2009 (8) TMI 962 - Commissioner - Service Tax

Issues Involved:
1. Liability of service tax on Goods Transport Agency (GTA) services.
2. Utilization of Cenvat Credit for payment of service tax on GTA services.
3. Applicability of Notification No. 32/2004-S.T. and Notification No. 35/2004-S.T.
4. Recovery of service tax in cash and imposition of penalties under Section 76 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability of Service Tax on GTA Services:
The appellant, a manufacturer of M.S. and GI Pipes, received taxable services from a Goods Transport Agency (GTA) during the period from September 2005 to March 2006 and paid the service tax amounting to Rs. 85,605/- from the Cenvat Credit Account. The Central Excise officers alleged that by virtue of Notification No. 35/2004-S.T., dated 3-12-2004, the appellant was required to pay service tax on the GTA service received for outward transport of goods and could not have utilized the credit for payment of the service tax. The appellant contended that under Rule 2(1)(d)(v) of the Service Tax Rules, 1994 read with Section 68(2) of the Finance Act, 1994, they were deemed to be the provider of taxable service and thus could utilize the Cenvat credit for payment of service tax on GTA services.

2. Utilization of Cenvat Credit for Payment of Service Tax on GTA Services:
The primary issue was whether the payment of service tax on GTA services could be made through the Cenvat Credit account. The statutory provisions under Rule 3 of the Cenvat Credit Rules, 2004, allow the utilization of Cenvat Credit for payment of service tax on any output service. The definition of "output service" under Rule 2(p) and "provider of taxable service" under Rule 2(r) includes a person liable for paying service tax. The legal fiction created by Notification No. 35/2004-S.T. made the manufacturer/recipient of GTA service liable to pay service tax, thereby deeming the service as output service. The lower authority's decision to recover the service tax in cash was deemed incorrect as the appellant was entitled to utilize Cenvat credit for this purpose.

3. Applicability of Notification No. 32/2004-S.T. and Notification No. 35/2004-S.T.:
Notification No. 32/2004-S.T. allows abatement of seventy-five percent in the value of GTA service provided the service provider has not availed credit on the inputs/capital goods used in providing such taxable service. The lower authority held that the appellant, by availing the benefit of Notification No. 32/2004-S.T., was not entitled to take credit on inputs/input services and should have made the payment of service tax in cash. However, the appellant argued that they were entitled to utilize Cenvat credit for payment of service tax on GTA services as per the definitions of output service and provider of taxable service.

4. Recovery of Service Tax in Cash and Imposition of Penalties:
The show cause notice proposed recovery of service tax in cash and imposed penalties under Section 76 and 78 of the Finance Act, 1994. The lower authority confirmed the recovery of service tax amounting to Rs. 85,605/- and imposed penalties of Rs. 85,505/- under Section 76 and Rs. 85,605/- under Section 78. The appellant contended that the demand was confirmed under Rule 14 of the Cenvat Credit Rules, 2004, which was not applicable to their case. The appellate authority found that the lower authority deviated from the basic issue and passed a vague order. The appellant's payment of service tax through Cenvat credit was deemed correct, and the imposition of penalties was set aside.

Conclusion:
The appellate authority concluded that the appellant was entitled to utilize Cenvat credit for payment of service tax on GTA services received during the period in question. The demand for recovery of service tax in cash and the imposition of penalties under Section 76 and 78 of the Finance Act, 1994, were set aside. The appeal was allowed, and the impugned order was annulled.

← Previous Next →