2014 (12) TMI 876 - HC - Service Tax

Utilization of Cenvat Credit for GTAs Upheld

The Tribunal upheld the assessee's utilization of Cenvat credit for paying service tax on Goods Transport Agency (G.T.A.) Service, citing Rule 3(4)(e) of ... Utilisation of Cenvat credit for payment of service tax - payment of service tax on Goods Transport Agency (GTA) service by service recipient - interpretation of Rule 3(4)(e) of the Cenvat Credit Rules, 2004 - operation of Section 68(2) of the Finance Act, 1994 shifting liability to service recipient - effect of Notification No. 36/2004 read with Section 68(2)Utilisation of Cenvat credit for payment of service tax - interpretation of Rule 3(4)(e) of the Cenvat Credit Rules, 2004 - operation of Section 68(2) of the Finance Act, 1994 - payment of service tax on Goods Transport Agency (GTA) service by service recipient - effect of Notification No. 36/2004 read with Section 68(2) - Assessee entitled to utilize Cenvat credit to pay service tax on GTA service notwithstanding that GTA was not the assessee's output service. - HELD THAT: - The Tribunal relied on the Punjab & Haryana High Court decision in Nahar Industrial Enterprises Ltd. and the Delhi High Court decision in Hero Honda Motors Ltd., and held that there is no legal bar to payment of service tax from the Cenvat account. Rule 3(4)(e) of the Cenvat Credit Rules, 2004 expressly permits utilization of Cenvat credit for payment of 'service tax on any output service.' A combined reading of the Cenvat Credit Rules with Section 68(2) of the Finance Act, 1994 (which, by creating a fiction, can shift liability to the service recipient in notified cases) and Notification No. 36/2004 (which notifies specified categories of goods transport services so as to shift liability) supports the conclusion that where the liability to pay tax on GTA service is shifted to the assessee, the assessee may discharge that liability by utilizing Cenvat credit. Having regard to the aforesaid statutory provisions and the High Court decisions applying them, the Tribunal's conclusion was not in error.Tribunal's view upheld; assessee entitled to pay service tax on GTA from Cenvat credit.Final Conclusion: Tax appeal dismissed; the Tribunal's decision permitting utilisation of Cenvat credit to discharge service tax liability on GTA service (in light of Rule 3(4)(e), Section 68(2) and the relevant notification) is affirmed. Issues:1. Whether CESTAT committed substantial errors of law in allowing the utilization of Cenvat credit for payment of service tax on Goods Transport Agency ServiceRs.2. Whether the decision of Punjab and Haryana High Court regarding payment of service tax from Cenvat credit is legally valid and applicableRs.3. Whether the Notification No. 36/2004 dated 31st December 2004 shifts the liability of service tax payment from the service provider to the service recipient for specified categories of goods transport servicesRs.4. Whether Rule 3 of the Cenvat Credit Rules, 2004 permits the utilization of Cenvat credit for payment of service tax on any output serviceRs.Analysis:1. The case involved a dispute where the assessee utilized Cenvat credit arising from manufacturing activities to pay service tax for Goods Transport Agency (G.T.A.) Service. The Revenue contended that Cenvat credit should not have been used for this purpose. However, the Tribunal upheld the assessee's stand, citing decisions of various High Courts, including Punjab and Haryana High Court, which held that there is no legal restriction on utilizing Cenvat credit for service tax payment on G.T.A. services. The Tribunal's decision was based on the interpretation of Rule 3(4)(e) of the Cenvat Credit Rules, 2004, allowing the utilization of Cenvat credit for payment of service tax on any output service.2. The decision of Punjab and Haryana High Court in the case of M/s. Nahar Industrial Enterprises Ltd., which allowed the payment of service tax on G.T.A. service from Cenvat credit, was considered valid and applicable. The High Court relied on Rule 3(4)(e) of the Cenvat Credit Rules, 2004, which permits the utilization of Cenvat credit for service tax payment on any output service, including G.T.A. service. This decision was further supported by the Delhi High Court, which emphasized the provisions of Section 68(2) of the Finance Act, 1994, to affirm the legality of utilizing Cenvat credit for service tax payment.3. The Notification No. 36/2004 dated 31st December 2004, issued under Section 68(2) of the Finance Act, 1994, specified categories of goods transport services for which the liability of service tax payment was shifted from the service provider to the service recipient. This notification, in conjunction with the statutory provisions, supported the assessee's right to use Cenvat credit for paying service tax on G.T.A. services.4. Rule 3 of the Cenvat Credit Rules, 2004 allows the utilization of Cenvat credit for payment of service tax on any output service, as specified in clause (e). The combined reading of this rule, along with the decisions of Punjab and Haryana High Court and Delhi High Court, affirmed the legality of utilizing Cenvat credit for service tax payment on G.T.A. services. Consequently, the Tribunal's decision was upheld, and the Tax Appeal was dismissed.