Cenvat credit
CESTAT,
Commissioner of
Central Excise,
v.
Nahar Exports Ltd.
JUSTICE R.K.
ABICHANDANI, PRESIDENT
Final Order No. 1559
of 2007-SM(BR)
SERVICE TAX APPEAL NO.
141 OF 2007 - NB(S)
October 11, 2007
Rule 2(P) of the Cenvat credit
Rules, 2004 - Cenvat credit - Output service - Assessee, manufacturer of cotton
yarn/fabrics, availed services of goods transport agency (GTA) in respect of
manufacturing activity and paid service tax on such service - It utilized
Cenvat credit of manufacturing activity for payment of service tax in respect
of GTA service received - Revenue denied benefit on ground that Cenvat credit
of manufacturing amount could not be used for discharging service tax liability
on deemed GTO liability - In instant appeal, assessee contended that as per
Explanation to Rule 2(p), it was liable to pay service tax for GTA services
and, therefore, said input was a deemed
output service irrespective of fact that it was manufacturing goods and not
providing any output service - Whether in view of India Cements Ltd. v. CCE
[Final Order No. 262 of 2007, dated 20-3-2007] wherein a manufacturer was given
benefit of Explanation to rule 2(p), assessee would be entitled to utilize
Cenvat credit of tax paid - Held, yes
[Para 8.1]
The assessee, manufacturer of cotton yarn/fabrics availed services of goods transport agency (GTA) in respect of manufacturing activity and paid service tax on such service. It utilized cenvat credit of manufacturing activity for payment of service tax in respect of GTA services received. The revenue denied benefit and demanded service tax from the assessee. The assessee contended that as per the Explanation to rule 2(p), 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. The adjudicating authority held that cenvat credit of manufacturing amount could not be used for discharging service tax liability on deemed GTO liability. On appeal, the Commissioner (Appeals) while accepting assessee’s contention held that the services received by the assessee, on which it was liable to pay service tax, became output services.
On revenue’s appeal:
Under rule 2(p) 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
to section 2(p), 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 Explanations 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, that view would not be
tenable, in view of the binding decision of the Division Bench in the case of India
Cements Ltd. v. CCE [Final Order No. 262 of 2007, dated 20-3-2007]
wherein a manufacturer was given benefit of the Explanation to rule
2(p). Therefore, respectfully following
the above case there was no warrant for interference with the impugned order. The appeal of the revenue was therefore,
dismissed. [
CASE REVIEW