Per Justice R.K. Abichandani : The Revenue has challenged the order of the Commissioner (Appeals) setting-aside the order-in-original by which recovery of Service Tax of Rs. 5,55,942/- was ordered and penalty imposed of the like amount under Rule 15 of the Cenvat Credit Rules, 2004.

2. The respondent was manufacturing cotton yarn/fabrics and availing facility of Cenvat Credit. According to the Revenue, the liability in respect of 'Good Transport Agency' services was required to be discharged by the respondent by cash, because recipient of such service was liable to pay the tax. The liability to pay Service Tax, in respect of GTA services received, could not be discharged by utilizing Cenvat Credit of manufacturing activity. Show cause notice was, therefore, issued for recovery of Service Tax with interest and proposing penalty.

3. According to the respondent-assessee, the recipient was a deemed service provider for the purposes of GTA services. It was contended that, as per the explanation to Rule 2(p) of the Cenvat Credit Rules, 2004 read with Section 68(2), the noticee was liable to pay Service Tax for the GTA services and, therefore, the said input service was a deemed output service for the noticees, irrespective of the fact that the noticee was manufacturing the goods and not providing any output service. It was also urged that, the definition of input service was exhaustive and covered all services.

4. The adjudicating authority, on the basis of the material on record, held that, the output service provider was eligible to take credit of service tax paid on input/capital goods used in providing service and that the goods, which were inputs/capital goods for the manufacture, were not inputs/capital goods for the service tax provider and vice versa. It was held that, Cenvat Credit of manufacturing amount cannot be used for discharging service tax liability on deemed GTO liability. It was also held that, the credit of input/input services and capital goods was allowable to a manufacturer, who manufactured dutiable goods. In case the finished goods were exempt, no credit of input/input services and capital goods would be available, though the assessee remained a GTO Service provider. He, therefore, held that, credit of manufacturing activity was independent of credit available for providing GTA services or deemed GTA services and that it was irregularly taken. Recovery was, therefore, ordered.

5. The Appellate Commissioner, however, resorting to the explanation to Rule 2(p) of the Cenvat Credit Rules, 2004, which was operative during the relevant period, held that, the case of the respondent was squarely covered by the said explanation. It was held that, the services received by the respondent, on which the respondent was liable to pay service tax, became output services. In view of the said explanation, the appeal of the respondent was, therefore, allowed.

6. The learned authorised representative for the Department, strongly contended that, the provisions of Rule 2(p) were applicable only in a case, where a person liable for paying service tax was neither a taxable service provider nor a manufacturer of final product. It was submitted that, in the present case, the appellant was a manufacturer and, therefore, there was no scope for extending the benefit of the explanation to Rule 2(p) of the said Rules to the appellant. He also relied upon the Departmental clarification issued by a master CBEC Circular No. 97/8/2007-S.T. dated 23.08.2007 [reported in 2007 (82) RLT M9] clarifying the procedural issues relating to Service Tax, published in 2007 (215) ELT T-24 (Part-I), at page T-29, in which it was clarified, in response to the issue, whether a manufacturer or taxable service provider, having credit balance in his account, can utilize that credit for payment of Service Tax on goods transport by road, as a consignor or as a consignee by answering that the service provided by a GTA, for which the consignor or consignee may be l