2015 (4) TMI 612 - AT - Service Tax

Manufacturer wins appeal against improper CENVAT Credit use for service tax, citing legal fiction

The appellant, a manufacturer of excisable goods, successfully contested show-cause notices alleging improper utilization of CENVAT Credit for payment of ... Cenvat credit utilization for payment of Service Tax - deeming fiction under Section 68(2) making recipient a deemed service provider - Goods Transport Agency (GTA) services and reverse charge liability - output serviceCenvat credit utilization for payment of Service Tax - Goods Transport Agency (GTA) services and reverse charge liability - output service - Entitlement to utilize CENVAT credit for discharging Service Tax liability on GTA services where Service Tax is payable by the recipient under reverse charge for the period in question. - HELD THAT: - The Tribunal held that the appellant, a recipient of GTA services who discharged Service Tax liability under the reverse charge mechanism, was entitled to utilize CENVAT credit to pay the Service Tax for the period 1.11.2006 to 29.2.2008. The Tribunal relied on the Larger Bench decision in Panchmahal Steel Ltd. and on decisions of various High Courts (including Nahar Industrial Enterprises Ltd., Auro Spinning Mills and Hero Honda Motors Ltd.) which have held there is no legal bar to utilising Cenvat credit for payment of Service Tax on GTA services and that Rule 3(4) permits utilisation of Cenvat credit for payment of Service Tax on any output service. The Tribunal noted contrary views (for example Flowserve and ITC/Guntur) but accepted that the issue is no longer res integra in light of the Larger Bench and High Court decisions, and therefore set aside the impugned demand, interest and penalties imposed upon the appellant.Impugned order set aside; appellant entitled to utilize CENVAT credit for payment of Service Tax on GTA services for the period 1.11.2006 to 29.2.2008 and appeal allowed with consequential benefits, if any.Final Conclusion: The Tribunal allowed the appeal, holding that for the period 1.11.2006 to 29.2.2008 the assessee could lawfully discharge Service Tax on GTA services by utilising CENVAT credit, and set aside the demand, interest and penalties imposed by the Commissioner. Issues:1. Utilization of CENVAT Credit for payment of service tax under the category of 'Goods Transport Agency.'2. Applicability of Cenvat Credit Rules, 2004 regarding utilization of credit for discharging tax liability.3. Interpretation of whether the appellant was entitled to pay Service Tax on the service received.4. Legal fiction regarding the utilization of CENVAT Credit for payment of Goods Transport Agency Service Tax.5. Comparison of decisions by Hon'ble High Courts on the issue.6. Impact of Division Bench ruling of the Tribunal in a similar case.Issue 1: Utilization of CENVAT Credit for payment of service tax under the category of 'Goods Transport Agency.'The appellant, a manufacturer of excisable goods, received service of transport of goods by road by a Goods Transport Agency. The dispute arose when show-cause notices were issued alleging that the appellant had availed CENVAT Credit for payment of service tax under Goods Transport Agency, which was not considered in order as no output service was provided. The demand for recovery of taxes and penalties was made, leading to the appellant contesting the notices.Issue 2: Applicability of Cenvat Credit Rules, 2004 regarding utilization of credit for discharging tax liability.The appellant argued that the Commissioner erred in holding that the service received was not the appellant's output service, therefore questioning the entitlement to pay Service Tax on the service using CENVAT Credit. The appellant cited precedents and rulings to support their claim that there was no legal restriction on utilizing CENVAT credit for the purpose of payment of Service Tax on Goods Transport Agency services.Issue 3: Interpretation of whether the appellant was entitled to pay Service Tax on the service received.The Tribunal considered the legal fiction regarding the utilization of CENVAT Credit for payment of Goods Transport Agency Service Tax. Referring to previous judgments by Hon'ble High Courts, it was established that there was no prohibition for utilizing the credit for the payment of Service Tax, even if the recipient of taxable services was not the provider of output service.Issue 4: Legal fiction regarding the utilization of CENVAT Credit for payment of Goods Transport Agency Service Tax.The Tribunal analyzed the legal position and rulings to determine that the appellant was entitled to pay the Service Tax from the CENVAT credit on Goods Transport Agency services. The Larger Bench ruling and decisions by various High Courts supported the appellant's contention, leading to the appeal being allowed with consequential benefits.Issue 5: Comparison of decisions by Hon'ble High Courts on the issue.The Tribunal highlighted decisions by Hon'ble High Courts that supported the appellant's position, emphasizing that there was no legal bar to the utilization of CENVAT credit for the purpose of payment of Service Tax on Goods Transport Agency services. The rulings provided a legal basis for the appellant's entitlement to utilize the credit for tax payment.Issue 6: Impact of Division Bench ruling of the Tribunal in a similar case.The Tribunal considered a Division Bench ruling of the Tribunal in a related case, which emphasized that the taxable service received by the assessee should be treated as an output service, requiring the payment of Service Tax in cash and not through CENVAT Credit. However, the Tribunal distinguished this ruling based on the specific circumstances of the present case and the legal precedents cited in support of the appellant's position.The judgment ultimately favored the appellant, setting aside the impugned order and allowing the appeal based on the settled legal position established by the Larger Bench ruling and decisions of various High Courts regarding the utilization of CENVAT Credit for payment of Goods Transport Agency Service Tax.