2008 (9) TMI 54 - AT - Service Tax

Rule 2(p) and Rule 2(r) of the Cenvat Credit Rules, 2004 - Utilization of credit input services - GTA (goods transport agency services) and BAS (business auxiliary services) received from abroad service tax paid on impugned services was utilized in payment of tax on subsequently received input services contrary orders of Tribunal matter is referred to Larger Bench for decision on the disputed issue

Summary

Issues:
1. Interpretation of provisions regarding utilization of Cenvat credit for payment of service tax on input services.
2. Whether the services of goods transport agency can be considered as output services for the purpose of utilizing Cenvat credit.

Issue 1: Interpretation of provisions regarding utilization of Cenvat credit for payment of service tax on input services:

The appellant, a manufacturer of steel products, utilized Cenvat credit of service tax paid on input services for paying service tax on subsequent input services. The original authority held that the appellant, despite paying service tax, did not become the provider of service and thus cannot use the credit for subsequent payments. The Commissioner (Appeals) upheld the demand of duty and interest but set aside the penalty. The appellant argued that they are "Person liable for payment Service Tax" and, therefore, considered a "Provider of Taxable Service." The Tribunal, citing relevant rules, clarified that the credit can only be used for payment of excise duty on goods or service tax on output services provided. As the appellant did not provide any output service, utilizing the credit for subsequent input services was deemed incorrect. The appeal was rejected based on this interpretation.

Issue 2: Whether the services of goods transport agency can be considered as output services for the purpose of utilizing Cenvat credit:

The Tribunal referred to a previous case where it was held that the service tax paid on goods transport agency services for receiving input material does not make the manufacturer a service provider. While the credit can be used for paying tax on subsequent services, the services of goods transport agency for receiving input material cannot be treated as output services. The Tribunal clarified that the credit taken on service tax on input services can only be utilized for excise duty on manufactured goods or service tax on output services provided. The appellant's argument that goods transport agency services should be considered output services for utilizing Cenvat credit was not accepted. The Tribunal emphasized that the appellant did not render any output service and, therefore, could not use the credit for subsequent input services. The appeal was rejected based on this interpretation.

Difference of Opinion:

A difference of opinion arose between the Members regarding whether the matter should be referred to a Larger Bench for decision on the disputed issue or if the appeals should be rejected based on the existing interpretation. Member (Judicial) proposed referring the matter to a Larger Bench due to conflicting decisions, while Member (Technical) initially rejected the appeals. Eventually, Member (Technical) concurred with the proposal to refer the matter to a Larger Bench for resolution.

This judgment clarifies the interpretation of provisions related to the utilization of Cenvat credit for payment of service tax on input services and whether the services of goods transport agency can be considered as output services for credit utilization. The Tribunal emphasized that the credit can only be used for excise duty on goods or service tax on output services provided, and not for subsequent input services. The difference of opinion led to the decision to refer the matter to a Larger Bench for resolution.