It is a well known fact that Goods Transport Agency (GTA) is covered under the service tax net and payable on reverse charge basis. A number of issues have arisen in the past and yet to be solved by the Department of Central Excise. Here in this article we are trying to put some of the issues connected to Credit of Service Tax paid in case of Goods Transport Agency.
Issue #1: Payment of Service Tax compulsory on GTA.
By virtue of the Cenvat Credit Rules it is clear that Service tax Liability on GTA has to discharge by way of payment only and cannot be done through adjustment of Credit.
E.g. A person buys certain Copper C from a manufacturer to be used in the production of a telephone tower for which he is entitled to a input credit of Say Rs. 5,00,000/- he incurs certain cost for transport through a GTA for which he has to pay a service tax after abatement of say Rs. 20,000. In this case the dealer has to discharge the excise liability only by way of cash payment and not by adjusting the credit he has by way of purchase of goods or service.
The reason is that the such manufacturer (consignor) is not the service provider The transport service is being provided by the goods transport agency and the excise assessee pays the service tax only for the reason that the liability for payment of service tax has been shifted to the service receiver. Accordingly, the consignor or the consignee has to be pay service tax in cash on goods transport by road service.
Issue #2: Credit of service tax paid on GTA service
As per the Cenvat rules, 2004 Cenvat credit can be taken on any input service where service tax is livable and paid . The person who claims the credit must be a registered dealer in dutiable goods or in providing of taxable services. Hence, in case of inward transportation charges service tax paid can be clearly taken as credit and adjusted towards any amount to be paid to the department by way of service tax or excise duty. However, in the case of outward transport it is still a grey area and complexities are still present on whether or not it is an eligible credit.
Issue #3: To what stage can the manufacturer take credit on Service Tax Paid
It has dealt in the case of Gujrat Ambuja Cements in detail and the post sale transport of manufactured goods is not an input for the manufacturer/consignor. The two clauses in the definition of input services take care to circumscribe input credit by stating that service used in relation to the clearance from the place of removal and service used for outward transportation up to the place of removal are to be treated as input service. The first clause does not mention transport service in particular. The second clause restricts transport service credit up to the place of removal. When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport up to the place of removal. The two clauses, the one dealing with general provision and other dealing with a specific item, are not to be read disjunctively so as to bring about conflict to defeat the laws scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions.
This decision has invited the flak from many professionals and dealers, especially against the company not because of losing the case with CCE but because of not appealing at higher levels. There is a real clash between the department and the dealers in this case and nothing is clear about what the dealers now have to do. The major defense for the dealers is the definition of input service which states
As defined by CENVAT Credit Rules; input service means any service,-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal,
Which has however been amended in the recent budget to include only services used for the purpose of manufacture. But this again cannot be given a retrospective effect.
Hence, as quoted by many great lawyers and professionals it is best to claim credit of the amount but not utilize it until the dust is cleared & in case of people who have claimed the credit and fighting with the department over it at best pay the amount in protest and wait for a favorable decision.