2013 (8) TMI 215 - HC - Service Tax

Tribunal upholds assessee's right to utilize CENVAT Credit for service tax on GTA services

The Commissioner of Central Excise Versus M/s. Cheran Spinners Limited

The Tribunal's decision in this case upheld the assessee's right to utilize CENVAT Credit for service tax payment on GTA services, despite the Revenue's ... Goods Transport Agency - Service Tax on GTA under reverse charge - payment of service tax through cenvat credit - assessee was engaged in manufacture of yarn of different kinds – Whether the Tribunal was correct in disregarding the Board Circular while deciding the appeal when it had been held by Apex Court and other High Courts that the interpretation of the CBEC will be binding upon the Revenue – Held that:- Department was of the view that the adjustment of the CENVAT Credit side towards the liability on Service tax was contrary to the Rule – Duty demand u/s 73 – Interest u/s 75 – penalty u/s 76 - the Rules contemplated adjustment of service tax liability as against the CENVAT Credit available to the assessee the circular relied on would not be of any assistance to the Revenue - the view of the Punjab and Haryana High Court, the Delhi High Court and the Himachal Pradesh High Court endorsed. Whether the Tribunal was right in holding that the respondents did not provide any taxable service though they did manufacture an excisable product – the GTA service so received by the respondents would have been covered under the definition of 'input service' under Rule 2(1) of Cenvat Credit Rules. By virtue of the explanation, it shall be deemed to be 'output service' even after deletion of the explanation given at Rule 2(p) read with definition given at Rule 2(q) and (r) convey similar meaning' - Held that:- There was no error in the reasoning of the Tribunal that in the payment of service tax liability by the recipient of taxable service - assesses were also entitled to make use of CENVAT Credit to discharge their liability under the Service Tax provisions – A reading of Rules 2(l) and 2(b) would show that they cover two different situations and though their operations were totally different - for the purpose of giving credit to the service tax payable from the CENVAT Credit available - the recipient was also entitled to the same relief as a provider of the service – while Rule 2(l) and 2(p) cover two classes of persons, the recipient of GTA services, by virtue of the Explanation to Rule 2(p) of the CENVAT Credit Rules, as a provider of output service, was entitled to all benefits that a person providing input service would be entitled to in the matter of CENVAT credit adjustment. Issues:1. Interpretation of Central Board of Excise and Customs circular in deciding appeal.2. Eligibility of CENVAT Credit for payment of service tax on GTA service.3. Deemed provider of services under Section 68(2) of Finance Act, 1994.4. Applicability of CENVAT Credit Rules and definitions of 'input service' and 'output service'.5. Dispute over adjustment of service tax liability against CENVAT Credit.6. Impact of circulars and High Court decisions on the case.Issue 1 - Interpretation of Central Board Circular:The appeal questioned the Tribunal's disregard of Circular No. 345/4/2005 TRU while deciding the case, arguing that the interpretation of the Central Board of Excise and Customs should be binding on the Revenue. The Tribunal, however, relied on previous judgments and held that the Circular did not affect the adjustment of service tax liability against CENVAT Credit available to the assessee.Issue 2 - CENVAT Credit Eligibility for GTA Service Tax:The dispute arose when the Revenue challenged the assessee's use of CENVAT Credit to pay service tax on GTA services. The Revenue argued that the CENVAT Credit could only be used for 'input service' as per CENVAT Credit Rules, thus proposing to demand service tax on GTA under Section 73 of the Finance Act, 1994. However, the Tribunal and the Commissioner of Central Excise (Appeals) disagreed, allowing the assessee to utilize the CENVAT Credit for service tax payment based on the interpretation of 'output service' under the Rules.Issue 3 - Deemed Provider of Services under Section 68(2):The Commissioner pointed out that under Section 68(2) of the Finance Act, 1994, the recipient of GTA services is treated as a deemed provider of services, making them liable to pay service tax. This provision was crucial in establishing the assessee's liability to pay service tax from 1.1.2005 to 30.9.2005.Issue 4 - Applicability of CENVAT Credit Rules and Definitions:The case involved a detailed analysis of the definitions of 'input service' and 'output service' under the CENVAT Credit Rules, 2004. The interpretation of these definitions played a significant role in determining the eligibility of the assessee to use CENVAT Credit for service tax payment on GTA services.Issue 5 - Dispute Over Adjustment of Service Tax Liability:The assessee's appeal before the Tribunal highlighted previous decisions that favored their position regarding the adjustment of service tax liability against CENVAT Credit. The Tribunal referred to relevant case laws and allowed the appeal, rejecting the Revenue's reliance on Circulars and upholding the assessee's right to utilize CENVAT Credit for service tax payment.Issue 6 - Impact of Circulars and High Court Decisions:The Revenue's arguments based on Circulars and High Court decisions were carefully considered. The Tribunal's decision aligned with previous High Court judgments that supported the assessee's position regarding the use of CENVAT Credit for service tax payment. The Court affirmed the Tribunal's view, dismissing the Civil Miscellaneous Appeal.This detailed analysis covers the various legal issues involved in the judgment, including the interpretation of rules, application of precedents, and the impact of Circulars and High Court decisions on the final outcome of the case.