2007 (12) TMI 26 - AT - Service Tax

Consignment payers eligible for Cenvat credit; Penalties overturned; Reassessment ordered

The Tribunal held that the respondents, as consignors paying service tax on outgoing consignments, do not become service providers and are eligible for ... Input services - tax on GTA service paid by the respondents/consigner doesn’t make them as service provider - tax paid in respect of incoming consignments shall be eligible as credit under Not. 32/04 – Penalty unjustified – Matter remanded to determine credit eligibility Issues Involved:1. Eligibility of Cenvat credit for service tax paid by respondents as deemed service providers.2. Applicability of Notification No. 32/2004-S.T., dated 3-12-2004 regarding abatement and non-availment of Cenvat credit.3. Imposition of penalties under Rule 15 of the Cenvat Credit Rules, 2004.Detailed Analysis:1. Eligibility of Cenvat Credit for Service Tax Paid by Respondents as Deemed Service Providers:The service tax for 'goods transport operator' services was initially to be paid by the recipients, a provision that was not upheld by the Hon'ble Supreme Court in M/s. Laghu Udyog Bharti. The law was later amended retrospectively by the Finance Act, 2003, allowing recovery of service tax from the recipients of services under Section 68(2) read with service tax rules.The respondents utilized the services of goods transport agencies and, in some cases, paid the service tax as deemed service providers. They took credit of the service tax paid and used it to discharge liabilities of both service tax and excise duty. The Original Authority held that the service tax paid by them as deemed service providers could not be treated as tax paid on input service, thus disallowing the credit under Rule 3(4) of the Cenvat Credit Rules, 2004, and ordered recovery of interest and penalties.The Commissioner (Appeals) disagreed, holding that there was no restriction on the utilization of Cenvat credit availed by the respondents towards payment of service tax on GTA services. The Tribunal supported this view, noting that the respondents, while paying service tax on GTA services for despatching their goods, do not become service providers and hence, the service tax paid should be treated as tax paid on input services, making them eligible for Cenvat credit.2. Applicability of Notification No. 32/2004-S.T., dated 3-12-2004:This notification allows service tax on GTA services to be payable on 25% of the freight amount, provided Cenvat credit is not availed on the GTA services. The Tribunal clarified that this restriction should apply to the service provider of GTA services and not to the recipient of services who are required to pay the service tax.The Tribunal held that the respondents, as consignors paying service tax on outgoing consignments, do not become service providers and hence, are eligible for the benefit of the notification. The credit of service tax paid by the respondents as consignors should be available to the consignees of the finished goods.3. Imposition of Penalties under Rule 15 of the Cenvat Credit Rules, 2004:Given the interpretational differences and the complexity of the case, the Tribunal found that the imposition of penalties was not justified. The Tribunal directed the original authority to redetermine the credit eligibility after giving a reasonable opportunity of hearing to the respondents.Conclusion:1. The service tax on goods transport agencies service paid by the respondents does not make them service providers.2. For incoming consignments where respondents pay the service tax, they remain service recipients, making such services input services eligible for credit.3. The service tax paid by respondents for incoming consignments is eligible for credit.4. The service tax paid by respondents for outgoing consignments of finished goods is not eligible for credit.5. Respondents are entitled to utilize the credit of tax paid on input GTA services for payment of service tax on outgoing consignments, as held in M/s. India Cements Ltd.6. Respondents are eligible for the benefit of Notification No. 32/2004-S.T., notwithstanding the taking of credit of service tax paid under goods transport operator/agency services for incoming consignments.7. Imposition of penalties is not justified due to interpretational differences.The original authority is directed to reassess the credit eligibility after providing a hearing to the respondents. The appeals by the Department are disposed of accordingly.