Karnataka High Court
The Commissioner Of Central Tax vs M/S Toyota Kirloskar Motors on 16 December, 2021
Bench: S.Sujatha, S Vishwajith Shetty
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 16TH DAY OF DECEMBER, 2021
PRESENT
THE HON'BLE MRS.JUSTICE S.SUJATHA
AND
THE HON'BLE MR. JUSTICE S.VISHWAJITH SHETTY
C.E.A.No.59/2019
BETWEEN :
THE COMMISSIONER OF CENTRAL TAX,
GST WEST COMMISSIONERATE,
TTMC BUILDING, BANASHANKARI,
BANGALORE-560070 ...APPELLANT
(BY SRI AKASH B. SHETTY, ADV.)
AND :
M/s TOYOTA KIRLOSKAR MOTORS
PLOT NO.1, BIDADI INDUSTRIAL AREA,
BIDADI, RAMANAGAR TALUK,
BANGALORE-562109 ...RESPONDENT
(BY SRI K.S.RAVI SHANKAR, SENIOR COUNSEL FOR
SRI N.ANAND, ADV.)
THIS C.E.A. IS FILED UNDER SECTION 35G OF THE
CENTRAL EXCISE ACT R/W SECTION 83 OF THE FINANCE ACT,
ARISING OUT OF ORDER DATED 28.06.2018 PASSED IN FINAL
ORDER NO.20854/2018 PRAYING TO SET ASIDE THE CESTAT
FINAL ORDER NO.20854/2018 DATED 28.06.2018 AND DECIDE
THE QUESTION OF LAW FRAMED IN THE ABOVE APPEAL BY
ALLOWING THE APPEAL.
THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
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JUDGMENT
This appeal is filed by the Revenue challenging the
order dated 28.6.2018 passed by the Customs, Excise
and Service Tax Appellate Tribunal (CESTAT for short)
in ST/395/2008-DB (Final Order No.20854/2018),
whereby the appeal filed by the respondent - assessee
has been allowed.
2. The respondent - M/s Toyota Kirloskar
Motors claims to be manufactures of Multiutility
Vehicles (MUV) for passenger cars and parts thereof
falling under chapter sub-heading 8703.23.10 and
8708.10.90 respectively of the Central Excise Tariff and
they are registered under the Central Excise and Service
Tax. The respondent - assessee has received
intellectual property services, commissioning and
installation services and maintenance and repair
services from their parent company situated abroad and
GTA services from M/s Transystem Logistics
International (P) Ltd., Bengaluru. They have utilized the
credit availed on inputs, input services and capital
goods for payment of service tax on the aforementioned
services from April 2006 to August 2006 totaling to
Rs.33,30,39,951/-.
3. The Commissioner of Central Excise had
issued the show cause notice dated 15.10.2007 calling
upon the assessee to show cause as to why the input
service tax utilized for payment of service tax on
services viz., intellectual property services,
commissioning and installation services and
maintenance and repair services and also GRA services
for the period under consideration should not be treated
as irregular and recovery under Section 73 of the
Finance Act, 1994, with interest and penalty should not
be ordered.
4. The respondent submitted reply to the said
show cause notice. The Commissioner of Central Excise
and Service Tax, LTU, Bengaluru, rejecting the
contentions of the respondent - assessee passed the
order in Original No.37/2008, dated 19.5.2008
confirming the demand made in the show cause notice.
5. Being aggrieved, the respondent had
preferred an appeal before the CESTAT. The said
appeal having been allowed, the Revenue has preferred
this appeal.
6. The appeal has been admitted by this Court
to consider the following substantial questions of law;
"1) Whether the Cenvat Credit can be
utilized for payment of service tax for the purpose
other than the ones defined under Section 3(4)(e)
of the Cenvat Credit Rules, 2004?
2) Whether the recipient of service who
is liable to pay the service tax under Section 68(2)
of the Finance Act, 1994 as amended, is entitled
to utilize the Cenvat Credit for payment of service
tax as against the provisions of Section 3(4)(e) of
the Cenvat Credit Rules, 2004?
3) Are not the conditions of the Cenvat
Credit Rules as regards "provider of taxable
service shall be allowed to take credit" (as per
Rule 3(1) of the Rules or as regards admissibility
of the utilization of cenvat credit only if the input
services utilized in providing an output service (as
per Rule 2(1) of the Cenvat Credit Rules, 2004 are
applicable in the facts and circumstances of the
case.?"
7. Learned counsel for the Revenue submitted
that the CESTAT blindly applied the dictum enunciated
by the Coordinate Bench of this Court in the case of
CST v. M/s Aravind Fashions, reported in 2012 (25)
STR 583 (Kar.) and CEA v. M/s Godavari Sugar Mills
Ltd., reported in 2015 (40) STR 1063 (Kar.) without
analyzing the material on record.
8. Learned Counsel further submitted that in
terms of Rule 3(4)(e) of the Cenvat Credit Rules, 2004,
the cenvat credit can be utilized only on the output
service, whereas the services on which the respondent
has paid the service tax by utilizing the cenvat credit are
the services rendered by the foreign company which are
not the output service provided by the respondent.
Similarly, GTA services being provided by the goods
transporting agency and such assessee pays the service
tax as the service provider are output services at the
end of goods transporting agency but not at the
receiving end of the recipient. Hence, utilization of
cenvat credit for payment of service tax on input
services being not valid, the CESTAT ought not to have
allowed the appeal.
9. However, learned counsel for the Revenue
fairly submitted that the challenge made by the Revenue
in a batch of matters arising out of the same issue has
been dismissed by the Hon'ble Apex Court on the
ground of low tax effect. As per the order dated
26.7.2018 the batch of matters except SLP (C)
16268/2016 (Godavari Sugar Mills Limited) were
dismissed and subsequently by another order
25.11.2020, the said matter has also been dismissed for
low tax effect.
10. Learned counsel appearing for the assessee
would submit that the matter is squarely covered by the
Coordinate Bench decisions of this Court in the case of
M/s Aravind Fashions and Godavari Sugar Mills,
supra, the CESTAT has rightly applied the law laid
down by this Court and the same deserves to be
confirmed by this Court. Learned counsel has invited
the attention of this Court to various relevant provisions
of the Service Tax Act and Rules as well as the Cenvat
Credit Rules, 2004.
11. We have considered the rival submissions of
the learned counsel appearing for the parties and
perused the material on record.
12. Rule 3(4)(e) of the Cenvat Credit Rules, 2004
reads thus;
"3(4) The CENVAT credit may be utilized for
payment of -
(a) xxxx
(b) xxxx
(c) xxxx
(d) xxxx
(e) service tax on any out put service:
The following explanation was added to Rule
3(4)(e) of the Cenvat Credit Rules, 2004, w.e.f.,
1.7.2012, which reads thus;
"Explanation - CENVAT credit cannot be used
for payment of service tax in respect of services
where the person liable to pay tax is the service
recipient."
Admittedly, the dispute herein relates to the
period from April to August, 2006. The aforesaid
explanation inserted to Rule 3(4)(e) w.e.f., 1.7.2012 is
not applicable to the present case.
13. Clause (p) of Rule 2 of Cenvat Credit Rules,
2004 defines "output service", which reads as under;
"(p) "output service" means any taxable
service, excluding the taxable service referred to
in sub-cause (zzp) of clause (105) of section 65 of
the Finance Act, provided by the provider of
taxable service, to a customer, client, subscriber,
policy holder or any other person, as the case
may be, and the expressions 'provider' and
'provided' shall be construed accordingly;"
Clause (q) of Rule 2 of Cenvat Credit Rules, 2004
defines "person liable for paying service tax", which
reads as under;
"(q) "person liable for paying service tax" has
the meaning as assigned to it in clause (d) of sub-
rule (1) of rule 2 of the Service Tax Rules, 1994;"
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14. Rule 2(1)(d) of the Service Tax Rules, 1994
reads thus;
"2(1)(a) x x x x
(b) xxxx
(c) xxxx
(d) "Person liable for paying service tax"
means, -
xxxxx
xxxxx
xxxxx
(iv) in relation to any taxable
service provided or to be provided by any
person from a country other than India and
received by any person in India under section
66A of the Act, the recipient of such service;
(v) in relation to taxable service provided
by a goods transport agency, where the
consignor or consignee of goods is,-"
15. Section 66A of the Finance Act, 1994
contemplates charge of service tax on services received
from outside India.
Section 68(2) of the Finance Act, 1994 reads thus;
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"68 (1) xxx
(2) Notwithstanding anything contained in sub-
section (1), in respect of any taxable service
notified by the Central Govt. in the Office Gazette,
the service tax thereon shall be 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."
16. In the case of Aravind Fashions Ltd.,
supra, the Coordinate Bench of this Court has
considered the Cenvat Credit of input services utilized
by the assessee towards the payment of service tax, it
has been observed that the assessee therein was the
recipient of service tax, the service provider was outside
the country, in law he has been treated as a service
provider and is levied tax, the liability to pay tax on the
service which he has received was foisted on such
assessee under law. In order to discharge the said
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liability, he is entitled to use the cenvat credit which
was available with him.
17. In Godavari Sugar Mills Ltd., supra,
another Coordinate Bench of this Court having
considered Rule 3(4)(e) of Cenvat Credit Rules, 2004
and Section 68(2) of the Finance Act, 1994, in the
context of the assessee utilizing the cenvat credit of
input services availed under Cenvat Credit Rules
towards payment of GTA services and the credit of
service tax paid by them for GTA, held that in view of
specific reference to service tax and the benefit allowed
to a service provider read with fiction created by Section
68(2) of the Finance Act, 1994, no fault can be found
with the assessee in utilizing the cenvat credit available
with it. These two judgments have been applied by the
CESTAT in reversing the finding of the adjudicating
authority.
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18. In the case of Union of India v. Kansara
Modlers Ltd., reported in 2018(15) GSTL 255 (Raj)
the Hon'ble High Court of Rajasthan considering the
identical question of law involved herein held that the
Tribunal/CESTAT treating the assessee as output
service provider is justiciable. The said order has been
affirmed by the Hon'ble Apex Court in dismissing the
special leave petition filed by the Revenue reported in
2018(18) GSTL J36.
19. We are conscious that the special leave
petitions preferred by the Revenue against M/s Aravind
Fashions and Godavari Sugar Mills, supra, though
have been dismissed for low tax effect, we cannot
subscribe to the arguments advanced by the Revenue in
view of the fiction created under Section 68(2) of the
Finance Act, 1994 read with Rules 2(1)(d) of the Service
Tax Rules, 1994 and Rule 3(4)(e) of the Cenvat Credit
Rules, 2004.
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20. We find no good reasons to differ from the
view taken in the aforesaid decisions of this Court.
Hence, the substantial questions of law are answered in
favour of the assessee and against the Revenue.
In the result, the appeal stands dismissed.
SD/-
JUDGE
SD/-
JUDGE
nd
