Case Law Details
Commissioner of Central Tax Vs Toyota Kirloskar Motors (Karnataka High Court)
Conclusion: Since Toyota was an output service provider therefore, it can utilise cenvat credit for payment of service tax on output services.
Held: The respondent – M/s Toyota Kirloskar Motors claimed to be manufactures of Multiutility Vehicles (MUV) for passenger cars and parts thereof falling under chapter sub-heading 8703.23.10 and 8708.10.90 respectively of the Central Excise Tariff and they were registered under the Central Excise and Service Tax. Respondent – assessee had received intellectual property services, commissioning and installation services and maintenance and repair services from their parent company situated abroad and GTA services from M/s Transystem Logistics International (P) Ltd., Bengaluru. They had utilized the credit availed on inputs, input services and capital goods for payment of service tax on the aforementioned services from April 2006 to August 2006 totaling to Rs.33,30,39,951/-. Commissioner of Central Excise had issued the show cause notice calling upon assessee to show cause as to why the input service tax utilized for payment of service tax on services viz., intellectual property services, commissioning and installation services and maintenance and repair services and also GRA services for the period under consideration should not be treated as irregular and recovery under Section 73 of the Finance Act, 1994, with interest and penalty should not be ordered. The issue arose for consideration was whether the Cenvat Credit can be utilized for payment of service tax for the purpose other than the ones defined under Section 3(4)(e) of the Cenvat Credit Rules, 2004? It was held that following the decision in the case of Union of India v. Kansara Modlers Ltd., reported in 2018(15) GSTL 255 (Raj) the Hon’ble High Court of Rajasthan considering the identical question of law involved herein held that the Tribunal/CESTAT treating the assessee as output service provider was justiciable. The said order had been affirmed by the Hon’ble Apex Court in dismissing the special leave petition filed by the Revenue reported in 2018(18) GSTL J36. Hence, the substantial questions of law were answered in favour of assessee and against the Revenue.
FULL TEXT OF THE JUDGMENT/ORDER of KARNATAKA HIGH COURT
This appeal is filed by the Revenue challenging the order dated 28.6.2018 passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT for short) in ST/395/2008-DB (Final Order No.20854/2018), whereby the appeal filed by the respondent – assessee has been allowed.
2. The respondent – M/s Toyota Kirloskar Motors claims to be manufactures of Multiutility Vehicles (MUV) for passenger cars and parts thereof falling under chapter sub-heading 8703.23.10 and 8708.10.90 respectively of the Central Excise Tariff and they are registered under the Central Excise and Service Tax. The respondent – assessee has received intellectual property services, commissioning and installation services and maintenance and repair services from their parent company situated abroad and GTA services from M/s Transystem Logistics International (P) Ltd., Bengaluru. They have utilized the credit availed on inputs, input services and capital goods for payment of service tax on the aforementioned services from April 2006 to August 2006 totaling to Rs.33,30,39,951/-.
3. The Commissioner of Central Excise had issued the show cause notice dated 15.10.2007 calling upon the assessee to show cause as to why the input service tax utilized for payment of service tax on services viz., intellectual property services, commissioning and installation services and maintenance and repair services and also GRA services for the period under consideration should not be treated as irregular and recovery under Section 73 of the Finance Act, 1994, with interest and penalty should not be ordered.
4. The respondent submitted reply to the said show cause notice. The Commissioner of Central Excise and Service Tax, LTU, Bengaluru, rejecting the contentions of the respondent – assessee passed the order in Original No.37/2008, dated 19.5.2008 confirming the demand made in the show cause notice.
5. Being aggrieved, the respondent had preferred an appeal before the CESTAT. The said appeal having been allowed, the Revenue has preferred this appeal.
6. The appeal has been admitted by this Court to consider the following substantial questions of law;
“1) Whether the Cenvat Credit can be utilized for payment of service tax for the purpose other than the ones defined under Section 3(4)(e) of the Cenvat Credit Rules, 2004?
2) Whether the recipient of service who is liable to pay the service tax under Section 68(2) of the Finance Act, 1994 as amended, is entitled to utilize the Cenvat Credit for payment of service tax as against the provisions of Section 3(4)(e) of the Cenvat Credit Rules, 2004?
3) Are not the conditions of the Cenvat Credit Rules as regards “provider of taxable service shall be allowed to take credit” (as per Rule 3(1) of the Rules or as regards admissibility of the utilization of cenvat credit only if the input services utilized in providing an output service (as per Rule 2(1) of the Cenvat Credit Rules, 2004 are applicable in the facts and circumstances of the case.?”
7. Learned counsel for the Revenue submitted that the CESTAT blindly applied the dictum enunciated by the Coordinate Bench of this Court in the case of CST v. M/s Aravind Fashions, reported in 2012 (25) STR 583 (Kar.) and CEA v. M/s Godavari Sugar Mills Ltd., reported in 2015 (40) STR 1063 (Kar.) without analyzing the material on record.
8. Learned Counsel further submitted that in terms of Rule 3(4)(e) of the Cenvat Credit Rules, 2004, the cenvat credit can be utilized only on the output service, whereas the services on which the respondent has paid the service tax by utilizing the cenvat credit are the services rendered by the foreign company which are not the output service provided by the respondent. Similarly, GTA services being provided by the goods transporting agency and such assessee pays the service tax as the service provider are output services at the end of goods transporting agency but not at the receiving end of the recipient. Hence, utilization of cenvat credit for payment of service tax on input services being not valid, the CESTAT ought not to have allowed the appeal.
9. However, learned counsel for the Revenue fairly submitted that the challenge made by the Revenue in a batch of matters arising out of the same issue has been dismissed by the Hon’ble Apex Court on the ground of low tax effect. As per the order dated 26.7.2018 the batch of matters except SLP (C) 16268/2016 (Godavari Sugar Mills Limited) were dismissed and subsequently by another order 25.11.2020, the said matter has also been dismissed for low tax effect.
10. Learned counsel appearing for the assessee would submit that the matter is squarely covered by the Coordinate Bench decisions of this Court in the case of M/s Aravind Fashions and Godavari Sugar Mills, supra, the CESTAT has rightly applied the law laid down by this Court and the same deserves to be confirmed by this Court. Learned counsel has invited the attention of this Court to various relevant provisions of the Service Tax Act and Rules as well as the Cenvat Credit Rules, 2004.
11. We have considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.
12. Rule 3(4)(e) of the Cenvat Credit Rules, 2004 reads thus;
“3(4) The CENVAT credit may be utilized for payment of –
(a) x x x x
(b) x x x x
(c) x x x x
(d) x x x x
(e) service tax on any out put service:
The following explanation was added to Rule 3(4)(e) of the Cenvat Credit Rules, 2004, w.e.f., 1.7.2012, which reads thus;
“Explanation – CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.”
Admittedly, the dispute herein relates to the period from April to August, 2006. The aforesaid explanation inserted to Rule 3(4)(e) w.e.f., 1.7.2012 is not applicable to the present case.
13. Clause (p) of Rule 2 of Cenvat Credit Rules, 2004 defines “output service”, which reads as under;
“(p) “output service” means any taxable service, excluding the taxable service referred to in sub-cause (zzp) of clause (105) of section 65 of the Finance Act, 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;”
Clause (q) of Rule 2 of Cenvat Credit Rules, 2004 defines “person liable for paying service tax”, which reads as under;
“(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;”
14. Rule 2(1)(d) of the Service Tax Rules, 1994 reads thus;
“2(1)(a) x x x x
(b) x x x x
(c) x x x x
(d) “Person liable for paying service tax” means, –
xxxxx
xxxxx
xxxxx
(iv) in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service;
(v) in relation to taxable service provided by a goods transport agency, where the consignor or consignee of goods is,-“
15. Section 66A of the Finance Act, 1994 contemplates charge of service tax on services received from outside India.
Section 68(2) of the Finance Act, 1994 reads thus;
(2) Notwithstanding anything contained in subsection (1), in respect of any taxable service notified by the Central Govt. in the Office Gazette, 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.”
16. In the case of Aravind Fashions Ltd., supra, the Coordinate Bench of this Court has considered the Cenvat Credit of input services utilized by the assessee towards the payment of service tax, it has been observed that the assessee therein was the recipient of service tax, the service provider was outside the country, in law he has been treated as a service provider and is levied tax, the liability to pay tax on the service which he has received was foisted on such assessee under law. In order to discharge the said liability, he is entitled to use the cenvat credit which was available with him.
17. In Godavari Sugar Mills Ltd., supra, another Coordinate Bench of this Court having considered Rule 3(4)(e) of Cenvat Credit Rules, 2004 and Section 68(2) of the Finance Act, 1994, in the context of the assessee utilizing the cenvat credit of input services availed under Cenvat Credit Rules towards payment of GTA services and the credit of service tax paid by them for GTA, held that in view of specific reference to service tax and the benefit allowed to a service provider read with fiction created by Section 68(2) of the Finance Act, 1994, no fault can be found with the assessee in utilizing the cenvat credit available with it. These two judgments have been applied by the CESTAT in reversing the finding of the adjudicating authority.
18. In the case of Union of India v. Kansara Modlers Ltd., reported in 2018(15) GSTL 255 (Raj) the Hon’ble High Court of Rajasthan considering the identical question of law involved herein held that the Tribunal/CESTAT treating the assessee as output service provider is justiciable. The said order has been affirmed by the Hon’ble Apex Court in dismissing the special leave petition filed by the Revenue reported in 2018(18) GSTL J36.
19. We are conscious that the special leave petitions preferred by the Revenue against M/s Aravind Fashions and Godavari Sugar Mills, supra, though have been dismissed for low tax effect, we cannot subscribe to the arguments advanced by the Revenue in view of the fiction created under Section 68(2) of the Finance Act, 1994 read with Rules 2(1)(d) of the Service Tax Rules, 1994 and Rule 3(4)(e) of the Cenvat Credit Rules, 2004.
20. We find no good reasons to differ from the view taken in the aforesaid decisions of this Court. Hence, the substantial questions of law are answered in favour of the assessee and against the Revenue.
In the result, the appeal stands dismissed.
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