Per P. Karthikeyan : During the period 2005 to November 2005, M/s. Pallipalaylam Spinners (P) Ltd., (PSPL) Salem, manufacturers of VSF yarn, poly viscose yarn and viscose yarn utilized the Cenvat credit of Rs. 2,54,843/- to pay service tax and education cess on Goods Transport Agency (GTA) service availed for outward transportation of its finished goods. In the impugned order, the Commissioner (Appeals) has affirmed the above amount and imposed equal amount of penalty under Section 76 of the Finance Act, 1994. The Commissioner found that Rule 3 (4) (e) of Cenvat Credit Rules, 2004 (CCR), allowed utilization of cenvat credit only towards payment of service tax on 'output service' and not on 'input service' like GTA services availed by PSPL. As per Rule 2 (l) 'input service' included service used in relation to outward transportation of final products of a manufacturer upto the place of removal. Therefore cenvat credit could not be utilized to pay tax for another input service, like GTA service. Further, as per Rule 2 (p) of CCR, 2004,

"`output service' means any taxable service 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."

As per the Explanation to the above rule, if a person who does not render any service pays service tax as a deemed service provider, the said service will be treated as output service provided the said person does not manufacture any finished goods. In the instant case, the assessee being a manufacturer of finished goods, the GTA service availed could not be treated as an output service. Moreover, the explanation was issued for removal of doubts. There was no scope for doubt in the light of Rule 2 (p) of CCR.

2. The Ld. Counsel argues that in view of the Explanation which was in force during the material time, GTA service availed by PSPL has to be held to be output service as it did not render any service. She relies on the following decisions of the Tribunal.

(1) M/s. R.R.D. Tex Pvt. Ltd. Vs. CCE, Salem, Final Order No. 606/07 dated 18.05.07 [reported in 2007 (81) RLT 557 (CESTAT-Che.)]

(2) The India Cement Ltd. Vs. CCE, Salem, Final Order No. 262/07 dated 20.03.07 [reported in 2007 (80) RLT 719 (CESTAT-Che.)]

(3) CCE, Chandigarh Vs. M/s. Nahar Industrial Enterprises Ltd., 2007 (80) RLT 482 (CESTAT-Del.)=2007-TIOL-555-CESTAT-DEL.

3. The Ld. JDR defends the impugned order and argues that the same is in accordance with the statutory provisions. The order deserved to be sustained.

4. After hearing both sides the decision was reserved to enable the Ld. Counsel to produce copies of the orders cited. The orders have not been furnished yet. The appeal, however, is taken up for decision. I have considered the records and the rival submissions. The appellants have utilized credit earned for paying service tax on GTA for outward transportation of finished goods. The demand to recover the said amount is made on the basis that as per Rule 2 (p) of CCR and the Explanation thereto, outward transportation of finished goods is not output service. The relevant explanation relied on by the lower authority in passing the impugned order reads as follows:-

"Explanation:- For the removal of doubts it is hereby clarified that if a person liable for paying service tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay service tax shall be deemed to be the output service."

It is not disputed that the appellant does not provide any service and paid service tax on GTA service received. In such circumstances, the GTA services in question have to be treated as output service in view of the above explanation. This is also the ratio of the judicial authorities relied on by the appellants. In view of this position, the appellants correctly utilized the cenvat credit for discharging tax due on GTA service avail