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For quite some time until now, the Government has made the Courts and Tribunal extremely preoccupied ever since the levy of Service tax on Goods Transport Agency. The Intention of the Government is apparently to garner as much revenues as possible to enrich the treasury. But unfortunately, the ride sometimes becomes jerky with many brilliant interpretations from the Judicial Honchos thus overwhelming the revenue dreams of the Government. Hence goes the jocular saying, “Too many cooks spoil the broth”. This article is not going to make any chronology of such episodes and drown the reader in slumber.
It is a known fact that the CBEC had benevolently allowed the Assessee to take advantage of the Circular 97/8/2007 dated 23.8.2007 by substantiating that his sale happens at the destination point and avail Cenvat credit of the Service tax paid on outward transportation till customer’s doorstep. As per various experts, this benefit will be still available even though the Cenvat credit Rule 2004 has got amended to include only the outward transportation up to the place of removal. This means, the CBEC has to abide by its own mandate. Also many High courts and Tribunals have affirmed this. A lot many entities (esp. ancillary ones) which operate under the wieldance of a monopoly customer can only have a destination sale agreement due to weaker bargains. All these have some reason to smile. This is definitely an icebreaker from the Government,
Almost concomitantly, just six months down the line, there came another amendment in the Cenvat credit Rule 2004 dt.1.3.2008 which did away with the ambiguity surrounding the treatment of Service tax on GTA services as an Output service at the Consignor/Consignee end i.e. these services were explicitly removed from the scope of Output service. Until then the experts made the assessees happy by using this loophole and allowing them to use the Cenvat account for discharge of Service tax on GTA. Obviously this move would have disappointed and also raised a few eyebrows. But on just a minor pondering, we can probably conclude that the Government has left a ‘Blessing in disguise’ for those companies who have already stood up to earn profits (meaning Revenue exceeding cost and hence the payment of Excise liability).
This article will analyze with a simple and hypothetical example of a (Profit making) Manufacturer-Assessee, The cumulative effect of the above two happenings on the situation before and after the aforesaid Notification can thus be examined.
Available Cenvat credit               :               Rs. 100/-
Service Tax liability on GTA        :               Rs. 200/-
Final Excise Duty Liability             :               Rs 400/-
Final Excise Duty Liability                          :        Rs.400
Less:  Service Tax on GTA                         :        (Rs. 100)
(Assuming the assessee used the
Cenvat account to pay ST and his sale is at
Destination point to take credit of this ST)
Less: Input Credit                                      :             NIL
(Already utilized for ST payment)
Final Excise Duty Liability                              :    Rs. 400
Less:  Service Tax on GTA                            :    (Rs. 200)
(Cannot use Cenvat account to pay ST plus
Destination sales to take credit of this ST)
Less: Input credit                                      :        (Rs. 100)
NET PAYMENT OF EXCISE DUTY                  :         Rs.300
NET PAYMENT OF EXCISE DUTY                  :          Rs. 100
Note: The situation visualized before the Notification is assuming a tendency of the assessee to exhaust the credit for paying ST on GTA.
Isn’t this an opportunity for the assessee? This Gain of Rs.200 may be translated to the real world money.
Having said this, the situation post the notification is not any harmful for a loss maker except to pay additional cash of Rs.100/- towards the GTA service tax. Ultimately this amount is only going to boost his Current Ratio to that extent and facilitate better finance opportunity.
Hope the Government does not cause the shutter even on this count, by withdrawing this ‘good’ Circular though there could be enlightenment in future.

Published by

(IFRS Consultant)
Category Service Tax   Report

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