Customs, Excise and Gold Tribunal - Delhi
Cce vs Nahar Exports Ltd. on 11 October, 2007
Equivalent citations: 2008(125)ECC48, 2008(151)ECR48(TRI.-DELHI), 2008(223)ELT205(TRI-DEL), [2008]13STJ25(CESTAT-NEW DELHI), 2008[9]S.T.R.252
ORDER
R.K. Abichandani, J. (President)
1. The Revenue has challenged the order of the Commissioner (Appeals) setting-aside the order-in-original by which recovery of Service Tax of Rs. 5,55,942/- was ordered and penalty imposed of the like amount under Rule 15 of the Cenvat Credit Rules, 2004.
2. The respondent was manufacturing cotton yarn/fabrics and availing facility of Cenvat Credit. According to the Revenue, the liability in respect of 'Good Transport Agency' services was required to be discharged by the respondent by cash, because recipient of such service was liable to pay the tax. The liability to pay Service Tax, in respect of GTA services received, could not be discharged by utilizing Cenvat Credit of manufacturing activity. Show cause notice was, therefore, issued for recovery of Service Tax with interest and proposing penalty.
3. According to the respondent-assessee, the recipient was a deemed service provider for the purposes of GTA services. It was contended that, as per the explanation to Section 2(p) of the Cenvat Credit Rules, 2004 read with Section 68(2), the noticee was liable to pay Service Tax for the GTA services and, therefore, the said input service was a deemed output service for the noticees, irrespective of the fact that the noticee was manufacturing the goods and not providing any output service. It was also urged that, the definition of input service was exhaustive and covered all services.
4. The adjudicating authority, on the basis of the material on record, held that, the output service provider was eligible to take credit of service tax paid on input/capital goods used in providing service and that the goods, which were inputs/capital goods for the manufacture, were not inputs/capital goods for the service tax provider and vise versa. It was held that, Cenvat Credit of manufacturing amount cannot be used for discharging service tax liability on deemed GTO liability. It was also held that, the credit of input/input services and capital goods was allowable to a manufacturer, who manufactured dutiable goods. In case the finished goods were exempt, no credit of input/input services and capital goods would be available, though the assessee remained a GTO Service provider. He, therefore, held that, credit of manufacturing activity was independent of credit available for providing GTA services or deemed GTA services and that it was irregularly taken. Recovery was, therefore, ordered.
5. The Appellate Commissioner, however, resorting to the explanation to Rule 2(p) of the Cenvat Credit Rules, 2004, which was operative during the relevant period, held that, the case of the respondent was squarely covered by the said explanation. It was held that, the services received by the respondent, on which the respondent was liable to pay service tax, became output services. In view of the said explanation, the appeal of the respondent was, therefore, allowed.
6. The learned authorised representative for the Department, strongly contended that, the provisions of Rule 2(p) were applicable only in a case, where a person liable for paying service tax was neither a taxable service provider nor a manufacturer of final product. It was submitted that, in the present case, the appellant was a manufacturer and, therefore, there was no scope for extending the benefit of the explanation to Rule 2(p) of the said Rules to the appellant. He also relied upon the Departmental clarification issued by a master CBEC Circular No. 97/8/2007-S.T. dated 23.08.2007 clarifying the procedural issues relating to Service Tax, published in 2007 (215) ELT T-24 (Part-I), at page T-29, in which it was clarified, in response to the issue, whether a manufacturer or taxable service provider, having credit balance in his account, can utilize that credit for payment of Service Tax on goods transport by road, as a consignor or as a consignee by answering that the service provided by a GTA, for which the consignor or consignee may be liable as the recipient to pay Service Tax, does not become an output service for such consignor or the consignee and, therefore, the Service Tax payable by the consignor or consignee on transportation of goods by road cannot be paid through credit accumulated by such consignor or consignee.
7. The learned Counsel for the respondent, supporting the decision of the Appellate Commissioner, submitted that, Rule 2(p) enabled the recipient of service, who was liable to pay Service Tax, to treat that input service as a deemed output service. In view of this deeming fiction, the Appellate Commissioner has rightly held, that the cenvat credit could be availed for paying Service Tax on output service by utilizing the credit. He submitted that, under Rule 3(4)(e) of the Cenvat Credit Rules, 2004, cenvat credit may be utilized for payment of service tax on any output service. According to him, the words 'output' service' as defined in Clause (p) of Rule 2, mean any taxable service provided by the provider of taxable service to customer, client etc. He pointed out that, the words 'provider of taxable service' were defined in Clause (r) of Rule 2, so as to include a person liable for paying service tax. He, therefore, argued that, since, admittedly, the respondent was liable to pay service tax as a recipient of GTA service, the respondent was a "provider of a taxable service", which expression was included in the definition of 'output service'. He, therefore, submitted that, even without resorting to the explanation to Rule 2(p), since the respondent was a provider of taxable service, which would be considered to be output service, cenvat credit could be utilized for payment of service tax, even though accumulated on account of the manufacturing activity of the respondent. The learned Counsel places reliance on the Division Bench decision of this Tribunal in the case of India Cement Ltd. v. CCE reported in 2007 (80) RLT 719, in which, in a case where the assessee, manufacturer of cement, received inputs into their factory and was availing of GTA Service and paying tax on such services as a recipient, it was held, relying upon the explanation 2(p) of the said Rules, that, by virtue of the said explanation, the GTA input service shall be deemed to be output service and the assessee, while paying service tax on GTA service, availed in connection with the removal of their final product from the factory, were doing so on an output service and, therefore, they were entitled to utilize for payment of service tax on such service, credit of the tax paid on the input GTA service availed by them in connection with the receipt of inputs into their factory. It was held that, the Commissioner had lost sight of the explanation 2(p) to the definition of output service.
8. The words 'output service', as defined under Rule 2(p), at the relevant time, read as under:
2(p) "output service" means any taxable service provided by the provider of taxable service, to a consumer, client, subscriber, policy holder or any other person, as the case may be, and the expression 'provider' and 'provided' shall be construed accordingly;
Explanation - For the removal of doubts it is hereby clarified that if a person liable for 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.
9. Under Clause (p) of Rule 2, there is reference to taxable service provided by the provider of taxable service. Therefore, unless a taxable service is provided, ordinarily it would not fall under the definition of 'output service'. However, the explanation created a deeming fiction by providing that, if a person liable for paying service tax does not provide any taxable service or does not manufacture final product, the service for which he is liable to pay service tax shall be deemed to be the output service. The recipient of service from Goods Transport Operator or Agent having become liable to pay service tax, would be entitled to take the benefit of the deemed fiction, if he does not provide any taxable service or does not manufacture final product on which he could have utilized cenvat credit. Where a person provides any taxable service or manufactures final product, he can utilize the cenvat credit in accordance with the Rules. Cenvat Credit, as defined under Rule 3(1) includes duties, tax and cess as enumerated in various clauses. The service tax liable under Section 66 of the Finance Act, 1994, can also be taken as credit by a manufacturer or producer of final product or a provider of taxable service. On a plain reading of the explanation, it would appear that, if a person is either a manufacturer or a provider of taxable service, there would be no need for making a provision for such a person by way of a deeming fiction, as is sought to be done under the explanation, because, such a taxable service provider or a manufacturer can always utilize the cenvat credit, as per the Rules. However, where a person is neither a provider of taxable service nor does he manufacture any final product, difficulty may arise in cases where input service is received by a person, who by virtue of his business has to pay service tax as a recipient, and who, but for the deeming fiction, would not be able to avail the benefit of cenvat credit and the tax burden will rest on him, though he was not a consumer. Therefore, 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., (supra), wherein a manufacturer was given benefit of the explanation to Rule 2(p). Therefore, respectfully following the ratio of the decision of the Division Bench of this Tribunal in the case of India Cements Ltd., (supra), I find no warrant for interference with the impugned order. The appeal of the Revenue is, therefore, dismissed.
(Dictated and pronounced in the open Court on the 11th day of October, 2007)