2015 (12) TMI 1059 - AT - Service Tax

Denial of CENVAT Credit - whether appellants are entitled to use the Cenvat Credit to discharge their service tax liability in regard to GTA and BAS service, when they are not the service provider for such services - Held that - Finance Act, 1994 is the law which deals with taxability of services. Taxation of Service Rules, 2006 enacted under the Finance Act, 1994 inter alia lays contains provisions governing the services which are provided from outside India and received in India. Rule 5 of the said Rules prevents the utilization of credit for discharging Service Tax on taxable services provided from outside India and received in India. In view thereof the demand of service tax as deemed provider of BAS services as per the impugned order does not warrant any interference. The same is upheld. The impugned order to the extent of demand of service tax on account of GTA services as discussed above, is set aside. Commissioner (Appeals) has upheld the penalty imposed under Section 76 of Finance Act, observing that the appellant ought not to have paid the service tax from Cenvat credit, but should have paid in cash. The issue being interpretational and as the appellant has already discharged the service tax, we consider that imposing penalty would not be appropriate and the same is set aside in terms of section 80 of the Finance Act, 1994. We would also like to observe that though the Commissioner states that the penalty imposed under Section 70 read with Rule 7(2) is proper and upheld, no such penalty is seen imposed by the original authority. - Decided partly in favour of assessee.

Summary

Issues: Whether the appellants can use Cenvat Credit to discharge service tax liability for Goods Transport Agency (GTA) and Business Auxiliary Service (BAS) when they are not the service provider for such services.

Analysis:
1. The appellants were registered for manufacturing Bulk drugs and were service recipients of GTA and BAS services. The department found that they used Cenvat Credit to pay service tax instead of cash, leading to a demand notice. The original authority confirmed the demand, and the Commissioner (Appeals) upheld it. The main issue was the use of Cenvat Credit for service tax liability.

2. The Tribunal referred to various judgments, including CCE vs. Panchmahal Steel Ltd., CST vs. Hero Handa Motors Ltd., and CCE, Chandigarh vs. Nahar industrial Enterprises Ltd., which allowed using Cenvat Credit for GTA services. The Tribunal held that the appellants could use Cenvat Credit for GTA services but focused on whether the same applied to BAS services from foreign-based agents.

3. The dispute centered on the interpretation of rules related to Cenvat Credit and service tax liability for BAS services. The appellant argued that as a person liable to pay service tax, they should be treated as a provider of output service and allowed to use the credit. The department relied on Rule 5 of Taxation of Services Rules, 2006, stating that service tax on services from outside India must be paid in cash.

4. The Commissioner (Appeals) determined that the appellants were deemed service providers only for service tax liability, not for Cenvat Credit purposes. Rule 5 restricted credit utilization for services from outside India. The Tribunal upheld this decision, stating that the demand for service tax on BAS services was valid, while setting aside the demand for GTA services.

5. The Tribunal modified the impugned order, allowing the appeal partly by setting aside the demand for service tax on GTA services and related penalties. The demand for service tax on BAS services was upheld, but the penalty was set aside due to the interpretational nature of the issue.

In conclusion, the Tribunal's decision clarified the use of Cenvat Credit for service tax liability on GTA and BAS services, emphasizing the specific rules governing services from outside India and the general provisions of Cenvat Credit utilization.