The Commissioner Of Central Tax vs. M/S Toyota Kirloskar Motors

Held

The Court held that the substantial questions of law are answered in favour of the assessee and against the Revenue. The Court noted that the explanation added to Rule 3(4)(e) of the Cenvat Credit Rules, 2004, effective from 1.7.2012, which states that Cenvat credit cannot be used for service tax where the service recipient is liable to pay tax, is not applicable to the period in dispute (April to August 2006). The Court relied on its coordinate bench decisions in CST v. M/s Aravind Fashions and CEA v. M/s Godavari Sugar Mills Ltd. These judgments held that when a recipient is liable to pay service tax under Section 68(2) of the Finance Act, 1994, they are entitled to use available Cenvat credit to discharge this liability. The Court also referred to the Rajasthan High Court's decision in Union of India v. Kansara Modlers Ltd., affirmed by the Apex Court, which treated the assessee as an output service provider in such scenarios. The Court found no reason to differ from these precedents, acknowledging that while the Revenue's SLPs in similar cases were dismissed for low tax effect, the underlying legal principle established by the High Court judgments remains valid due to the fiction created by Section 68(2) of the Finance Act, 1994, read with relevant rules.

Facts

The appellant, the Commissioner of Central Tax, GST West Commissionerate, challenged a CESTAT order that allowed an appeal filed by the respondent, M/s Toyota Kirloskar Motors. The respondent, a manufacturer of Multiutility Vehicles and parts, had received intellectual property services, commissioning and installation services, and maintenance and repair services from its foreign parent company, as well as GTA services from a domestic provider. For the period April 2006 to August 2006, the respondent utilized Cenvat credit on inputs, input services, and capital goods to pay service tax on these services, totaling Rs. 33,30,39,951/-. A show cause notice was issued by the Commissioner of Central Excise, proposing recovery of this amount with interest and penalty. The Commissioner confirmed the demand, leading to the respondent's appeal to the CESTAT, which was allowed, prompting the present appeal by the Revenue.

Key Issues

1. Whether Cenvat Credit can be utilized for payment of service tax for purposes other than those defined under Section 3(4)(e) of the Cenvat Credit Rules, 2004? The Revenue argued that Cenvat credit can only be utilized for output services, and the services received by the respondent (from foreign companies and GTA services) were not their output services. The respondent contended that the matter is covered by previous High Court judgments. 2. Whether a recipient of service, liable to pay service tax under Section 68(2) of the Finance Act, 1994, is entitled to utilize Cenvat Credit for service tax payment against the provisions of Section 3(4)(e) of the Cenvat Credit Rules, 2004? The Revenue's argument was that the services were not output services. The respondent relied on High Court precedents. 3. Are the conditions of the Cenvat Credit Rules regarding the provider of taxable service being allowed to take credit (Rule 3(1)) or the admissibility of utilization of Cenvat credit only if input services are utilized in providing an output service (Rule 2(1)) applicable in this case? The Revenue argued that the services received were not output services. The respondent maintained that the CESTAT correctly applied the law laid down by the High Court.