be utilised for payment of service tax on any output service. As such the said rules restrict utilisation of cenvat credit only for payment of service tax on any output service only. Further, CBEC Circular No. 97/8/2007-ST dated 23.8.2007 clarify that the consignor or the consignee has to pay service tax in cash on goods transport by road service.

3. The above observations were culminated into issuance of show cause notice dated 15.10.2010 and confirmation of service tax of Rs. 47,709/- out of total demand of Rs. 85,734/- under Section 73 of the Finance Act, 1994 (32 of 1994) along with interest under Section 75 of the Act and dropped the remaining demand of service tax. The lower authorities also imposed penalty of Rs. 200/- per day under Section 76 of the Act, penalty of Rs. 5,000/- under Section 77 of the Act and penalty of Rs. 47,709/- under Section 78 of the Act.

4. Aggrieved by such an order, appellant preferred appeal before the first appellate authority on the ground of limitation as well as on merits. The first appellate authority did not agree with the contentions raised by the appellant and upheld the demand confirmed by the adjudicating authority.

5. Learned counsel would bring to my notice that the period involved in this case is April 2006 to March 2007 and the issue is regarding utilization of Cenvat credit for discharging the service tax liability on the GTA services as recipient of the services. He would submit that the various judgments as indicated below are applicable:-
(a) Auro Spinning Mills 2012 (279) ELT 349 (H.P.)
(b) Shree Rajasthan Syntex Limited 2011 (24) STR 670 (Tri. Del.)
(c) Indian Acrylic Limited 2012 (285) ELT 354 (Tri. Del.)

6. Learned departmental representative, on the other hand would submit that the definition of output service was amended from 19.4.2006 in order to hold that appellant cannot utilize credit of Cenvat for discharge of the service tax on the GTA services. It is his submission that for the period from 19.4.2006 onwards, the appellant is liable to discharge service tax liability. He would rely upon the decisions of the Tribunal in the case of ITC Limited 2011 (23) STR 41 (Tri. Bang.) to substantiate his arguments.

7. I have considered the submissions made by both sides and perused the record.

8. The issue involved in this case is whether the appellant is correct in utilizing the Cenvat credit available with him for discharge of service tax liability on GTA services, which are to be discharged by the appellant as recipient of the services, during the period April 2006 to March 2007.

9. I find that the definition of output service was amended from 01.3.2008 which excluded the output service of Goods Transport Services, from the output services, provided if it is undertaken by a consigner or consignee by reverse charge mechanism. I find, this very view has been taken by the Division Bench of this Tribunal in the case of Shree Rajasthan Syntex Limited (supra), wherein the judgment of the Division Bench in the case of ITC Limited was also distinguished. I may reproduce the relevant paragraphs:-
5.?However, we find that facts in the above case of ITC Ltd. are entirely different inasmuch as it is seen that M/s. ITC was neither manufacturing any dutiable product nor providing any output services to any customer or client. As such, it was observed that though the services received by them is deemed to be an output services but as the Cenvat Credit on inputs or input services was not available to them as no manufacturing activity was being undertaken or any output services was being provided, the question of paying of Service Tax through Cenvat Credit account does not arise. In other words, the Bench observed that M/s. ITC was not entitled to avail any Cenvat Credit and as such there can be no account of any credit for utilisation towards payment of duty on the GTA services so received by them.
6.?As discussed above, for the period prior to issue of Notification 10/2008-C.E. (N.T.), dated 1-3-2008 the issue stands finally decided in favour of the appellant by various judgments referred supra and ITC decision not being relevant to the facts of the case, we by following the earlier precedent decisions on the issue involved, set aside the impugned orders and allow both the appeals with consequential relief to the appellants.

10. I also find that the above said view of the Division Bench and my view is also fortified by the decision of the Hon’ble High Court of Himachal Pradesh in the case of Auro Spining Mills (supra) which was following the judgment of the Hon’ble High Court of Delhi and High Court of Punjab & Haryana, in the case of Nahar Industrial Enterprises Limited. The ratio of judgment of the Hon’ble High Court of Himachal Pradesh is as under:-

4.?The respondents are all engaged in the business of manufacturing of goods. They are also liable for payment of service tax under the goods transport agency service. The respondents utilized the CENVAT credit given to them for their manufacturing activities for payment of service tax on GTA service. The case of the revenue is that the CENVAT credit could not be utilized for payment of CENVAT payable on services rendered and this should have been paid in cash. We find that the order of the Tribunal in Nahar Industrial Enterprises Ltd. and other similar matters was challenged before the Punjab and Haryana High Court which decided a large number of appeals in favour of the assessee vide its judgment dated 6th May, 2010 [2012 (25) S.T.R. 129 (P & H)] and it held as follows :-
Learned counsel for the revenue has contended that the respondents cannot pay the service tax from the Cenvat credit availed by them. But this argument has no force because 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.
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.
In the present case also, the service tax was paid out of the Cenvat credit on GTA services and hence the respondents were well within their right to utilize the Cenvat credit for the purpose of payment of service tax. The Commissioner (Appeals) as well as the Tribunal have rightly held that the respondents were entitled to pay the service tax from the Cenvat credit.
5.?We are in agreement with the reasoning given by the Punjab and Haryana High Court and are of the view that there is no force in the submission of the revenue that the CENVAT credit cannot be utilized for payment of service tax on GTA services. Accordingly, all the appeals are dismissed. No costs.

11. Accordingly, in view of the forgoing, I am of the view that appellant, for the material period in question, is eligible to utilize the Cenvat credit for discharge of service tax liability on GTA Services.
Appeal is allowed.

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