Prior to Year 2006 Assessee can claim credit for service tax paid even if he has not provided any output service- HC

CA Urvashi Porwal

Brief of the Case

In the case of The Commissioner of Central Excise V/s. M/s. Essel Propack Ltd., it was held that prior to year 2006, the Explanation to Rule 2(p) of the CENVAT credit Rules would be applicable. On plain reading of the said explanation, as it is not disputed that the respondents are paying service tax, the services rendered by the respondents on that count are deemed to be “output service” as the other conditions therein are satisfied. So even if Assessee not provides any service then the service for which he pays service tax shall be deemed to be output service before year 2006.

Brief Facts

The assessee has paid service tax on the goods transport service in the year 2005 and availed CENVAT credit on the same. The Revenue contended that the assessee is not entitled for such a credit, as they do not provide any output service.

Contentions of the Revenue

The Revenue contented that despite of the Explanation to Rule 2(p) of the Cenvat Credit Rules, 2004, the respondents are not entitled for such a credit, as they do not provide any output service. Further the activities carried out by the respondents do not come within the meaning of ‘output service’ as provided in Rule 2(p) of the Cenvat Credit Rules, 2004.

Contentions of the Assessee

The assessee contented that it is not in dispute that the respondents are paying service tax for the services rendered by them and, as such, the Explanation to Rule 2(p) of the Cenvat Credit Rules, 2004 would clearly support the stand taken by the respondent. The Tribunal while passing order has relied upon a judgment of the Principal Bench, New Delhi to come to the conclusion that the respondents were entitled for such credit.

Held by High Court of Bombay at Goa

The Hon’ble High Court referred to Rule 2(p) of the Cenvat Credit Rules, 2004, which reads thus:

“ Rule 2(p) – “output service” means any taxable service 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”

The Explanation reads thus :

“Explanation.- For the removal of doubts it is hereby clarified that if a person liable for paying service tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay service tax shall be deemed to be the output service”

The Hon’ble Court stated that the Explanation was omitted in 2006; whereas the dispute under consideration    is in respect of the year 2005 and, as such, the Explanation to Rule 2(p) of the said Rules would be applicable to the facts of the present case. On plain reading of the said explanation, as it is not disputed that the respondents are paying service tax, the services rendered by the respondents on that count are deemed to be “output service” as the other conditions therein are satisfied.

The Hon’ble court stated that on perusal of the order passed by the Commissioner (Appeals), Central Excise & Customs, Goa, it is seen that the Commissioner has taken a view that as per Explanation to Rule 2(p) of the Cenvat Credit Rules if a person liable for payment of service tax does not provide any taxable service, the service for which he is liable to pay service tax shall be deemed to be the output service.    The Commissioner has further found that on harmonious reading of various rules of Cenvat Credit Rules and Service Tax Rules, it is clear that Cenvat Credit can be utilized for payment of Service Tax liability in respect of goods transport agent.

In view of the above, the appeal stands rejected.