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2010 (9) TMI 815 - AT - Service TaxPayment of service tax on GTA services through cenvat credit- where a person is neither a provider of taxable service nor does he manufacture any final product, difficulty may arise in cases where input service is received by a person, who by virtue of his business has to pay service tax as a recipient, and who, but for the deeming fiction, would not be able to avail the benefit of Cenvat credit and the tax burden will rest on him, though he was not a consumer. Therefore, the explanation appears to have been enacted with a view to benefit a person who is liable to pay service tax as the recipient of taxable service, so that he can utilize the Cenvat credit for payment of service tax payable by him as recipient of any of the taxable services in respect of which a recipient is held to be liable to pay tax - while expressing our respectful agreement with the view taken in the case of Nahar Exports Ltd. case (2007 -TMI - 83687 - CESTAT, New Delhi), decided in favor of assessee.
Issues Involved:
1. Eligibility of Cenvat credit utilization for payment of service tax on Goods Transport Agency (GTA) services. 2. Interpretation of Rule 3(4)(e) and Rule 2(p) of the Cenvat Credit Rules, 2004. 3. Impact of the deletion of the explanation clause from Rule 2(p) effective from 19-4-2006. 4. Reference to Larger Bench in Panchmahal Steel Ltd. case. 5. Consistency of Tribunal decisions on similar issues prior to 19-4-2006. Detailed Analysis: 1. Eligibility of Cenvat Credit Utilization for Payment of Service Tax on GTA Services: The respondents, manufacturers of excisable goods, utilized Cenvat credit to pay service tax on GTA services received. The Department argued that as the respondents were not providers of taxable services, they were ineligible to use Cenvat credit for this purpose. The Adjudicating Authority denied the Cenvat credit and confirmed the demand along with interest, but the Commissioner (Appeals) allowed the appeal and dropped the proceedings. 2. Interpretation of Rule 3(4)(e) and Rule 2(p) of the Cenvat Credit Rules, 2004: The Department contended that under Rule 3(4)(e), Cenvat credit can be used for payment of service tax on any output service. Rule 2(p) defines output service as any taxable service provided by a service provider to a customer. Since the respondents were not providing taxable services but were recipients of GTA services, they were not eligible to utilize Cenvat credit for paying service tax on GTA services. 3. Impact of the Deletion of the Explanation Clause from Rule 2(p) Effective from 19-4-2006: Prior to 19-4-2006, Rule 2(p) included an explanation that deemed the service for which a person is liable to pay service tax as output service if they do not provide any taxable service or manufacture final products. This clause was deleted by Notification No. 8/2006-C.E. (N.T.), effective from 19-4-2006. The Tribunal noted that for the period prior to this date, the explanation clause must be considered, which allowed the utilization of Cenvat credit for payment of service tax on GTA services. 4. Reference to Larger Bench in Panchmahal Steel Ltd. Case: The Department argued that the issue of Cenvat credit utilization for GTA services was referred to a Larger Bench in Panchmahal Steel Ltd. However, the Tribunal clarified that the reference was not about the issue itself but whether the matter should be decided by the Larger Bench. The Tribunal concluded that the issue in question was not referred to the Larger Bench. 5. Consistency of Tribunal Decisions on Similar Issues Prior to 19-4-2006: The Tribunal cited several cases, including Nahar Exports Ltd., Nahar Industrial Enterprises Ltd., and Bhushan Power and Steel Ltd., which consistently held that the explanation clause in Rule 2(p) allowed the utilization of Cenvat credit for payment of service tax on GTA services for periods before 19-4-2006. The Tribunal agreed with these decisions and found no reason to deviate from this established view. Conclusion: The Tribunal upheld the Commissioner (Appeals)'s decision, allowing the respondents to utilize Cenvat credit for payment of service tax on GTA services for the period prior to 19-4-2006, and dismissed the Department's appeal. The judgment emphasized the importance of the explanation clause in Rule 2(p) before its deletion and the consistent interpretation of similar issues by the Tribunal.
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