2012 (12) TMI 734 - HC - Service Tax

Payment of service tax by using cenvat credit instead of cash - Held that - As decided in CCE, CHANDIGARH Versus M/s NAHAR INDUSTRIAL ENTERPRISES LTD and Others 2010 (5) TMI 608 - PUNJAB AND HARYANA HIGH COURT & para 2.4.2 of CBEC s Excise Manual of Supplementary Instructions shows that there is no legal bar to the utilisation of Cenvat credit for the purpose of payment of service tax on the GTA services - in favour of assessee.

Summary

Issues:
- Interpretation of Section 68(2) of the Finance Act, 1994 regarding payment of service tax through CENVAT credit.
- Whether the recipient of a taxable service can claim CENVAT credit for payment of service tax.
- Applicability of Rule 3(4)(e) of the CENVAT Credit Rules, 2004 in the context of service tax payment.

Analysis:
1. The primary issue in this case revolved around the interpretation of Section 68(2) of the Finance Act, 1994, concerning the payment of service tax. The Tribunal initially held that the respondent was entitled to pay service tax dues using CENVAT credit instead of cash. The Revenue contended that the tax liability had to be discharged in cash, not through CENVAT credit. The Commissioner (Appeals) and CESTAT supported the respondent's position based on legal provisions and precedents like Nahar Industrial Enterprises Ltd. and other similar cases.

2. Another crucial aspect was whether a recipient of a taxable service could utilize CENVAT credit for service tax payment. The Punjab and Haryana High Court, in a related case, emphasized Rule 3(4)(e) of the CENVAT Credit Rules, 2004, which allows for the utilization of CENVAT credit for service tax on output services. This rule was pivotal in establishing the legality of using CENVAT credit for service tax payment by the recipient.

3. The judgment further delved into the specific provisions of Section 68(1) and (2) of the Finance Act, 1994, which outline the payment of service tax. Section 68(2) provides a special mechanism for the payment of service tax on notified services, allowing for payment by the person as prescribed. The court aligned with the interpretation of the Punjab and Haryana High Court, emphasizing the importance of the legal framework and the benefit extended to service providers under Section 68(2).

4. Ultimately, the High Court upheld the decision in favor of the appellant, rejecting the Revenue's contentions. The court concurred with the reasoning of the Punjab and Haryana High Court and dismissed the appeal, affirming the right of the respondent to pay service tax on GTA services through CENVAT credit. This comprehensive analysis of legal provisions, precedents, and statutory rules formed the basis for the judgment, ensuring clarity and consistency in the interpretation of tax laws and credit utilization for service tax payment.