AHMEDABAD, JAN 21, 2008 : THE jinxed tax that is Service Tax on GTA , is haunting the tax administration, courts and the hapless assessees for more than a decade. While the net collection from this tax would be less than peanut, the amount of litigation it has generated, must have cost the nation heavily – the Government should seriously consider doing away with this tax or maybe levying a flat 2% without credit.

Here is a landmark judgement, where the Tribunal has come to some remarkable conclusions.

1. You are a factory receiving raw materials by trucks and the Service Tax on goods transport is to be paid either by the consignor or you as the consignee. Now if you pay the tax, it is input service for you and you can take credit. But what happens if the consignor pays the tax? Can you take credit? “YES”, says the Tribunal. “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 respondents as consignees they are eligible to take credit of the service tax paid. Whether the service tax was paid by the consignor of the inputs or by the respondents does not make any difference in so far as eligibility for credit of the duty paid. The nature of input service does not undergo a change merely because the tax is paid by the recipient.

2. You are despatching your goods from your factory and you pay Service Tax as a consignor. Are you eligible to take credit? NO, says Tribunal. “merely because the respondent pays the service tax in respect of goods transport services availed for dispatching their goods to various consignees, the service does not become input service and they do not become service providers. In cases where the freight is paid by the respondents as consignors they are required to pay the service tax. But such service tax relates to output services. The said output services are rendered only by the goods transport operators/agencies. The respondents are required to pay service tax only as consignors and that does not make them as providers of goods transport services and therefore the question of their taking credit does not arise.

These appeals are by the Department and they involve common issues and therefore are being disposed of by a common order.

The relevant facts are as follows : –

a. The service tax for the services of “goods transport operator” was introduced in the year 1997 and initially by rules, the recipients of the service were required to pay the service tax, which was challenged and the Supreme Court in the case of M/s.LaghuUdyogBhart i did not uphold the provisions relating to recovery of service tax from the recipients.

b. Subsequently, the law was retrospectively amended by the Finance Act, 2003. Section 68(2) read with service tax rules enabled recovery of service tax from the recipients of services.

c. The respondents availed the services of goods transport agency;, in some cases, they paid the service tax as deemed service providers; they have taken credit of the service tax so paid by them as credit and utilized them towards discharging liability of payments of both service tax and excise duty.

d. The Original Authority held that the service tax paid by them as deemed service provider cannot be treated as tax paid on input service for them. He therefore held that service tax so paid is not permissible as credit under Rule 3(4) of the Cenvat Credit Rules, 2004. He disallowed varying amounts of credit taken as service tax and ordered recovery of interest. He also imposed penalties of varying amounts on the respondents under Rule 15 of the Cenvat Credit Rules.

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e. The Commissioner( Appeals) disagreed with the findings of the Original Authority that the input service availed by the respondents was not related to output GTA services. He accordingly held that there was no restriction on utilization of cenvat credit availed by the respondents towards payment of service tax on GTA services.

The Tribunal observed,

All these respondents are manufacturers of excisable goods and registered accordingly with the excise authorities. They are also registered with the excise authorities as service tax assessees. They received various raw materials from different persons and for the said purpose they use the services of goods transport agency. In respect of such receipts, the freight may be paid either by the consignors or the consignees who are the respondents. If the freight was paid by the consignor of the raw materials, naturally the consignors are required to pay the service tax. If the freight was to be paid by the consignees(the respondents) , in respect of freights paid on such consignments, the service tax has been paid by the respondents, 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 respondents as consignees they are eligible to take credit of the service tax paid.

The respondents are dispatching their finished goods to various consignees either from the factory gate or from their depots which are considered as “place of removal”. The freight may be paid either by the respondents as consignors or by the recipient of the finished goods who will be consignees. In cases where the freight is paid by the respondents as consignors they are required to pay the service tax. But such service tax relates to output services. The said output services are rendered only by the goods transport operators/agencies. The respondents are required to pay service tax only as consignors and that does not make them as providers of goods transport services and therefore the question of their taking credit does not arise. The credit of service tax paid by the respondents as consignors shall be available to the consignees of the finished goods. In the case where the respondents do not pay the freight the question of their paying service tax did not arise and the same shall be paid by the consignees and the credit shall be available to the consignees of the finished goods as their input service credit.

The respondents are playing two major roles. Undoubtedly, they are recipients of services under the category of goods transport agencies. The Section 68(2) and the rules made there under shifts the responsibility of paying the service tax on them. Because of this deeming provision which made them responsible for paying the tax, they do not cease to be recipient of services. For the purpose of cenvat credit, the duty paid by them that deemed service provider should be treated as tax paid on input services and should be extended the benefit of cenvat credit. In other words, the goods transport service 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 respondents does not make any difference in so far as eligibility for credit of the duty paid. The nature of input service does not undergo a change merely because the tax is paid by the recipient. Similarly, merely because the respondent pays the service tax in respect of goods transport services availed for dispatching their goods to various consignees, the service does not become input service and they do not become service providers.

The other issue relates to applicability of the Notification No.32/2004-ST dt 3/12/2004 effective from 1/1/2005 . According to the above notification, the service tax on GTA services are payable on a value which is 25% of the freight amount paid i.e. after availing 75% 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 may be paying the service tax in respect of the services of goods transport service in respect of consignments dispatched by them to their various customers. Therefore, denial of the credit on the ground that the respondents are availing the credit of the tax paid by them in respect of input services is not justified.

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 has not actually rendered the said services; as a consignor he has 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.

The tribunal finally held:-

a. the service tax on goods transport agencies service paid by the respondents does not make them as service provider.

b. in respect of services availed for incoming consignments for which the respondents pay the service tax, they continued to be service recipients and therefore, such services are input services for them.

c. the service tax paid by the consignors / respondents in respect of incoming consignments shall be eligible as credit.

d. the service tax paid by the respondents in respect of outgoing consignments of finished goods, in their capacity of consignors shall not be eligible as credit to the respondents.

e. the respondents, while paying service tax on GTA service availed in connection with removal of their finished goods from factory are entitled to utilize, for payment of service tax on such service, the credit of tax paid on the input GTA service availed by them in connection with receipt of inputs received in their factory as held by the Tribunal in the case of M/s.India Cements Ltd. cited supra.

f.; notwithstanding taking of credit of service tax paid under goods transport operator/ agency services in respect of incoming consignments, the respondents are eligible to avail the benefit of notification No.32/2004-ST dt.3/ 12/2004,

g. in the given facts and circumstances, of the case, which involve interpretational difference, imposition of penalty is not justified. __._,_.___

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