Allahabad High Court
M/S The Oudh Sugar Mills Ltd. Thr.Sri ... vs Customs, Excise & Service Tax Appellate ... on 2 February, 2017
Author: Sudhir Agarwal
Bench: Sudhir Agarwal
HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH AFR Court No. - 3 Case :- CENTRAL EXCISE APPEAL No. - 11 of 2013 Appellant :- M/S The Oudh Sugar Mills Ltd. Through Sri Shoorveer Singh Respondent :- Customs, Excise & Service Tax Appellate Tribunal & Others Counsel for Appellant :- Sudeep Kumar Counsel for Respondent :- A.S.G.,Dipak Seth,Sunil Sharma Hon'ble Sudhir Agarwal,J.
Hon'ble Ravindra Nath Mishra-II,J.
1. Heard Sri Sudeep Kumar, learned counsel for appellant and Sri Dipak Seth, counsel for respondents.
2. This appeal under Section 35G of Central Excise Act 1944 (hereinafter referred to as "Act 1944") has arisen from judgment and order dated 01.03.2013 passed by Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi (hereinafter referred to as "Tribunal") in ST/ROM/4755/2012 whereby application for review/modification of order dated 30.07.2012 passed in ST Appeal no. 649/2010-SM has been rejected. Assessee appellant's appeal against recovery of Cenvat Credit of Rs. 4,04,179/- has been rejected vide order dated 30.07.2012.
3. This appeal was admitted on following substantial question of law:-
"Whether the appellant can be said to be "Provider" of any "out put services" and is entitled for utilization of Cenvat Credit in terms of Rule 3 (4) of Cenvat Credit Rules, 2004 prior to amendment dated 01.03.2008."
4. Brief facts necessary to understand the dispute are narrated as under;
5. M/s Oudh Sugar Mills Ltd. (appellant but referred to herein as "Assessee") is a registered Company under Companies Act, 1956 having its registered office at P.O. Hargaon, District Sitapur and is running sugar/distillery Units thereat. It is engaged in manufacture of Cane Sugar/Vaccum Pan Sugar and Ethyl Alcohol falling under Sub Heading No. 1701 1190 and Sub Heading No. 2207 2000 respectively of First Schedule of Central Excise Tariff Act, 1985 (hereinafter referred to as "Act 1985").
6. Sugar Molasses is a by-product in manufacture of Sugar and comes under Heading No. 1703 1000 of Act 1985. It attracts specific rate of duty. Excise duty on Sugar and Molasses is paid on their clearances from factory as per procedure set out under Central Excise Rules, 2002 (hereinafter referred to as "Rules 2002"). Assessee also used Molasses captively in its distillery unit for manufacturing Ethyl Alcohol and Denatured Ethyl Alcohol.
7. Finance Act, 1994 has imposed "Service tax". Section 66 is a charging section providing levy of tax on 'taxable services' referred to in various sub clauses of Section 65. Clause 105 of Section 65 defines 'taxable services' and sub clause (zzp) states that 'taxable services' means any services provided or to be provided by a Goods Transport Agency (hereinafter referred to as "GTA") in relation to transportation of goods by Road in a goods carrier.
8. Service Tax Rules were introduced vide Notification dated 28.06.1994 w.e.f. 01.07.1994 (hereinafter referred to as "Rules 1994"). GTA has been defined in Section 65(50b) and reads as under:-
" any person who provides service in relation to transportation of goods by road and issues consignment note, by whatever name called."
9. Service Tax on transport of goods by road was made effective from 01.01.2005 vide notification dated 03.12.2004 by amending Rules 1994. Section 68 provides for payment of service tax and reads as under:-
"Section 68- Payment of service tax - (1) Every person providing taxable service to any person shall pay service tax at the rate specified in Section 66 in such manner and within such period as may be prescribed.
(2) Notwithstanding anything contained in sub-Section (1) in respect of any taxable service notified by the Central Government in the Official Gazatte, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in Section 66 and all the provisions of this chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service."
10. Central Government enacted Cenvat Credit Rules, 2004 (hereinafter referred to as "Rules 2004") vide Notification dated 10.09.2004. Assessee is availing credit of Central Excise paid on 'Inputs' and 'Capital Goods' and service tax paid on Input Services under Rules 2004 for further payment of duty. Assessee was availing services of GTA and paying service tax on the same as recipient of the said service. Assessee thus, paid Services Tax by availing cenvat credit of duty paid on 'Inputs', 'Capital Goods' and 'Service Tax on Input Services'. The term ''output service' ''person liable for paying service tax' and ''provider of taxable service' are defined in Rule 2 (p) (q) and (r) of Rules 2004 and read as under:-
2. Definitions- In these rules, unless the context otherwise requires,.....
"2(p) "output service" means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions ''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.' 2 (q) "person liable for paying service tax" has the meaning as assigned to it in clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994.
2 (r) "provider of taxable service" include a person liable for paying service tax."
11. Explanation provided under Rule 2(p) of Rules 2004 was omitted vide notification dated 19.04.2006. Definition of "Output Services" under Rule 2(p) was amended by notification dated 01.03.2008 and amended definition reads as under:-
" Rule 2(p)- "Output Service" means any taxable services excluding the taxable services referred to in sub-clause (zzp) of clause (105) of Section 65 of the Finance Act, provided by the provider of taxable services to a customer, client, subscriber, policy holder or any other person, as the case may be and the expression "provider" and "provided" shall be construed accordingly." (emphasis added)
12. Therefore, after 01.03.2008, Assessee is not allowed to utilize cenvat credit for the purpose of payment of 'Service Tax' towards GTA and it is now required to pay Service Tax towards GTA by cash deposit. For the period, October to December 2007, Assistant Commissioner, Central Excise, Sitapur (hereinafter referred to as "ACCE") issued a show cause notice dated 10.03.2008 demanding recovery of Rs. 4,04,179/- along with interest alleging that Assessee paid 'Services Tax' on services of GTA through cenvat credit instead of cash payment. Assessee submitted reply dated 07.04.2008. ACCE passed order dated 26.02.2009 affirming demand of Rs. 4,04,179/- along with interest of equal amount. Aggrieved therefrom, Assessee preferred an appeal before Commissioner (Appeal) being Appeal no, 48 of 2009-ST but the same was dismissed vide order dated 25.11.2009. Assessee preferred further appeal before Tribunal which has passed impugned order confirming demand of recovery of cenvat credit. Assessee also filed a review application but the same has also been rejected.
13. The entire approach of Excise authorities as well as Tribunal is founded on deletion of Explanation from Rule 2(p) of Rules 2004 w.e.f. 19.04.2006 holding that this Explanation is a kind of exception and its deletion would render Assessee liable to pay in cash and not to utilize cenvat credit. This issue has been considered by various Tribunals and High Courts and there appears some diversion of opinion.
14. In Commissioner of C. Ex., Indore Vs Spendex Industries Ltd., 2013 (31) S.T.R. 472, Tribunal's Bench at Delhi has observed that deletion of Explanation w.e.f. 19.04.2006 would not make much difference. Assessee being recipient of GTA is liable to pay Service Tax as provider of taxable service in terms of Rule 2(r) of Rules 2004 and consequently gets covered by 'Output Service' definition contained in Rule 2(p) of Rules 2004. Similar view was taken by Tribunal's Bench at New Delhi in Shree Rajasthan Syntex Ltd. Vs CCE, Jaipur, 2011 (24) S.T.R. 670. Following judgment of Delhi Bench, Tribunal's Chennai Bench in Commissioner of Service Tax, Chennai Vs Royal Enfield, 2015 (37) S.T.R. 826 has also taken same view.
15. Mumbai Bench of Tribunal in Tata AIG Life Insurance Co. Ltd. Vs C.C.E. Mumbai & Thane-II, 2015 (37) S.T.R. 570, also had an occasion to look into effect of deletion of Explanation w.e.f. 19.04.2006 and in paras 5.2 and 5.3 of judgment it has said as under:-
"5.2 Thus, the only change in the legal provision is the omission of Explanation under rule 2(p). An Explanation only clarifies the position. By omission of the Explanation, the meaning does not undergo any change. Therefore, both prior to 19.4.2006, as also w.e.f 19.4.2006, the meaning of the expression "output service", "provider of taxable service" and "person liable for paying service tax" remain the same. Since in the case of insurance auxiliary service/the liability to pay service tax is on the service recipient in terms of rule 2(1)(d)(iii) of the Service Tax Rules, 1994, the appellants are the providers of the output service as defined in law. Therefore, the appellants are entitled to avail of Cenvat credit on the input services used for providing the output service. Consequently, there is no bar in utilization of Cenvat credit for payment of service tax on insurance auxiliary service by the appellants. This is the settled legal position as can be seen from the decisions of the Hon'ble Punjab and Haryana High Court and Hon'ble Delhi High Court in the case of Nahar Industrial Enterprises Ltd., and Auro Spinning Mills and Hero Honda Motors Ltd.(supra). The Hon'ble Delhi High Court rejected the contention of the Revenue that recipient of goods transport agency service has to discharge service tax liability in cash as they were only recipient of service and not the provider on the ground that a fiction has been created under section 68 (2) of the Finance Act, 1994 deeming the service recipient as a service provider and, therefore, such legal fiction has to be given full effect. Similarly, in the case of Kansara Modler Ltd. (supra) this Tribunal has held as follows:
"If we read rule 2(q) of the Cenvat Credit Rules with rule 2(1)(d)(iv), we find that the appellant is a person liable to service tax. Once the appellant is person liable to service tax, he becomes provider of taxable service under rule 2(r) and consequently becomes output service provider under rule 2(p) of the Cenvat Credit Rules. Revenue is also relying on rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules. We find that rule 5 refers to availing of Cenvat credit and not to utilization of credit. We are therefore of the view that the finding of the Commissioner not treating the appellant as output service provider, is not correct and accordingly we set aside the impugned order and allow the appeal."
5.3 In view of the above decisions of the various High Courts, the decisions of the Tribunal relied upon by the Revenue become irrelevant. Accordingly, we hold that the appellants in present appeals were entitled to utilize cenvat credit of the service tax paid on various input services for discharge the service tax liability on the output service of "Insurance Auxiliary Service"."
(emphasis added)
16. Ahmedabad Bench of Tribunal in Panchmahal Steel Ltd. Vs Commissioner of C. Ex. & S.T., Vadodara, 2014 (34) S.T.R. 351, has also taken same view and observed that prior to 01.03.2008 there was no bar for such utilization and Assessee could have utilized cenvat credit given to them for payment of 'Service Tax' on GTA service. It followed Delhi High Court judgment in CST Vs Hero Honda Motors Limited, 2013 (29) S.T.R. 358, Punjab & Haryana High Court judgment in CCE Vs Nahar Industrial Enterprises Limited, 2012 (25) S.T.R. 129 and Himachal Pradesh High Court judgment in CCE Vs Auro Spinning Mills, 2012 (279) E.L.T. 349.
17. On behalf of Revenue reliance has been placed on Gimatex Industries Pvt. Ltd. Vs Commissioner of C. Ex. Nagpur, 2012 (25) S.T.R. 456., Tribunal's Mumbai Bench judgment rendered by a Single member wherein dispute relates to period of April 2007 to March 2008. It has relied on Tribunal's Bangalore Bench decision in ITC Vs Commissioner, 2011 (23) S.T.R. 41 and Iswari Spinning Mills Vs Commissioner, 2011 (22) S.T.R. 549 observing that after deletion of Explanation, the position has changed.
18. In the aforesaid judgment, Explanation was applicable in respect to persons liable for paying service tax but does not provide any taxable service or does not manufacture final products since those category of persons were also by legal fiction declared that services for which such recipient is liable to pay 'Service Tax' shall be deemed to be the "output services". The aforesaid explanation has no impact upon any category of persons, 'Provider of Taxable Service' under Rule 2(r) of Rules 2004 is an inclusive definition and states that it includes a person liable for paying Service Tax. What are other categories has not been stated but it is a wider definition being inclusive one. For the purpose of determining "person liable for paying service tax" by virtue of Rule 2 (q), we have to go to Rule 2(1)(d) of Rules 1994, which reads as under:-
"Rule 2. Definitions-
1.........
(d) "person liable for paying service tax", -
(i) in respect of the taxable services notified under sub-section (2) of section 68 of the Act, means,-
(A) in relation to service provided or agreed to be provided by an insurance agent to any person carrying on the insurance business, the recipient of the service.
(B) In relation to service provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is,--
(I) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);
(II) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;
(III) any co-operative society established by or under any law;
(IV) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder;
(V) any body corporate established, by or under any law; or (VI) any partnership firm whether registered or not under any law including association of persons;
any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage:
Provided that when such person is located in a non-taxable territory, the provider of such service shall be liable to pay service tax.
(C) In relation to service provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm located in the taxable territory, the recipient of such service;
(D) In relation to service provided or agreed to be provided by,-
(I) an arbitral tribunal, or (II) an individual advocate or a firm of advocates by way of legal services, to any business entity located in the taxable territory, the recipient of such service;
(E) In relation to support services provided or agreed to be provided by Government or local authority except,-
(EE) In relation to service provided or agreed to be provided by a director of a company to the said company, the recipient of such service,"
(a) renting of immovable property, and
(b) services specified sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994, to any business entity located in the taxable territory, the recipient of such service;
(F) In relation to services provided or agreed to be provided by way of :-
(a) renting of a motor vehicle designed to carry passengers, to any person who is not engaged in a similar business; or
(b) supply of manpower for any purpose or security services;
(c) service portion in execution of a works contract-
by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as a body corporate, located in the taxable territory, both the service provider and the service recipient to the extent notified under sub-section (2) of section 68 of the Act, for each respectively.
(G) in relation to any taxable service other than online information and database access or retrieval services provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory, the recipient of such service;
(ii) in a case other than sub-clause (i), means the provider of service."
19. In relation to service provided or agreed to be provided by GTA in respect of transportation of goods by road, where the person liable to pay freight is; any factory registered under or governed by the Factories Act, is such a category, any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage is included within term ''person liable for paying service tax'. Even after exclusion the normal term ''liability' under Rule 2(p) (q) and (r ) of Rules 2004 read with Rule 2(i) (d) of Rules 1994 is clearly applicable to such category of persons as are covered therein irrespective of explanation or deemed fiction therein.
20. Assessee, in the present case, clearly satisfy the aforesaid conditions. We therefore, answer the question formulated above in favour of Assessee and against Revenue.
21. Appeal is allowed. Judgment of Tribunal, to the extent it affirms recovery of amount of cenvat credit, is hereby set aside.
Order Date :- 2.2.2017 Pravin