2007 (6) TMI 516 - AT - Service Tax

Summary

Issues:
The issues involved in the judgment are the utilization of input-duty credit, capital goods credit, and input service tax credit for payment of service tax on Goods Transport Agency's Service (GTA service) received in connection with inward and outward movement of goods by manufacturers of excisable goods.

Utilization of Input-Duty Credit and Capital Goods Credit:
The appellants, as service recipients, utilized credit of duty paid on inputs and capital goods, as well as credit on service tax paid on input service, for payment of duty of excise on final products and service tax on GTA service. The department objected to this utilization during the periods of dispute. The original authorities sustained the objection, demanding duty equivalent to the credit wrongly utilized and imposing penalties. The first appellate authorities upheld the denial of credit but vacated the penalties. The question at hand was whether it was permissible for the assessees to use input-duty credit, capital goods credit, and input service tax credit for paying service tax on GTA service. The issue was settled with reference to the Explanation to the definition of 'output service' under Rule 2(p) of the CENVAT Credit Rules, 2004.

Interpretation of Explanation to the Definition of 'Output Service':
The Explanation clarified that if a person liable for paying service tax does not provide any taxable service, the service for which they are liable to pay service tax shall be deemed to be 'output service.' In this case, the appellants were only receiving taxable services and not providing any. Therefore, the GTA service on which they paid service tax was deemed to be their 'output service.' Consequently, credit of service tax paid on any input service and/or credit of duty paid on any input or capital goods could be validly availed for payment of service tax on this 'output service.' The decision of the lower authorities to the contrary was found unsustainable.

Precedents and Circulars Considered:
Precedents such as R.R.D. Tex (P) Ltd. and The India Cement Ltd. supported the appellants' right to utilize credit for payment of service tax on GTA service. The Circular dated 3.10.2005 of the Board, relied upon by the learned SDR, did not consider the Explanation and could not hold good during the period of its validity. The Tribunal's decision aligned with the interpretation of the Explanation, allowing the appeals and setting aside the impugned orders disallowing the credit.

Conclusion:
In conclusion, the Tribunal set aside the impugned orders and allowed the appeals, affirming the appellants' right to utilize input-duty credit, capital goods credit, and input service tax credit for payment of service tax on GTA service received in connection with the movement of goods.