F.No. 345/4/2005-TRU
Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit

 3rd October, 2005

To

The Chief Commissioner of Central Excise
Ahmedabad.

Sir,

Sub: Availment of credit by a person who is not a service provider/manufacturer.

Please refer letter F.No. V/30-58/CCO/S.Tax/2005/3934 dated 8.9.2005 regarding availment of CENVAT credit by the recipients of the taxable service namely goods transport agency service who discharge service tax liability as per Rule 2(v) of Service Tax Rules, 1994 read with section 68(2) of the Finance Act 1994.

The issue raised is whether a person who is not a service provider, but discharges the service tax liability on the taxable services, under Section 68(2) of Finance Act, 1994, is entitled to avail credit of such service tax paid even if he is not using such service as input service for use in the manufacture of excisable goods or taxable services. The issue is raised in the context of service tax paid on goods transport agency service by a person other than the service provider.

Section 68(1) requires the taxable service provider to discharge the service tax liability. However, Section 68(2) provides that any other person other than that of a service provider can also be prescribed to discharge the service tax liability in respect of any taxable service notified for this purpose.

Rule 2(v) of Service Tax Rules, 1994, specifies certain categories of persons, other than the service provider, to discharge the service tax liability in relation to taxable services provided by a goods transport agency. Under Section 68(2) a person required to pay the service tax, though not the actual provider of the service, is treated as the service provider for the limited purpose of discharging the service tax liability.

Rule 2(l) of CENVAT Credit Rules, 2004, defines “input service” as “(i) any service used by a provider of taxable service for providing an output service, or (ii) used by 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.”
In the present case, the person liable to pay service tax under Section 68(2) is neither the provider of an output service nor the manufacturer of final product and therefore the input service can not be used either for providing output service or manufacture of a final excisable product. The person is treated as deemed provider of service in relation to services for which he is taxable only for the limited purpose of discharging the service tax liability and not for all purposes.

CENVAT Credit Rules are applicable only to the manufacturer of excisable goods or the provider of taxable services. It is evidently clear from the provisions of Section 68(2) that the person discharging the service tax liability is neither the provider of output service nor the manufacturer of final product as required under the CENVAT Credit Rules, 2004. The terms “final product” and “output service” are defined under CENVAT Credit Rules, 2004. The view that such recipient of taxable services even if they discharge their service tax liability under Section 68(2) are not entitled to avail credit of the service tax paid on taxable services received by them under CENVAT Credit Rules, 2004, is in accordance with the statutory provisions and there is no scope for any other interpretation.

This issues with the approval of Member (Service Tax).

Your faithfully,
R. Sekar
Joint Secretary (TRU)