CENVAT credit cannot be utilised for payment under reverse charge by recipient of Goods Transport Agency (GTA) services prior to 19-4-2006 when recipient not a manufacturer or service provider.

CENVAT credit cannot be utilised for payment under reverse charge by recipient of Goods Transport Agency (GTA) services prior to 19-4-2006 when recipient not a manufacturer or service provider.

The appellants during the period from 1-4-2005 to 31-3-2007 took CENVAT credit of the service tax paid on a number of input services, such as security service, repair and maintenance service,etc. and utilised the same for the payment of service tax on GTA services received by them. Three SCNs were issued against the appellants for service tax along with interest and also for penalty on the ground that the GTA services received by the appellants were their input service and not ‘output service’ and therefore, service tax should have been paid in cash. It was pleaded by the appellants that during the period of dispute, by virtue of Rule 2(q) read with Rule 2(r) of the CENVAT Credit Rules, 2004, a person liable for paying service tax on some taxable service rendered by them as service recipient was deemed to be ‘provider of taxable services’. Also, the services received by them on which they are liable to pay tax would have to be treated as their ‘output service’. The respondents referring to the views of the Hon’ble Member (Technical) in the case of Panchmahal Steel Ltd. v. Commissioner of Central Excise & Customs, Vadodra-II 2008 (12) STR 447 (Tri.-Ahmd.), submitted that GTA services received by a person, who is liable to pay service tax on the same as service recipient, cannot be treated as ‘output service’ and the tax on the same cannot be paid by utilising CENVAT credit.

Held:

Taking consideration of and discussing at length the definitions of Rule 2(p) read with Rule 2(q) and Rule 2(r) of the CENVAT Credit Rules and relevant Notifications, it was held that the appellants were neither providing taxable service, nor manufacturing any dutiable final products and therefore, they were liable to pay service tax on ‘deemed output service’ through cash and not through CENVAT credit. Note: There are contrary judgments prevailing on this issue. In recent past, CESTAT -Chennai gave a judgment contrary to the aforementioned judgment in the case of Ishwari Spinning Mills v. Commissioner of C. Ex., Madurai 2011 (22) S.T.R. 549 (Tri.- Chennai).