Urvashi Porwal
Brief of the case
In the case of M/s. Surya Pharmaceuticals Ltd. Vs. Commissioner of Central Excise, it was held that the assessee can utilize accumulated Cenvat Credit to discharge the service tax liability towards GTA services prior to 01.03.2008. It was further held that the CENVAT credit cannot be utilised for discharging Service Tax on taxable services provided from outside India and received in India.
Facts of the Case
The appellants are registered with Central Excise department for the manufacture of Bulk drugs and are also registered under the Service Tax Rules, 1994 for Goods Transport Agency (GTA) service and Business Auxiliary (BAS) service. The appellants are service recipient of GTA services and are liable to pay service tax under reverse charge mechanism as per sub-section (2) of Section 68 of the Finance Act, 1994. They are also service recipient of BAS from foreign based export agents to whom they pay commission and by reverse charge, again, they are liable to pay service tax under provisions of Section 66A of the Finance Act, 1994, read with Rule 2(i)(d)(iv) of Service Tax Rules, 1994.
During the scrutiny of ST-3 returns for the half year ending March, 2007 to September, 2007, it was found that appellants had made payment of service tax under GTA and BAS services by utilizing their credit in Cenvat Credit account instead of paying the same in cash. The department entertained the view that as per Rule 5 of Taxation of Services Rules, 2006, the appellants ought to have paid the service tax in cash and they are not entitled to utilize Cenvat Credit for payment of their service tax liability. A show cause notice was issued, and after adjudication, the original authority confirmed the demand of service tax of Rs.13, 18,181/- and Rs.5, 93,232/- along with interest and also imposed equal amount of penalty. The appellants filed appeal before the Commissioner (Appeals) who vide the order impugned herein upheld the same. Being aggrieved, the appellants are before the Tribunal.
Contentions of the Assessee
The appellant contended that by reading Rule 2(p) and Rule 2(r) of CENVAT credit rules,2004 prior to 01.03.2008 together, the appellant being a person liable for paying service tax shall also be treated as a provider of output service. In such scenario, the appellant is eligible to utilize the credit to pay the service tax under the Cenvat Credit Rules. That the Cenvat credit scheme has been framed for the purpose of availing and utilizing credit. In the said rules, the term “provider of taxable service” has been defined to include a person who ultimately pays service tax. The intention is to entitle the person liable to pay service tax to utilize the credit for paying such tax. If a person liable to pay service tax is not allowed to utilize the credit to pay service tax, then this definition would be nugatory.
Contentions of the Department
The department relied on Rule 5 of Taxation of Services Rules, 2006 and the CBEC, New Delhi Instruction F. No. B 1/14/4/2006 TRU dated 19.4.2006. It is argued that the appellants who are liable to pay service tax under the reverse charge mechanism on services provided from outside India have to pay the same in cash and cannot utilize the credit for discharging the liability.
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that the issue with regard to whether the service recipient who is liable to pay the service tax can use the accumulated Cenvat Credit to discharge service tax towards GTA services is settled by various judgments. Some of the decisions are as follows:-
