Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Echjay Forgings Pvt. Ltd on 12 September, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.ST/295/09 (Arising out of Order-in-Appeal No.YDB/68/RGD/2009 dated 11/09/2009 passed by Commissioner of Central Excise & Customs (Appeals), Mumbai-II) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Commissioner of Central Excise, Appellant Raigad Vs. Echjay Forgings Pvt. Ltd., Respondent Appearance:
Shri.A.K.Prabhakar, SDR for appellant Shri.Prasad Paranjape, Advocate for respondent CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical) Date of Hearing : 12/09/2011 Date of Decision : 12/09/2011 ORDER NO Per: P.R. Chandrasekharan
1. The present appeal is directed against the order-in-appeal No.YDB/68/RGD/2009 dated 11/09/2009 passed by Commissioner of Central Excise & Customs (Appeals), Mumbai-II wherein he has set aside the order of the Additional Commissioner of Central Excise, Raigad, and allowed the appeal filed by the respondent in this case, M/s.Echjay Forgings Pvt Ltd., Khopoli, Raigad District.
2. Briefly stated the facts of the case are as follows:-
2.1 M/s.Echjay Forgings Pvt Ltd., (assessee in short) are manufacturers of iron and steel products falling under chapter heading 73 of the schedule to the CETA, 1985. They are also registered with the department for service tax for the services Transport of Goods by Road as defined under Section 65 (50b) of the Finance Act, 1994. During the period from October 2005 to September 2006, the respondents were liable to pay service tax on the Goods Transport Agency service as a recipient of the service, in terms of the provisions of Section 68 (2) of the Finance Act, 1994. The respondent did not discharge the service tax liability in cash but utilized Cenvat credit available in their accounts. Accordingly a show-cause notice dated 14/03/2007 was issued to them for recovery of Service tax under Section 73 of the Finance Act, 1994 and interest thereon under Section 75 of the said Finance Act. The show-cause notice also proposes to impose penalty on the respondent under Sections 76 and 77 of the Finance Act, 1994. The case was adjudicated by the Additional Commissioner vide order dated 18/06/2008 wherein he confirmed the demand of service tax of Rs.5,64,720/- under Section 73 of the Finance Act, 1994 towards the service tax liability of the respondent. He also confirmed interest on the said amount under Section 75 of the said Finance Act and also imposed an equivalent penalty under Section 76 of the Finance Act, and also a penalty of Rs.1,000/- under Section 77 of the Finance Act, 1994. The assessee preferred an appeal before the Commissioner (Appeals), who allowed the appeals and set aside the order of the lower adjudicating authority. The department is in appeal before us against the impugned order.
2.2 The ground urged in the appeal memo are that as per Rule 2 (p) of Cenvat Credit Rules, 2004 out put service means any taxable service provided by the provider of the taxable service and in the instant case the respondents have not provided any such taxable service and they are only the recipient of the GTA service and, hence, they cannot claim any Cenvat credit on the ground that they are providing a taxable out put service. Further, 2 (l) of the Cenvat Credit Rules, 2004 permits availment of input service credit upto the transport service provided for clearance of the goods from the place of removal. In the instant case the GTA service received by them does not satisfy this clause and, hence, they could not have availed any credit.
2.3. The Ld. DR appearing for the department submits that this Tribunal in the case of Alstom Projects India Ltd., Vs. CCE, Coimbatore, reported in 2008 (12) STR 23 (Tri-Chennai), ITC Ltd., Vs. CCE, Guntur, reported in 2011=TIOL-568-CESTAT-Bang have clearly held that the recipient of GTA service, who is not engaged in providing any taxable out put service or the manufacturer of dutiable final products is not entitled to utilize Cenvat credit for discharging service tax on GTA services.
2.4. On the other hand, the Ld. Counsel appearing for the respondent submits that a similar issue arose in Parchmahal Steel Ltd., Vs. CCE, Vadodara-II, reported in 2008 (12) STR 447 (Tri-Ahmd.), wherein in view of the conflicting views between the Member (Judicial) and the Member (Technical), the matter was referred to Larger Bench for resolution of the dispute, which is still pending and, therefore, it will be appropriate to await the decision of the Larger Bench in the matter for considering the present appeal. The Ld. Counsel also relies on the judgement of the Tribunal in the case of Andhra Pradesh Paper Mills Ltd., Vs. CCE, Vishakapatnam, reported in 2007 (8) STR 166 (Tri-Bang) wherein it was held that payment of service tax for transportation of goods for the period from 1/1/2005 to 30/09/2005 through adjustment in Cenvat credit account was permissible even though the appellant was only a recipient of the transport of goods by road service. The Ld. Counsel also relies on the similar judgement of the Tribunal in the case of Bhushan Power & Steel Ltd., Vs. CCE, BBSR-II, reported in 2008 (10) STR 18 (Tri-Kolkata). The Counsel further submits that the honble Allahabad High Court in Xerox India Ltd., Vs. CCE, Meerut-II, reported in 2011 (270) ELT 651 (All.) has held that when there are conflicting decision by different Benches on the same facts and the matter should be referred to a Larger Bench to maintain institutional integrity. The learned Counsel also submits that as the issue involves interpretation of law, no penalty is imposable in such cases.
2.5 The Ld. DR appearing for the department also submits that the honble High Court of Karnataka had occasion to examine the admissibility of Cenvat credit of service tax on various services. In two cases, namely, CCE, Bangalore Vs. Switchgear & Control Technics Pvt Ltd., reported in 2011 (269) ELT 496 (Kar) and CCE & ST, Mysore Vs. Larsen & Toubro Ltd., reported in 2011 (22) STR 266 (Kar) and in both these cases the honble High Court held that the question relating to admissibility of Cenvat credit involved determination of rate of duty or value of assessment and the High Court did not have jurisdiction to examine the matter and appeal against such decision lies before the honble Supreme Court.
3. I have carefully considered the rival submissions.
4. As regards the Panchmahal Steel Ltd., case referred supra, the facts of the case are different. In that case the appellant was a manufacturer of iron and steel product and they paid service tax on freight. They took credit of such service tax paid by them and utilized the same for payment of service tax payable by them on subsequently received consignments for which also they had to pay service tax. The honble Member (Technical) held that the party was not entitled for taking such credit, whereas the honble Member (Judicial) held otherwise and the matter was referred to the Larger Bench. In the case of Andhra Pradesh Paper Mills Ltd., case relied upon by the Advocate for the respondent, this Tribunal held that during the period from 01/01/2005 to 30/09/2005 in view of the explanation to Rule 2 (p) of Cenvat credit Rules, the services on which a person pays service tax will be deemed to be an output service and, therefore, when the service is deemed to be an output service tax can be paid by way of Cenvat credit. In both these cases, the question whether the input/input service on which credit is taken has any nexus with the providing of output service (which is a relevant criterion for availing of credit) was not an issue and no finding thereon, therefore was given.
5. The facts in the instant case are different and distinguishable. The appellant herein is a manufacturer of iron and steel products and received the various inputs by road transport and on such receipt of service of goods by road, he was liable to pay service tax on the service of goods transport agency as recipient of service, in view of the provisions of Section 68 (2) of the Finance Act, 1994. The mere receipt of service and payment of service tax thereon does not make the recipient a provider of the output service for the period prior to 19/04/2006. In view of the explanation to Rule 2 (p) of the Cenvat credit Rules, a service on which tax has been paid by the recipient of the service is deemed to be an output service. Even though the service is deemed to be an output service that does not make the recipient of the service, a provider of the output service in the absence of another deeming provision. Further to utilize Cenvat credit two conditions are required to be satisfied (i) the inputs or input services should have suffered duty/tax and (ii) such inputs or input service should be utilized in the manufacture of dutiable final products or in the provision of a taxable output service. Further under Rule 3 (3), provider of output service is allowed to take Cenvat Credit of the duty paid on the inputs or input services received, only if such inputs or input services are used in the providing of such service. For the period, prior to 19/04/2006, though receipt of GTA service is deemed as an output service, the second condition that the inputs or input services on which the credit is taken has to be utilized in the providing of a taxable output service has to be satisfied. Obviously, when a person receives a service, he cannot be said to have utilized any input or an input service in the rendering of such service. Firstly he is not a provider of a output service and secondly no input/input service can go into the receipt of a service. Therefore, as per the clear provisions of law, Cenvat credit cannot be taken in respect of GTA service on which tax liability has been discharged by the recipient of a service. This position of law has been clearly enunciated in the order of this Tribunal in ITC Ltd., case referred to supra and the relevant paras are extracted hereunder:
8.?There can be two type of persons receiving taxable service who are deemed provider of taxable service under Rule 2(r) by virtue of being the person liable for paying service tax under Rule 2(q) of Cenvat Credit Rules, 2004 read with Rule 2(1)(d) of Service Tax Rules, 1994 -
(a) Those who provide a taxable service/services or manufacture dutiable final products or provide taxable service/services as well as manufacture dutiable final products.
(b) Those who do not provide any taxable service or manufacture any dutiable final products - the category to which the Appellant belong.
8.1?During period prior to 19-4-2006 by virtue of the legal fiction of explanation to Rule 2(p), for a person falling in category (b) above, who is liable to pay service tax as service recipient in respect of some taxable service received by him, the service received by him shall be deemed to be his output service. Since this legal fiction is applicable only for the persons of category (b) above, i.e. those who do not provide any taxable output service or any manufacture of dutiable final products, the same is not applicable for the persons of category (a), i.e. those who provide some taxable service/services and/or manufacture some dutiable final products. Therefore for such persons, the service received by them on which they are liable to pay Service tax as service recipient can not be treated as their output service and Service tax on the same will have to be paid by cash, not by utilizing input/capital goods duty credit or Service tax credit, as Rule 3(4) of the Cenvat Credit Rules, 2004 permits utilization of Cenvat credit for payment of central excise duty on dutiable final products or payment of Service tax on taxable output service. In fact, for the persons of category (a), the taxable service received by them, even if the duty liability on the same is required to be discharged by them, would be their input service, in respect of which they can avail Cenvat credit and use the same for payment of duty on their final product being manufactured by them or for paying Service tax on taxable output service being provided by them.
8.1.1?As regards the persons of category (b) to which the Appellant belong, even though during period prior to 19-4-2006, by virtue of explanation to Rule 2(p), the service received by them, on which they are liable to pay tax under Rule 2(1)(d) of Service Tax Rules, 1994, is deemed to be their output service, they could not take Service tax credit in respect of other taxable services received or input duty credit in respect of duty paid goods received, as they are not manufacturing any dutiable final product or providing any taxable service. In terms of provisions of Rule 3(1) of the Cenvat credit Rules, 2004, credit of Service tax paid on input services received and/or of Central excise duty paid on inputs/capital goods received can be taken only if the input services received and inputs and capital goods received are used in or in relation to manufacture of final products or providing of taxable output services. For the persons of category (b), in respect of their deemed output service, which is the service received by them on which they are liable to pay the tax, other taxable services received by them can not be deemed to be the input services, as for this another legal fiction will be required, which is not there in the Cenvat Credit Rules, 2004. In the present case, since the appellant are not manufacturing any final product or providing any taxable services, the services of telephone, security services, repair and maintenance services, scientific or technical consultancy services etc., can not be treated as the input services for their deemed output service i.e. the GTA services received by them. Therefore, in respect of GTA service received by the Appellant, there is no question of payment of Service tax through Cenvat Credit account and the same has to be paid in cash.
8.2?Thus during the period prior to 19-4-2006 irrespective of whether a person provided taxable service and/or manufactured dutiable final products or did not provide any taxable service or manufactured any dutiable final products, he was required to pay the Service tax on the GTA service received by him in cash, not through Cenvat Credit.
9.?As regards the period w.e.f. 19-4-2006, output service, as defined in Rule 2(p) during this period, means any taxable service provided by the provider of taxable service to a customer, client, subscriber, policy holder, or to any other person and the term provided and provider shall be construed accordingly. During this period the Explanation to Rule 2(p) had been deleted. Thus, during this period only the service actually being provided by an assessee could be treated as his output service and the service received by him on which he was liable to pay Service tax as service recipient by the provision of Section 68(2) of the Finance Act, 1994 read with Rule 2(1)(d) of the Service Tax Rules, 1994, could not be treated as his output service. Thus, during the period w.e.f. 19-4-2006, irrespective of whether the appellant were providing any taxable output service or manufacturing some final products or were not manufacturing any final products or providing any taxable output service, in respect of the GTA service received by them, they were required to pay Service tax in cash, not through the credit account.
6. A plain reading of the above order makes it absolutely clear that neither prior to 19/04/2006 nor after 19/04/2006, in respect of persons providing same taxable output service and/or manufacturing dutiable final products, the taxable service received by them on which they were liable to pay service tax as service recipient under the provisions of Section 68 (2) of the Finance Act, 1994 read with Rule 2 (1) (d) of the Service Tax Rules, 1994 could be treated as their output service and, therefore, Service tax on the same was required to be paid in cash and not by utilizing Cenvat credit. The case laws cited by the Advocate for the respondent has not considered these issues and, hence, the ratio of those decisions cannot be applied to the facts of the present case.
7. In view of the foregoing discussion, I set aside the impugned order and uphold the demand for service tax confirmed by the lower adjudicating authority. Once the demand for tax is upheld, interest thereon is only a consequential liability which has to be sustained and I do so. The last issue for consideration is whether the appellant is liable for penalty as confirmed by the lower adjudicating authority. The show case notice in this case has been issued within the normal period of limitation. Further, it can be seen that there were differing views on the matter by various judicial authorities during the relevant time and, therefore, the appellants cannot be said to have indulged in any willful mis-statement of facts or suppression of facts with a view to evade service tax. Further the matter involves interpretation of the provisions of laws. Therefore, in such case, imposition of penalty is not warranted and, accordingly, I set aside the penalties imposed by the lower adjudicating authority.
8. The appeal is disposed of in the above terms.
(Pronounced in Court) (P.R. Chandrasekharan) Member (Technical) pj 1 2