2007 (6) TMI 41 - AT - Service Tax

Cenvat credit - Revenue contended that appellant had paid service tax on transportation of goods by utilization of Cenvat credit instead of payment in cash and accordingly demand were made alongwith penalty - Held that the revenue contention was not correct and set aside demand and penalty

Summary

Issues:
- Utilization of Cenvat credit for payment of Service tax on input service
- Interpretation of "output service" under Cenvat Credit Rules, 2004

Analysis:
1. Utilization of Cenvat credit for payment of Service tax on input service:
The appeal arose from an Order-in-Original passed by the Commissioner, alleging that the appellant had paid Service tax on freight for the transportation of goods by adjusting Cenvat credit instead of paying in cash. The Commissioner demanded a significant amount towards Service tax, Education Cess, interest, and penalties. The Adjudicating Authority held that the inward transportation of goods by road service qualifies as an "input service" under the Cenvat Credit Rules. However, it was noted that Cenvat credit cannot be utilized for payment of Service tax on input service, as per Rule 3(4)(e) of the Cenvat Credit Rules.

2. Interpretation of "output service" under Cenvat Credit Rules, 2004:
The key contention revolved around the definition of "output service" under the Cenvat Credit Rules, 2004. The rule defines 'output service' as any taxable service provided by the taxable service provider to a customer. The explanation clarifies that if a person liable for paying Service tax does not provide any taxable service, the service for which he is liable to pay tax shall be deemed as the output service. In this case, the appellant, being a recipient of the transport of goods by road service, was argued to be liable to pay Service tax on the deemed 'output service'. Consequently, the Service tax could be paid using Cenvat Credit as per Rule 3(4)(e) of the Cenvat Credit Rules.

In conclusion, the Tribunal set aside the impugned order, ruling in favor of the appellant based on the interpretation of the Cenvat Credit Rules. The judgment emphasized that when the service is deemed to be an 'output service', the payment of Service tax using Cenvat Credit is permissible. The decision provided consequential relief to the appellant, highlighting the significance of correctly categorizing services for tax purposes under the applicable rules.