Cenvat Credit

CESTAT, AHEMADABAD BENCH

Commissioner of Central Excise, Rajcot

v

Adishiv Forge (P.) Ltd.

M. Veeraiyan, Technical Member

ORDER NO. A/3088 TO 3109/WZB/AHD./2007

APPEAL NO. ST/15 TO 22, 24 TO 32, 38, 58 TO 60 OF 2007 AND OTHERS

December 18, 2007

Rule 3 of the Cenvat Credit Rules, 2004, read with section 68, of the Finance Act, 1994 - Cenvat credit - Assessee was a manufacturer of excisable goods - It had availed services of goods transport agency for receiving raw materials and for sending finished goods - In some cases, assessee paid service tax as deemed service provider - Assessee had taken credit and utilized same in discharging liability of payments of service tax and excise duty - Original authorities disallowed credit holding that service tax paid by assessee as deemed service provider could not be treated as tax paid on input service - Whether service tax on goods transport agencies service paid by the assessee did not make it as service provider - Held, yes - Whether in respect of services availed for incoming consignments for which assessee paid service tax, it continued to be service recipient and, therefore, such services were input services for it which would be eligible as credit-Held, yes - Whether service tax paid by assessee in respect of outgoing consignments of finished goods, in its capacity of consignor would not be eligible as credit to assessee - Held, yes - Whether notwithstanding taking of credit of service tax paid under goods transport operator/agency services in respect of incoming consignments, assessee was eligible to avail benefit of Notification No. 32/2004-ST dated 3-12-2004 - Held, yes [Para 8]

FACTS

The assessee was manufacturer of excisable goods. It availed the services of goods transport agency. In some cases, the assessee paid the service tax as deemed service provider. The assessee had taken credit of the service tax and utilized same towards discharging liability of payments of both service tax and excisable duty. The original authority held that the service tax paid by it as deemed service provider could not be treated as tax paid on input service. He, therefore, held that service tax so paid was not permissible as credit under rule 3(4) and, accordingly, disallowed the varying amounts of credit taken as service tax and ordered recovery of interest. He also imposed penalties under rule 15. On appeal, the Commissioner (Appeals) allowed the credit holding that there was no restrict on utilization of Cenvat credit towards payment of service tax on GTA services.

On revenue’s appeal:

HELD

The order of the original authority lacked clarity on certain relevant facts. It was not clear as to whether the credit had been taken by the respondent in respect of service tax paid by it in relation to incoming consignments or for outgoing consignments as well. It was not clear whether the credit taken on input services was sought to be denied for utilization in respect of service tax paid in relation to outgoing consignments of finished goods. [Para 6.3]

The respondent was manufacturer of excisable goods and registered accordingly with the excise authorities. It was also registered with the excise authorities as service tax assessee. It received various raw materials from different persons and for the said purpose it used the services of goods transport agency. In respect of such receipts, the freight might be paid either by the consignors or the consignee who were the respondent. If the freight was paid by the consignor of the raw materials, naturally the consignors were required to pay the service tax. If the freight was to be paid by the consignee the respondent, in respect of freights paid on such consignments, the service tax had been paid by the respondent. In respect of service tax on the freight paid for receiving inputs/raw materials, the service tax paid whether by the consignor or by the respondent as consignee it was eligible to take credit of the service tax paid. [Para 6.5]

The respondent was dispatching its finished goods to various consignees either from the factory gate or from its depots which were considered as ‘place of removal’. The freight might be paid either by the respondent as consignor or by the recipient of the finished goods who will be consignees. In cases where the freight was paid by the respondent as consignor it was required to pay the service tax. But such service tax related to output services. The said output services were rendered only by the goods transport operators/ agencies. The respondent was required to pay service tax only as consignors and that did not make it as provider of goods transport services and, therefore, the question of its taking credit did not arise. The credit of service tax paid by the respondent as consignor would be available to the consignees of the finished goods. In the case where the respondent did not pay the freight, the question of its paying service tax did not arise and the same would be paid by the consignees and the credit would be available to the consignees of the finished goods as their input service credit. [Para 6.6]

The respondent was playing two major roles. Undoubtedly, it was recipient of services under the category of goods transport agencies. Section 68(2) and the rules made thereunder shifts the responsibility of paying the service tax on it. Because of that deeming provision which made it responsible for paying the tax, it did not cease to be recipient of services. For the purpose of Cenvat credit, the duty paid by it as deemed service provider should be treated as tax paid on input services and it should be extended the benefit of Cenvat credit. In other words, the goods transport ser vice in relation to receipt of inputs in the factory has to be considered as input service. Whether the service tax was paid by the consignor of the inputs or by the respondent did not make any difference insofar as eligibility for credit of the duty paid. The nature of input service did not undergo a change merely because the tax is paid by the recipient. Similarly. Merely because the respondent paid the service tax in respect of goods transport services availed for dispatching it goods to various consignees, the service did not become input service and it did not become service provider. [Para 6.7]

According to the Notification No. 32/2004 - ST dated 3-12-2004 effective from 1-1-2005, the service tax on GTA services are payable on a value which is 25 per cent of the freight amount paid, i.e., after availing 75 per cent abatement. To avail the benefit, a condition requires to be fulfilled. The condition is that Cenvat credit should not have been availed on the GTA services. The restriction envisaged in Notification No. 32/2004 about non-availment of Cenvat credit should be in respect of the service provider of GTA services and cannot be applied to the recipient of services merely because they were required to pay the service tax. The respondent might be paying the service tax in respect of the services of goods transport service in respect of consignments dispatched by it to its various customers. Therefore, denial of the credit on the ground that the respondent was availing the credit of the tax paid by it in respect of input services was not justified. [Para 7.1]

In respect of the goods transport agency services, the service provider is undoubtedly goods transport agency. However, the liability to pay tax in certain cases has been shifted to either the consignor or to the consignee depending upon who actually paid the freight. In other cases where neither the consignee nor consignor is required to pay the service tax, the responsibility for paying service tax continues with the concerned goods transport agency. The condition of not taking ‘credit of duty paid on inputs of capital goods used for providing such taxable service’ necessarily should relate to the services actually rendered by the transport agency. The respondent had not actually rendered the said services; as a consignor it had not availed the credit of duty paid on inputs or capital goods for providing such taxable services; the respondent merely paid the tax which, in the normal course, should have been paid by the transport agency. [para 7.2]

Therefore, the service tax on goods transport agencies service paid by the respondent did not make it as service provider. In respect of services availed for incoming consignments for which the respondent paid the service tax, it continued to be service recipient and, therefore, such services were input service for it. The service tax paid by the consignors/respondent in respect of incoming consignments would be eligible as credit. The service tax paid by the respondent in respect of outgoing consignments of finished goods, in its capacity of consignor would not be eligible as credit to the respondent. The respondent while paying service tax on GTA service availed in connection with removal of its finished goods from factory was entitled to utilize, for payment of service tax on such service, the credit of tax paid on the input GTA service availed by it in connection with receipt of inputs received in its factory. Not withstanding taking of credit of service tax paid under goods transport operator/agency services in respect of incoming consignments, the respondent was eligible to avail the benefit of Notification No. 32/2004-ST dated 3-12-2004. In the given facts and circumstances of the case, which involved interpretational difference, imposition of penalty was not justified. [Para 8]

Thus, the original authority would re-determine the credit eligibility after giving reasonable opportunity of hearing to the assessee. [Para 9]