DELHI HIGH COURT: UTILIZATION OF CENVAT CREDIT ON GOODS TRANSPORT AGENCY (GTA) ALLOWED (In favour of assessee)

In its judgment dated 8^th November ,2012  DELHI HIGH COURT , in the case of Commissioner Of Service Tax vs. M/S. Hero Honda Motors Ltd held that cenvat credit can be utilized while paying service tax on GTA services.

Issue for Consideration

The issue arises here for consideration is whether the Cenvat Credit can be utilized by the recipient of GTA service who is liable to pay service tax.

Facts of the Case    

• The assessee i.e. respondent in this case was issued a show cause notice on 30.1.2006 proposing recovery of dues (including interest) and penal action in terms of Finance Act, 1994.

• The Revenue took action on the basis that the assessee had wrongly claimed the cenvat credit on payment of service tax on goods transport agency under Section 68(2) of the said Finance Act. i.e. tax liability had to be discharged by cash and not through a claim of CENVAT credit.

• The Revenue also contended that the assessee was not a service provider but recipient of a taxable service and that the CENVAT credit facility was only provided to a service provider not to the recipient.

• The adjudicatory authority by order dated 10.5.2006 confirmed the allegations made in show cause notice.

Observation of Commissioner (Appeals)

The respondent-assessee appealed to the Commissioner (Appeals). Commissioner (Appeal) held that the assessee was entitled to the benefit of claiming payment of service tax on GTA services through adjustment of CENVAT credit considering the provision of Section 68(2) and relying on the judgment of:-

• Commissioner of Central Excise, vs. M/s. Nahar Industrial Enterprises Ltd; 2007 and RRD Tex Pvt. Ltd. vs. CCE Salem, 2007 (8) STR 186, Chennai wherein it has been held that the assessee was entitled to the benefit of claiming payment of service tax on GTA services through adjustment of CENVAT credit.

• Revenue had challenged the CESTAT's order in Nahar Industrial Enterprises Ltd. (supra) before the Punjab and Haryana High Court and advanced various contentions, the court held that:-

• As per para 2.4.2 of CBEC's Excise Manual of Supplementary Instructions shows that there is no legal bar to the utilisation of Cenvat credit for the purpose of payment of service tax on the GTA services.

• Apart from the above, even as per Rule 3(4)(e) of the Cenvat Credit Rules, 2004, the Cenvat credit may be utilized for payment of service tax on any output service. In the present case also, the service tax was paid out of the Cenvat credit on GTA services and, hence, the respondents were well within their right to utilize the  Cenvat credit for the purpose of payment of service tax. 

Observation of CESTAT

·    Revenue makes an appeal to CESTAT. But CESTAT confirmed the order of Commissioner (Appeal) following the previous order in Nahar Industrial Enterprises.

Regards

CA. Mona Singhal

Partner

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