2023 (6) TMI 952 - AT - Service Tax

Appellant wins appeal for cenvat credit on GTA services for transporting new vehicles.

M/s Orbit Motors (P) Ltd. Versus Commissioner of CGST & Excise, Rourkela

The Tribunal allowed the appellant's appeal against the disallowance of cenvat credit on Goods Transport Agency (GTA) services. The Tribunal held that the ... CENVAT Credit - input services - Goods Transport Agency (GTA) - period from April, 2009 to September, 2009 and from October, 2009 to March, 2010 - HELD THAT:- In terms of Rule 2 (l) of the Cenvat Credit Rules, 2004, the input service means, used by the provider of taxable service for providing output service. As per the said definition, nowhere, it is restricted that the input service should have correlation with the output service. The Adjudicating Authority has taken a presumptive view that the input service is to be utilized for providing the same output service. This issue is dealt by this Tribunal in the case of CCE, TIRUPATHI VERSUS SHARIFF MOTORS [2009 (3) TMI 155 - CESTAT, BANGALORE], wherein this Tribunal has observed unless the vehicles are received and sold, there would not be any servicing of the same. Moreover the definition of the input service is broad enough to cover the input service availed by the Respondents and also the output service rendered by them. We do not find any merit in the appeal of the Revenue. The Respondents are rightly entitled for the credit. Thus, the appellant is entitled to take the cenvat credit of input service on GTA for transportation of new vehicle to their premises and the same can be utilized for providing output service i.e. servicing of the motor vehicles - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cenvat credit of input service tax paid on Goods Transport Agency (GTA) for inward transportation of new vehicles to the taxpayer's premises is admissible for utilization against output service tax on motor-vehicle servicing. 2. Whether the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004 requires a direct or strict correlation between the particular input service and the specific output service for which credit is utilized. 3. Whether the adjudicating authority's denial of cenvat credit, interest and penalty imposition are sustainable when the input GTA service is used in relation to the taxpayer's business of servicing motor vehicles. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of cenvat credit on GTA for inward transport of new vehicles to be used in motor-vehicle servicing (legal framework) Legal framework: Rule 2(l) of the Cenvat Credit Rules, 2004 defines 'input service' as services used by the provider of taxable service for providing output service. Cenvat credit may be availed on input services used for provision of taxable output services and utilized for payment of service tax on output services. Precedent Treatment: This Tribunal considered a comparable factual matrix in the earlier decision referred to as Shariff Motors, where cenvat credit on GTA for transporting vehicles to the dealer's premises was allowed. That Tribunal's view was subsequently affirmed by the relevant High Court. Interpretation and reasoning: The Court interprets 'input service' broadly under Rule 2(l) and rejects the Revenue's narrow view that the input must correlate strictly to the same category of output service or be traceable to specific units. The inward transportation of new vehicles to the taxpayer's premises was found to be a service used in the taxable business of providing motor-vehicle servicing; hence it falls within the ambit of an input service for purposes of cenvat credit. Ratio vs. Obiter: Ratio - where an input service (GTA for inward transportation of vehicles) is used in relation to the provider's taxable activity of servicing vehicles, cenvat credit on that input service is admissible and may be utilized for payment of service tax on the output service (servicing). Conclusions: The appellant is entitled to take cenvat credit of input service tax paid on GTA for transportation of new vehicles to their premises and to utilize that credit against service tax on motor-vehicle servicing. Issue 2 - Requirement of direct correlation between input service and output service under Rule 2(l) Legal framework: Rule 2(l) requires that an input service be 'used by the provider of taxable service for providing output service.' The rule's language does not expressly mandate a strict one-to-one or item-specific correlation. Precedent Treatment: The Tribunal's prior decision (Shariff Motors) construed the definition broadly and rejected a requirement of exact correlation; that approach was accepted by the High Court in affirming the Tribunal's conclusion. Interpretation and reasoning: The Court reasons that imposing a requirement of precise correlation would improperly narrow the statutory definition. The adjudicating authority's presumption that input service must be utilized for the same specific output service was characterized as a narrow and presumptive approach inconsistent with the rule's breadth. The availability of credit depends on whether the input service is used in the course of providing taxable output services generally, not whether it can be matched to a particular serviced unit or a sub-class of output. Ratio vs. Obiter: Ratio - Rule 2(l) must be given a broad construction; direct item-by-item correlation between input and specific output services is not required for entitlement to cenvat credit. Conclusions: The tribunal rejects the contention that a strict correlation requirement exists and confirms that the definition of input service is broad enough to permit the claimed credit in the facts before the Court. Issue 3 - Sustainability of denial of credit, interest and penalty where credit is allowable Legal framework: Where cenvat credit has been wrongly denied and recovery, interest and penalty have been imposed, appellate authorities examine both entitlement to credit and consequential monetary impositions. Precedent Treatment: The decision follows the earlier Tribunal and High Court rulings which allowed credit in comparable circumstances; those authorities thereby implicitly undermine the basis for interest and penalty tied to a denial of credit later found to be improper. Interpretation and reasoning: Given the Court's conclusion that the input GTA service credit was admissible, the denial of credit by the adjudicating authority was unsustainable. Consequently, recovery, interest and penalty imposed as a corollary to that denial could not stand in view of the correct legal position on entitlement. Ratio vs. Obiter: Ratio - where credit is correctly claimable under the statutory definition, consequential recovery, interest and penalty based on denial of such credit are to be set aside. Conclusions: The impugned order denying cenvat credit and imposing interest and penalty is set aside; the appeal is allowed with consequential relief (i.e., reversal of recovery, interest and penalty) in accordance with the finding that the input GTA service credit was admissible. Cross-reference The Court's reasoning on Issue 2 (broad construction of 'input service') underpins the conclusions on Issue 1 (entitlement to credit) and Issue 3 (unsustainability of recovery, interest and penalty); the prior Tribunal decision and High Court affirmation discussed in the judgment are followed and treated as authoritative for the proposition that GTA inward-transport services used in the taxable activity of vehicle servicing qualify as input services for cenvat credit purposes.