2007 (9) TMI 93 - AT - Service Tax

Assessee receiving GTA Service for inward and outward movement of goods As per explanation under rule 2(P) CCR, where a person liable for paying tax, does not provide any taxable service, the service for which he is liable to pay tax shall be deemed to be output service Credit allowed

Summary

Issues:
1. Denial of Cenvat credit on service tax paid for inward and outward movement of goods.
2. Interpretation of the definition of "output service" under the Cenvat Credit Rules, 2004.
3. Application of the Explanation regarding liability to pay service tax when not providing any taxable service.
4. Relevance of earlier decisions and circulars in determining eligibility for Cenvat credit.

Analysis:
1. The appellants, manufacturers of cotton yarn, faced a dispute regarding the utilization of Cenvat credit for service tax paid on "Goods Transport Agency's Service" received for inward and outward movement of goods. The department objected to the credit utilization, leading to a demand for repayment of the amount utilized. However, the appellate authority vacated the penalty imposed on the appellants, emphasizing that they were service recipients in both instances. The present appeal challenged the denial of Cenvat credit, which was previously addressed in the case of R.R.D. Tex Pvt. Ltd. v. CCE, Salem, where the objection was overruled by the Bench. The decision in this case was followed in subsequent appeals, establishing a precedent in favor of the appellants.

2. The crux of the issue lies in the interpretation of the definition of "output service" under Rule 2(p) of the Cenvat Credit Rules, 2004. The Explanation to this definition clarified that if a person liable for paying service tax does not provide any taxable service, the service for which the tax is paid shall be deemed as the output service. In the present case, the appellants were only receiving taxable services and not providing any, making the "Goods Transport Agency's Service" received by them equivalent to their "output service." Therefore, the credit of service tax paid on input service and duty paid on inputs or capital goods could be validly availed by the appellants, as per the Explanation.

3. The application of the Explanation was crucial in determining the liability to pay service tax when not providing any taxable service. The appellants' payment of service tax on the "Goods Transport Agency's Service" was deemed as their output service, allowing them to avail Cenvat credit based on the tax paid on input service and duty paid on inputs or capital goods. The decision of the lower authorities to disallow this credit was not sustainable in light of the Explanation and the established legal precedents favoring the appellants.

4. The judgment referenced earlier decisions, such as The India Cement Ltd. v. Commissioner of Central Excise, Salem, to support the appellants' entitlement to Cenvat credit based on the interpretation of the output service definition. Additionally, the circular dated 3-10-2005 of the Board, cited by the department, was deemed irrelevant as it did not consider the Explanation to the definition of output service. Ultimately, the impugned order disallowing the credit was set aside, and the appeal was allowed, following the established legal principles and precedents in favor of the appellants.