2007 (10) TMI 389 - AT - Service Tax

GTA Payment of service tax in Cash - explanation 2(p) to the definition of output service Held that - the explanation appears to have been enacted with a view to benefit a person who is liable to pay service tax as the recipient of taxable service, so that he can utilize the cenvat credit for payment of service tax payable by him as recipient of any of the taxable services in respect of which a recipient is held to be liable to pay tax. However, this view would not be tenable, in view of the binding decision of the Division Bench in the case of India Cements Ltd., (2007 -TMI - 1780 - CESTAT, BANGALORE), wherein a manufacturer was given benefit of the explanation to Rule 2(p). Decided in favor of assessee

Summary

Issues:
Challenge to order setting aside recovery of Service Tax and penalty imposition under Cenvat Credit Rules, 2004.

Analysis:
1. The Revenue contested the Commissioner (Appeals) order setting aside the recovery of Service Tax and penalty imposition. The issue arose from the liability of the respondent, engaged in manufacturing cotton yarn/fabrics, to discharge Service Tax for 'Good Transport Agency' (GTA) services. The Revenue argued that the recipient of such services should pay the tax in cash, not through Cenvat Credit. A show cause notice was issued for recovery, interest, and penalty.

2. The respondent claimed that the recipient of GTA services was deemed a service provider, thus liable to pay Service Tax. They argued that the definition of input service was exhaustive and covered all services. The adjudicating authority held that Cenvat Credit for manufacturing couldn't be used for GTA service tax. They stated that credit was available for manufacturers of dutiable goods, not for service providers. Recovery was ordered based on this reasoning.

3. The Appellate Commissioner, relying on Rule 2(p) of the Cenvat Credit Rules, held that the respondent's case fell under the explanation, allowing them to treat received services as output services. The Department's representative argued that Rule 2(p) didn't apply to manufacturers. They cited a CBEC Circular to support their stance.

4. The respondent's counsel supported the Commissioner's decision, stating that Rule 2(p) enabled the recipient to treat input services as output services. They argued that the respondent, liable for GTA service tax, could utilize Cenvat Credit for payment. They referenced a Division Bench decision supporting this interpretation.

5. The definition of 'output service' under Rule 2(p) was crucial. The explanation clarified the deeming fiction for those liable to pay service tax but not providing taxable services or manufacturing final products. The Tribunal, in line with the Division Bench decision, upheld the Appellate Commissioner's ruling, allowing the respondent to use Cenvat Credit for GTA service tax payment.

This detailed analysis covers the issues involved in the legal judgment comprehensively, highlighting the arguments presented by both parties and the reasoning behind the final decision.