2011 (7) TMI 839 - HC - Service Tax

Demand - Application for stay - Rule 2(l) of the CENVAT Credit Rules 2004 - Gujarat High Courts have placed a construction on the provisions of Rule 2(l) of the CENVAT Credit Rules 2004 as they stood before 1 April 2008 which supports the case of the assessee - The issue before the Gujarat High Court was also whether CENVAT credit on service tax paid on services rendered by a Goods Transport Agency on outward transportation of the goods beyond the place of removal was admissible under Rule 2(l). The question of law has been answered in favour of the assessee and against the Revenue

Summary

Issues:
1. Whether the Appellate Tribunal was justified in directing the Appellant to deposit 60% of the duty amount under Section 35F of the Act?
2. Interpretation of Rule 2(l) of the CENVAT Credit Rules, 2004 before 1 April 2008.

Issue 1:
The High Court admitted the Appeal by the Revenue under Section 35-G of the Central Excise Act, 1944, concerning the direction given by the Customs, Excise and Service Tax Appellate Tribunal for the Appellant to deposit 60% of the duty amount. The Appellant, engaged in manufacturing excisable goods, was alleged to have availed inadmissible CENVAT credit. The Tribunal had directed the Appellant to deposit 60% of the duty amount while waiving interest and penalty until the Appeal's disposal. The Appellant argued that proceedings on the same issue were pending in the Karnataka High Court, seeking an adjournment, which was declined by the Tribunal. However, the High Court considered judgments from the Karnataka and Gujarat High Courts supporting the assessee's case, leading to a complete waiver of the duty amount for the Appellant.

Issue 2:
The judgment also discussed the interpretation of Rule 2(l) of the CENVAT Credit Rules, 2004 before 1 April 2008. The Karnataka High Court and the Gujarat High Court had ruled in favor of the assessees regarding the admissibility of CENVAT credit on service tax paid on outward transportation services. The High Court acknowledged the applicability of these judgments and held that a prima facie case was made out by the assessees, warranting the interference of the Court to grant a complete waiver of the duty amount along with interest and penalty. The High Court clarified that its observations were limited to deciding on the grant of a stay of the order under appeal, and the pending Appeal before the Tribunal would be disposed of on its own merits.

In conclusion, the High Court ruled in favor of the assessee, granting a complete waiver of the duty amount and disposing of the Appeal accordingly, with no order as to costs.