By TIOL News Service

AHMEDABAD, JAN 05, 2015: THE Appellants are engaged in the business of manufacturing excisable goods. They are also liable for payment of service tax under the Goods Transport Agency service under Reverse charge mechanism. For payment of tax they utilized the CENVAT credit accumulated by them in respect of their manufacturing activities.

The case of the Revenue is that the CENVAT credit could not have been utilized by appellant and the service tax should have been paid in cash.

The matter had been referred to the Larger Bench.

Observing that the High Court of Punjab & Haryana in case of Nahar Industrial Enterprises Limited (2010-TIOL-868-HC-P&H-ST) had taken a view that there is no legal bar to the utilization of Cenvat credit for the purpose of payment of service tax on the GTA services; that 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; that 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" the question referred to was answered in favour of the assessee. The LB had also placed reliance on the decisionin the case of Hero Honda Motors Ltd. [2012-TIOL-1104-HC-DEL-ST].

We had reported the LB case as [2014-TIOL-510-CESTAT-AHM-LB].

Apparently, the Revenue was not happy and took the matter to the next level.

Before the Gujarat High Court, the following are the substantial questions of law -

"(a) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that there is no bar for payment of service tax from the cenvat account, and there is no legal restriction for utilization of cenvat credit for the purpose of payment of services, which is not their output service?

(b) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in allowing the Cenvat credit utilized by the respondent for the payment of service tax on Goods Transport Agency Service, which is not their output service?"

The counsel for the Revenue submitted that the decision of Punjab and Haryana High Court in the case of M/s. Nahar Industrial Enterprises Ltd. (supra) has been carried in appeal, and such appeal was admitted and is pending.

The High Court noted that the Punjab and Haryana High Court decision in the case of M/s. Nahar Industrial Enterprises Ltd. was taken into account by the Delhi High Court in the case of Hero Honda Motors Ltd. and after pursuing the same line, the Revenue appeal was rejected.

The High Court also observed -

“8. Rule 3 of the Cenvat Credit Rules, 2004 pertains to Cenvat credit. Sub-rule (1) thereof allows the manufacturer or purchaser of final products or provider of output service to take credit of Cenvat of various duties specified therein. Sub-rule (4) of Rule 3 of the said Rules provides that the Cenvat credit may be utilized for payment of various duties specified in clauses (a) to (e) thereof; clause (e) pertains to "service tax on any output service". A combined reading of these statutory provisions would, therefore, establish that though the assessee was liable to pay service tax on G.T.A. Service, it could have utilized Cenvat credit for the purpose of paying such duty. In view of the decisions of Punjab and Haryana High Court and Delhi High Court noted above, we do not find any error in the view of the Tribunal….”

The Tax Appeal was, therefore, dismissed.

(See 2015-TIOL-25-HC-AHM-ST)