2018 (1) TMI 1131 - AT - Service Tax

CENVAT credit - GTA Services - It appeared to the department that such utilization of cenvat credit was irregular since the service provided by the GTA for outward transportation does not become an output service for consignor or consignee in terms of Rule 2(p) and 2 (r) of the Cenvat Credit Rules, 2004 - Held that - prior to 1.3.2008, there is no bar on the appellants for utilization of cenvat credit for discharging, as a consignor, the tax liability on GTA services availed for outward transportation - for the period 1.3.2008 to September 2008, i.e., the remaining part of the disputed period, by virtue of the amendment brought in Rule 2 (p) of the Rules vide Cenvat Credit (Amendment) Rules, 2008 w.e.f. 1.3.2008 appellant cannot utilize cenvat credit for discharging tax liability on the said GTA service for outward transportation. Cenvat credit so availed will then will have to be paid back along with appropriate interest liability thereof. For this limited purpose, we remand the matter to the adjudicating authority, only for the purpose of calculating the amount required to be paid back and the interest liability thereon for the period 1.3.2008 to September 2008. Penalty - Held that - the issue per se was mired in confusion during the disputed period - penalty cannot be imposed. Appeal allowed in part and part matter on remand.

Summary

Issues involved:
Utilization of cenvat credit for service tax on outward transportation, applicability of Rule 2(p) of Cenvat Credit Rules, 2004, imposition of penalty under Section 76 and 78 of the Finance Act, 1994.

Analysis:

1. The appellants, engaged in the manufacture of Ready-mix concrete, dispatched goods to construction sites by road and paid service tax on behalf of transporters. The department raised concerns about the irregular utilization of cenvat credit for service tax paid on input services like GTA, insurance, and security services for outward transportation. The jurisdictional Commissioner confirmed the demand of service tax with interest and imposed penalties under Section 76 and 78 of the Finance Act, 1994. The appeal challenged this decision.

2. The appellant argued that until 28.02.2008, they should be considered output service providers as per Rule 2(q) and Rule 2(r) of the Rules, allowing them to utilize cenvat credit for input services correctly. However, an amendment on 01.03.2008 limited this entitlement. The appellant cited the Pancmahal Steel Ltd. ruling and the High Court of Madras judgment supporting their position.

3. The respondent highlighted that the Explanation to Rule 2(p) was omitted in 2006, affecting the interpretation of output service. Referring to tribunal decisions, the respondent argued that post-18.04.2006, cenvat credit could not be used for GTA service tax payment. The decision in the Iswari Spinning Mills case was also cited to support this stance.

4. The Tribunal considered the conflicting interpretations and the evolution of legal positions. It emphasized a Larger Bench decision regarding the utilization of cenvat credit for service tax liability on taxable services. The Tribunal upheld the decision that prior to 1.3.2008, there was no bar on appellants for utilizing cenvat credit for discharging tax liability on GTA services for outward transportation.

5. For the period from 1.3.2008 to September 2008, the Tribunal noted the amendment in Rule 2(p) restricting cenvat credit utilization for GTA service tax. The matter was remanded for calculating the amount to be paid back with interest for this period. Regarding penalties, the Tribunal acknowledged the confusion surrounding the issue during the disputed period and found reasonable cause for the appellant's failure to discharge tax liability from 1.3.2008. Consequently, the penalties under Section 76 & 78 were set aside.

6. The appeal was disposed of based on the above analysis, providing clarity on the utilization of cenvat credit for service tax on outward transportation and the imposition of penalties.