COMMISSIONER OF SERVICE TAX Vs. M/S. HERO HONDA MOTORS LTD.
February, 04th 2013
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on : 08.11.2012
+ CEAC 1/2009
COMMISSIONER OF SERVICE TAX ..... Petitioner
Through: Sh. V.C. Jha, Advocate.
M/S. HERO HONDA MOTORS LTD. ..... Respondent
Through: Sh. P.K. Ram, Advocate.
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
1. In these appeals, the question which arises for consideration is
whether the Tribunal fell into error in holding that in terms of Section 68(2)
of the Finance Act, 1994, the respondent/assessee was entitled to claim that
it had paid or adjusted service tax dues on the basis of CENVAT credit
instead of cash.
CEAC-1/09 & CEAC 40/11 Page 1
2. The brief facts are that 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 to
have paid service tax on goods transport agency under Section 68(2) of the
said Finance Act, by adjustment of CENVAT credit instead of payment in
cash. The Revenue's contention was that the 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 but not to the recipient such as assessee. The
adjudicatory authority by order dated 10.5.2006 confirmed the allegations
made in the show cause notice and the claim for duty and imposed penalty.
The respondent-assessee appealed to the Commissioner (Appeals). The
latter, taking note of the provisions of Section 68(2) and the legal function
provided by it as well as the decision of the Commissioner of Central
Excise, vs. M/s. Nahar Industrial Enterprises Ltd; 2007 (7) STR 26 (Del)
and RRD Tex Pvt. Ltd. vs. CCE Salem, 2007 (8) STR 186, Chennai held that
the assessee was entitled to the benefit of claiming payment of service tax on
GTA services through adjustment of CENVAT credit. The appeal preferred
by the Revenue to the CESTAT was rejected following the previous order in
Nahar Industrial Enterprises; it also noticed other decisions on the same
subject i.e. India Cements vs. CCE, Salem, 2007 (7) STR 569; Bhushan
Power & Steel Ltd. vs. CCE 2008 (10) STR 18, and CCE, Nagpur vs.
Visaka Industries Ltd., 2007(8) STR 231.
3. The Revenue claims to be aggrieved by the impugned order. It is
CEAC-1/09 & CEAC 40/11 Page 2
stated at the outset that the view expressed by the Tribunal has been carried
in appeal to the Supreme Court in Special Leave Petitions.
4. It appears that the 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 question of law framed
by that High Court was identical to what was urged in the present case. The
High Court by its order reported as CCE vs. Nahar Industrial Enterprises
Ltd., 2012 (25) STR 129 held as follows:-
"6. Learned counsel for the revenue has contended that the
respondents cannot pay the service tax from the Cenvat credit
availed by them. But this argument has no force, because a
perusal of 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.
7. 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.
8. 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. The Commissioner (Appeals)
as well as the Tribunal have rightly held that the respondents
were entitled to pay the service tax from the Cenvat credit."
5. As is evident, the Punjab and Haryana High Court had relied on Rule
3(4)(e) of the CENVAT credit Rules, 2004. The operative part of Rule 3(1)
states that a manufacturer or producer of final products or a provider of
taxable service shall be allowed to take credit i.e. CENVAT credit in terms
of its provisions. Rule 3(4), to the extent it is material for the present
CEAC-1/09 & CEAC 40/11 Page 3
purpose reads as follows:-
"(4) The CENVAT credit may be utilized for payment of
a) any duty of excise on any final product; or
b) an amount equal to CENVAT credit taken on
inputs if such inputs are removed as such or after
being partially processed; or
c) an amount equal to the CENVAT credit taken on
capital goods if such capital goods are removed as
d) an amount under sub rule (2) of rule 16 of
Central Excise Rules, 2002; or
e) service tax on any output service:"
S. 68 (1) and (2) of the Finance Act, 1994 read as follows:
Sec.68. Payment of Service Tax: -
(1) "Every person providing taxable service to any person
shall pay service tax at the rate specified in section 66 in such
manner and within such period as may be prescribed.
(2) Notwithstanding anything contained in sub-section (1), in
respect of any taxable service notified by the Central Govt. in
the Official Gazette, the service tax thereon shall paid by such
person and in such manner as may be prescribed at the rate
specified in section 66 and all the provisions of this chapter
shall apply to such person as if he is the person liable for
paying the service tax in relation to such service."
6. In view of the specific reference to service tax and the benefit allowed
to a service provider, read with the fiction created by Section 68(2) of the
Finance Act, 1994, this Court is of the opinion that there is no ground to
disagree with the judgment and reasoning of the Punjab and Haryana High
Court in Nahar Industrial Enterprises Ltd. The appeal consequently fails
CEAC-1/09 & CEAC 40/11 Page 4
and the question of law is answered in favour of the appellant and against
The appeal is dismissed.
S. RAVINDRA BHAT
NOVEMBER 8, 2012
CEAC-1/09 & CEAC 40/11 Page 5