2011 (3) TMI 186 - AT - Service Tax

Goods Transport Agency (GTA) - Payment of service tax in cash of through utilization of cenvat credit - Held that - during the period prior to 19-4-2006 irrespective of whether a person provided taxable service and/or manufactured dutiable final products or did not provide any taxable service or manufactured any dutiable final products, he was required to pay the service tax on the GTA service received by him in cash, not through Cenvat Credit. - during the period with effect from 19-4-2006, irrespective of whether the appellants were providing any taxable output service or manufacturing some final products or were not manufacturing any final products or providing any taxable output service, in respect of the GTA service received by them, they were required to pay service tax in cash, not through the credit account. - Penalty imposed u/s 78 waived.

Issues Involved:
1. Utilization of Cenvat credit for payment of service tax on Goods Transport Agency (GTA) services.
2. Classification of GTA services as "output service."
3. Time-barred nature of the service tax demand.
4. Imposition of penalty under section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Utilization of Cenvat Credit for Payment of Service Tax on GTA Services:
The appellants, a public limited company, obtained Centralized Service Tax Registration and utilized Cenvat credit to pay service tax on GTA services received. The department contended that the appellant was not entitled to use Cenvat credit for this purpose because the GTA service received was not their "output service." According to rule 3(4) of the Cenvat Credit Rules, 2004, Cenvat credit can only be utilized for payment of duty on finished excisable goods or service tax on output services provided by an assessee. The adjudicating authority confirmed the demand for service tax along with interest and imposed penalties, asserting that the service tax should have been paid in cash.

2. Classification of GTA Services as "Output Service":
The appellant argued that under section 68(2) of the Finance Act, 1994, and relevant rules, they were considered a "provider of taxable service" and that the GTA service received should be treated as their "output service." They cited the Explanation to rule 2(p) (prior to its deletion on 19-4-2006) which deemed services on which tax was payable by the recipient as "output service." However, the department maintained that the GTA service received could not be classified as an "output service" and that the service tax on such services should be paid in cash. The Tribunal agreed with the department's view, stating that rule 2(r) created a legal fiction for charging service tax but did not extend to treating received services as "output services."

3. Time-Barred Nature of the Service Tax Demand:
The appellant contended that part of the service tax demand was time-barred. The Tribunal found that all show-cause notices were issued within the one-year limitation period from the relevant date (the date on which ST-3 returns were to be filed). Hence, the Tribunal upheld the Commissioner's order, confirming that the demands were within the permissible time frame.

4. Imposition of Penalty under Section 78 of the Finance Act, 1994:
The appellant argued against the imposition of penalties under section 78, which requires an element of fraud, collusion, willful misstatement, suppression of facts, or intentional contravention to evade tax. The Tribunal noted that the show-cause notices lacked such allegations and that the appellant had consistently filed ST-3 returns declaring the use of Cenvat credit. Additionally, the appellant had communicated with the Range Officer about their entitlement to use Cenvat credit. Consequently, the Tribunal found no basis for the penalty under section 78 and set aside the penalty imposed by the Commissioner.

Conclusion:
The Tribunal upheld the Commissioner's order confirming the service tax demand along with applicable interest but set aside the penalty imposed under section 78 of the Finance Act, 1994. The appeal was disposed of accordingly.

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