2011 (9) TMI 406 - AT - Service Tax

Payment of service tax on GTA in Cash or through Cenvat Credit - the taxable service received by them on which they were liable to pay service tax as service recipient under the provisions of Section 68 (2) of the Finance Act, 1994 read with Rule 2 (1) (d) of the Service Tax Rules, 1994 could be treated as their output service and, therefore, Service tax on the same was required to be paid in cash and not by utilizing Cenvat credit. - Demand of service tax with interest upheld. Penalty - held that - The show case notice in this case has been issued within the normal period of limitation. Further, it can be seen that there were differing views on the matter by various judicial authorities during the relevant time and, therefore, the appellants cannot be said to have indulged in any willful mis-statement of facts or suppression of facts with a view to evade service tax. - Penalty set aside.

Issues Involved:
1. Utilization of Cenvat credit for payment of service tax on Goods Transport Agency (GTA) services.
2. Applicability of penalties for non-payment of service tax in cash.
3. Interpretation of relevant provisions of the Finance Act, 1994, and Cenvat Credit Rules, 2004.

Issue-Wise Detailed Analysis:

1. Utilization of Cenvat Credit for Payment of Service Tax on GTA Services:
The core issue was whether the respondent, a manufacturer of iron and steel products, could utilize Cenvat credit to discharge service tax liability on GTA services received. The department argued that under Rule 2(p) of the Cenvat Credit Rules, 2004, output service means any taxable service provided by the provider of the taxable service. Since the respondent was only a recipient of the GTA service and not a provider, they could not claim Cenvat credit.

The Tribunal noted that the respondent was liable to pay service tax on the GTA service as a recipient under Section 68(2) of the Finance Act, 1994. However, the Tribunal held that merely receiving the service and paying service tax does not make the recipient a provider of output service. The Tribunal emphasized that two conditions must be satisfied for utilizing Cenvat credit: (i) the inputs or input services should have suffered duty/tax, and (ii) such inputs or input services should be utilized in the manufacture of dutiable final products or in the provision of a taxable output service. The Tribunal concluded that the respondent, being a recipient and not a provider of output service, could not utilize Cenvat credit for paying service tax on GTA services.

2. Applicability of Penalties for Non-Payment of Service Tax in Cash:
The Tribunal examined whether penalties were applicable for the respondent's failure to pay service tax in cash. The show-cause notice was issued within the normal period of limitation, and there were differing judicial views on the matter. The Tribunal found that the respondent did not indulge in willful mis-statement or suppression of facts with an intent to evade tax. The issue involved interpretation of law, and therefore, the imposition of penalties was not warranted. The Tribunal set aside the penalties imposed by the lower adjudicating authority.

3. Interpretation of Relevant Provisions of the Finance Act, 1994, and Cenvat Credit Rules, 2004:
The Tribunal referred to various case laws to interpret the relevant provisions. It distinguished the facts of the present case from those in Panchmahal Steel Ltd. and Andhra Pradesh Paper Mills Ltd. The Tribunal highlighted that the explanation to Rule 2(p) of the Cenvat Credit Rules, which deemed the service on which tax was paid by the recipient as an output service, did not apply to the respondent as they were not a provider of output service. The Tribunal also cited the ITC Ltd. case, which clarified that service tax on GTA services received by a recipient must be paid in cash, not through Cenvat credit.

Conclusion:
The Tribunal set aside the impugned order and upheld the demand for service tax confirmed by the lower adjudicating authority. Interest on the confirmed demand was also sustained as a consequential liability. However, the Tribunal set aside the penalties imposed, considering the issue involved interpretation of law and the absence of willful mis-statement or suppression of facts by the respondent. The appeal was disposed of in these terms.

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