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Can Cenvat credit be utilized for payment of service tax by service recipients? |
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Can Cenvat credit be utilized for payment of service tax by service recipients? |
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Can Cenvat credit be utilized for payment of service tax by service recipients? By: Vijay Chitte : View Profile In the Finance Act 1994 of Service tax, two types of mechanism are constitute the levy of service tax in different section, who are recipients of services are liable to pay service tax, as a deemed service provider. The first is, the service receiver who are liable to pay service tax on "Goods transport agency service in sub clause (zzp) of clause of section 65 of the Finance Act 1994:- Second is Import of services, (under section 66A of the finance Act 1994) the taxable services provided from outside India and received in India, is liable to pay service tax under reverse charge mechanism. Lacunae is that, service receiver, who are liable to pay service tax as per above two mechanism, Can Cenvat credit be utilized for payment of service tax by service recipients? Lets go back in history Earlier, the Cenvat credit rules 2004 in rule 2(p), constitute the definition of "output service" means any taxable service provided by the provider of taxable service, to a customer, client, policy holder, or any other person, as they case may be, and the expressions 'provider' and 'provided' shall be constructed accordingly, Explanation - For the removal of doubts it is hereby clarified that if a person paying service tax, does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay service tax shall be deemed to be the output service". As per rule 2(r) "provider of taxable service" include a person liable for paying service tax." It can be seen from the above reproduced provisions or Rule 2(p) and Rule 2(r) that the said rules defined the output services and provider of taxable services. It can be noticed from Rule 2(r) that the provider of taxable services include a person liable for paying service tax, Provisions of Rule 2(p) defines output services, means any taxable services provided by the provider of taxable services. The provisions of Rule 3(4) Cenvat credit Rules 2004 entitles the assessee utilization of the Cenvat credit. The provisions are as under: 'The cenvat credit may be utilized for payment of- (a) any duty of excise on any final product; or (b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or arter being partially processed; or (c) an amount equal to the Cenvat credit taken on capital goods if such capital goods are removed as such; or (d) an amount under sub-rule (2) of rule 16 of Central Excise Rule 2002, or (e) Service tax on any output service: It can be noticed from the above reproduced rule that the Cenvat credit can be utilized by the assessee for the payment of Service tax on any output services. In other condition the liability on the service receiver from goods transport agency has been fastened on the receiver of the services of the goods transport agency, which would mean that they are considered as a provider of taxable services. If that be so, the utilization of Cenvat credit under provisions of Rule 3(4) of the Cenvat credit rules 2004 for discharge of Service tax liability on the services received from the goods transport agency cannot be objected to by the revenue. Since, the liability to pay service tax on GTA has been shifted to the seven categories who are defined as person liable to pay service tax, dispute arose whether they can pay the service tax on GTA from the Cenvat credit earned as a manufacturer. Since the person liable to pay service tax was deemed to be the output service provider, and finally the Ahmedabad High Court in CCE, Rajkot versus M/s. Gautam Technocast [2008-TMI-31300- AHMEDABAD, HIGH COURT] consistently allowing the manufactures to pay service tax on GTA from Cenvat credit account. The following CESTAT, Judgments are also held that, liability of service tax on goods transport agency service can be discharged through Cenvat credit accounts, who are recipients of services. PALLIPALAYAM SPINNERS PVT. LTD. Versus COMMISSIONER OF C. EX. 2008-TMI-3504 - CESTAT CHENNAI] PRAKASH INDUSTRIES LTD. Versus COMMISSIONER OF C. EX. JAIPUR [2008-TMI-30414 - CESTAT, NEW DELHI] MAHINDRA UGINE STEEL CO. LTD. Versus RAIGAD [2008-TMI-30272 - CESTAT, MUMBAI] CCE, CHANDIGARH Versus M/s. BIRLA TEXTILES MILLS [2008-TMI- 30216 - CESTAT, NEW DELHI] INDIA CEMENT LTD. Versus COMMISSIONER OF C. EX. SALEM [2007-TMI- 1661, CESTAT, CHENNAI] NAGAMMAI COTTON MILLS (P) LTD. Versus COMMR. OF C. EX. PONDICHERRY [2008-TMI-3575 - CESTAT, CHENNAI] COMMISSIONER OF C. EX. NAGPUR Versus VISAKA INDUSTRIES LTD. [2007-TMI-2028 - CESTAT, MUMBAI] ARHAM SPINNING MILLS LTD Versus CCE, JAIPUR-I [2008-TIOL-144 - CESTAT, DELHI] INTERNATIONAL ELECTRON DEVICES LTD. Versus CCE, KANPUR [2008- TIOL-177 - CESTAT, DELHI] However, the Central Government has realized that as far as manufacture are concerned, GTA does not bring any real revenue to the Government as they can pay service tax on GTA from Cenvat credit account and the again take credit of the same. So it is only a matter of book keeping. Finally, the Government has put an end to it, vide Notification No. 10/2008-CE (NT) dated 01.03.2008, the definition of the output service in rule 2(p) of the Cenvat credit Rules has been amended to exclude the GTA service [section 65(105)(zzp)] from the preview of output service. As per the amended definition, output service means "any taxable service, excluding the taxable service referred to in sub clause (zzp) fo clause of section 65 of the Finance Act, provided by the provider of taxable service"this has been also held in GODREJ & BOYCE MFG. CO. LTD. Versus, COMMISSIONER OF C. EX. GHAZIABAD [2009-TMI-33946 - CESTAT, NEW DELHI] that Notification No. 10/2008-C.E. (N.T.), dated 01.03.2008 amends Rule 2 of Cenvat credit rules 2004, whereby the words "any taxable service provided by the provider of taxable service" would be substitute by the words "any taxable service excluding the taxable service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act, provided by the provider of taxable service." It appears that the restriction for utilization of cenvat credit by the manufacturing unit towards GTA service would be imposed by Notification dated 01.03.2008. Accordingly, stay petition allowed. As far as the GTA service concern, the Government has put the specific amendment w.e.f 01.03.2008 in Rule 2(p) of Cenvat credit 2004, to exclude it from the scope of "output" service. But as far as the Import of services (under section 66A) concerned there is no specific exclusion provided in scope of "output service" in Cenvat credit rules 2(p), hence there is no bar in utilization of Cenvat credit towards service tax on services received from outside India. It has been also held in two CESTAT judgments in COMMISSIONER OF SERVICE TAX, BANGLORE Versus ARVIND FASHIONS LTD. [2009-TMI-32647 - CESTAT, BANGALORE] and Rule 2(d) of the said Import Rules specifically state that "output service" shall have the meaning assigned to in clause (p) of Rule 2 of the Cenvat credit Rules 2004, It seems that it is lacunae in the said rule of CCR 2004. Basically, the Cenvat credit rules are govern by the Cenvat credit Rules 2004, In case the Government really does not want to lose the revenue on this account, they must have to amend the clause (p) of rule 2 of Cenvat credit 2004 including the above taxable service (Import of service) in the exclusion part of the definition as define to GTA service. CONCLUSION: The Service tax on GTA service has to be paid in cash only as no Cenvat credit can be allowed for payment of service tax w.e.f. 01.03.2008 as the same is not an output service under the Cenvat credit Rules, and finally the amendment has been done. Service tax on services received from outside India (Under section 66A) under reverse charged method, can be paid through Cenvat credit account, as there is no specific exclusion in the definition, as define for the GTA service. There is scope for argument. Dated: - January 2, 2010
By: Vijay Chitte - January 2, 2010
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