2014 (8) TMI 28 - AT - Service Tax

CENVAT Credit - GTA Service - Credit on freight charges - Whether credit taken on GTA services could be utilised for payment of service tax on the freight amount paid by them towards outward transportation of their final products as well as inward transportation of their inputs/capital goods at a specified time - Held that - Service received by an assessee cannot be treated as output service and in respect of such service received by him, he cannot be treated as provider of service. Same view has been taken by the Board in its Circular No. 97/8/2007, dated 23.8.2007, wherein the Board has clarified that in terms of Cenvat Credit Rules, output service means any taxable service provided by the provider of taxable service to be service receiver; that definition of provider of taxable service includes a person liable to pay service tax; that reading the two definitions in conjunction, it is clear that, to form output service , taxable service has to be actually provided by the provider of taxable service and that even if due to a legal fiction, a consignor or a consignee qualifies to fall under the definition of a person liable to pay service tax (and consequently a provider of taxable service), it cannot be said that he has actually provided any taxable service. Just because in respect of the service provided by a Goods Transport Agent (GTA) the consignee has been made liable to pay service tax, that service received by the consignee does not become their output service . Therefore, the service tax payable by the consignor or consignee on transportation of goods by road cannot be paid through Cenvat credit by such consignor or consignee. The above clarification by the Board has to be treated as contemporaneous exposition of Rule 2(p). Moreover this clarification is in accordance with settled law that legal fiction can be applied only for the specific purpose for which it has been made not for other purpose - Decided against assessee.

Summary

Issues Involved:
- Utilization of credit on GTA services for service tax payment on outward and inward transportation

Analysis:
The judgment revolves around the issue of whether credit taken on GTA services can be utilized for paying service tax on the freight amount paid for outward transportation of final products and inward transportation of inputs/capital goods. The Tribunal initially allowed the appeal based on a High Court judgment and an earlier Tribunal ruling. However, upon realizing that the period involved was prior to a specific date, the order was recalled. The appellant did not appear for the hearing, and the matter was examined with the assistance of the Departmental Representative (DR).

The Tribunal analyzed previous cases, particularly one involving Nahar Industrial Enterprise and another involving ITC vs. CCE Guntur. It was observed that post the deletion of an explanation under Rule 2(p) of the Cenvat Credit Rule, only services actually provided by an assessee could be treated as output services. Even prior to this deletion, service tax on services received by an assessee, for which they were liable to pay under reverse charge, had to be paid in cash, not through Cenvat credit.

The DR argued that before a specific date, there was no scope for utilizing credit arising from GTA services for other services. The presiding judge concurred with the DR, citing the Tribunal's judgment in ITC vs. CCE Guntur, which clearly stated that there was no scope for such utilization. The Commissioner (Appeals) also agreed that using Cenvat credit for service tax on transportation overrode the rules, making such utilization irregular and inadmissible.

The judgment delved into the definition of output service during the disputed period and referred to a Circular by the Board clarifying that taxable service had to be actually provided by the service provider to qualify as output service. Legal fictions, such as consignors or consignees being liable to pay service tax, did not transform the received service into output service. Therefore, the service tax on transportation of goods by road could not be paid through Cenvat credit by the consignor or consignee. The judge found no merit in the appeal and rejected it accordingly.