Goods Transport Agency – not output service, but credit allowed for capital goods?
It is really difficult to make laws. It is one thing to make laws and another one to update them to suit your needs, mainly to overcome irritating judicial interpretations. The irresponsible and unconcerned judiciary in this country unfortunately does not have the capacity to understand to the great legal minds of our bureaucrats and they naughtily interpret the laws without understanding the Babus’ logic! More sadly, the system does not allow the judges to be under the administrative control of the bureaucrats. So the only thing that the dynamic babu can do to undo judicial over-action is to undo judicial decisions, if needed, by retrospective legislation.
But when they amend the laws, quite often they forget the cascading effects. The same provisions must be sitting silently in some other corner of your vast and complicated laws and it is humanly impossible for the babus to keep track of all the places where the same provisions exist.
The controversial Service Tax on goods transport by road has generated more litigation than revenue. As these columns have repeatedly analysed, the Service Tax on outward transport was always an input service, but many in the department could not digest the concept that outward transport can be input service. The “out” and “in” created the confusion and the department found support in a couple of CESTAT benches, though the issue is before the Larger Bench.
Maybe to set at rest the confusion, the Government has in this budget amended the Cenvat Credit Rules to stipulate that input service is only outward transport up to the “place of removal”, not “from the place of removal”.
But there is another issue.
Can the Cenvat Credit be used to pay the Service Tax on GTA? Department had always taken the stand that the consignor or consignee paying Service Tax on GTA is a service provider for the limited purpose of paying Service Tax, but he cannot utilise the Cenvat Credit for payment of this tax and it should be paid in cash only. What’s the difference? THE EGO OF THE DEPARTMENT!
Several benches of CESTAT have unanimously held that tax can be paid from the credit account – and not a single dissenting bench! But government does not like such unanimity among CESTAT members. So the law was amended in this budget. Now GTA is out of the purview of output service and so credit cannot be used. The changed definition of output service reads as,
"output service" means [any taxable service, excluding the taxable service referred to in sub-clause (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;
zzp, as is well known, is our goods transport agency.
So far so good, but see the definition of Capital Goods under the Cenvat Credit Rules. It includes
(B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act;
That means a truck is Capital goods for one who provides the GTA service and so he can take credit on the excise duty paid on the truck, but GTA is not output service and so what would he do with that credit?