Brief Facts of the Case:In exercise of the powers vested under Section 84 of the Finance Act,1994, (hereinafter referred

to as the Act), this Revision Order is passed to revise Order-in-Original No.40/DC/ST/07 date 28.03.2007 (hereinafter referred to as the said Order-in-Original) passed by the deputy Commissioner, Central Excise Division, Phagwara (hereinafter referred to as the Adjudicating authority) in case of M/s. Dhillon Kool Drinks and Beverages Limited, G.T. Road,Phillaur (hereinafter referred to as the Noticee) vacating the demand of service tax of Rs.91,986.

2. Fact of the case are the notice in the terms of provision of Section 70 of the Act, read with the provision of rule 7 of the Service Tax Rules, 1994 (hereinafter referred to as the Rules,) filed ST-3 returns with the department for the period 01.01.05 to 31.03.05 on 25.04.04 and for the period 01.04.2005 to 30.09.2005 on 07.10.2005. On scrutiny of these service tax Returns (ST-3) it has been observed hat the notice has not been discharged their service tax liability for the period 01.01.05 to 31.03.05 amounting Rs.30, 193/- and for the period of 01.07.05 to 30.09.05 amounting to Rs.61, 793/-in cash by way of TR-6 rather they have debited wrongly availed service tax credit from the Service Tax Credit Account, which is not permissible in the view of above referred clarification. Since input service credit is not inadmissible to the person who is neither output service provider nor a manufacturer of final product the notice have wrongly availed inadmissible service credit which resulted into non-payment of service tax. From the above it appeared that the notice have not paid service tax amounting to rs.91, 986/and contravened the statutory provision of section 68 of the Act, read with the provision of Rule 6 of the Rules.

3. Accordingly, the Notice was issued show cause notice vide C. No. ST20/PHG/STC/SCN/DKDBL/23/06/905 dated 07.0.2006 asking them to explain as to why service tax amounting to Rs.91, 986/- should not be recovered from them under Section 73 along with interest, under Section 75 of the Act and why penalty should not be imposed upon them under the provision of Section 76 of the Act for the contravention of the provisions of Section 68 of the Act, read with Rules 6 of the Rules.

4. The Deputy Commissioner, Central Excise Division, Phagwara vide his Oder-in Original dated 28.03.2007 adjudicating the show cause notice issued in this regard and dropped the demand of Rs.91, 986/- against the notice of the grounds that the Noticee is demand as output service provider and that there is no allegation in the SCN that the credit earned by the Noticee

under the Credit Rule is not admissible to them the notice is admissible to them the Noticee is entitled to utilize the Cenvat credit for the payment of service tax on the output services.

5. The Order-in-Original does not appear to be legal and proper and appears to be liable to be revised under the provisions of Section 84(1) of the Act on the following grounds:i) The Adjudicating Authority has quoted Rule 3 (4) of Cenvat credit rules 2004 and has concluded that Cenvat Credit can be utilized for the payment of Service Tax on any output service. However, the said Rule is common Rule for utilization of Cenvat Credit both for manufacturer and service provider, whereas the Noticee in the instant case is actually a service provider of GTA services and not a service provider though liable to pay s on the service tax on the services of GTA services received by then by the virtue of Rule 2(1)(d)(v) of the Rules a amended, by notification no.35/2004/ST dated 3.2.04.

ii) Even otherwise, if a person is acting in a dual capacity i.e. both manufacturer and service provider, the he has to obtain separate registration as manufacturer under Rule 9 of Central Excise Rules 2009 as well as service provider under Section 69 of the Act. Separate returns are also required to be filed in his capacity as manufacturer in terms of Rule 12 of the Central Excise Rules 2002 and Rule 9 (7) of Cenvat Credit Rules 2004. Similarly, as a service provider, he has to return a file under Section 70 of the Act. When the registrations are under different Acts and the returns are separating under different Acts, the Cenvat credit accounts have to be separate. In other words as a manufacturing concern, he has a separate Cenvat credit balance and as a service provider, is having separate credit balance. Both their credit balance cannot be intermixed. Therefore, credit standing in the Cenvat credit account in his capacity as manufacturer cannot be allowed to be utilized for the payment of service tax liability.

iii) The Central Board of Excise and Customs, New Delhi has also clarified vide Circular No.345/4/2005-TRU dated 03.10.2005, specifically in relation to the recipients of Goods Transport Agency Services, where a person is not a service provider, but discharge ser ice tax liability as per the Rule 2(v) of Rules read with section 68(2) of the Act that recipients of taxable services even if they discharge their service tax liability under Section 68 (2) of the Act are not entitled to avail the credit of the service tax paid on the taxable services received by them.

iv) The relevant paras of CBEC Circular No.345/4/2005-TRU dated 03.10.2005 is reproduced below:-

In the present case, the person is 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 cannot be used either for providing output services or manufacturer of final excisable products. 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 manufactures 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 services no the manufacturer of final product as required under the Cenvat Credit Rules, 2004. The terms final product or 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 the provision of 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.

v) Central Board of Excise and Customs also issued a master Circular No.97/8/2007 dated 23.08.2007 to provide clarifications in respect of procedural issues Service tax. In para 8.1 of this circular, it was clarified that Consignor of the Consignee, where liable to pay service tax he has to pay the same in cash on goods transport service. The relevant text of this circular is reproduced below:-

In terms of Rule 3 (4) of the Rules, Cenvat credit can be utilized for the following payments:a) b) c) d) Any duty of excise payable on any final product. ... . Service tax on ay output service.

In terms of the Cenvat Credit Rules, output service means any taxable service provided by the provider of taxable service to the service receiver. Further, the definition of provider of taxable service includes a person liable to pay service tax. Therefore, reading the two definitions in consumption, it is clear, to form output service, taxable service has to be actually provided by the provider of the taxable service. Even if due to a legal fiction, a consignor or a consignee qualifies to fall under a definition of a person liable to pay service tax (and consequently a provider of taxable service), it cannot be said that he has actually provided any taxable service. The service is provided by Goods Transport Agent (GT A) for which the consignor or the consignee is made liable to pay service tax does not become an Output Service for such consignor or the consignee. Therefore, the service tax payable by the consignor or the consignee on transportation of goods by road cannot be paid to credit accumulated by such consignor or the consignee. For example, a manufacturer of steel sheets procures duty paid steel ingots as input and avails Cenvat Credit of the excise duty paid on ingots. He clears his finished goods i.e. steel sheets on the payment if excise duty and sends the same to his customers, engaging the service of goods transport agency. However, the input credit taken on steel ingots cannot be used for the payment of service tax applicable to goods transport agency. The reason is that the manufacturers (consignor) are not the service provider. The transport service is being provided by the goods transport agency and the excise assessee pays the service tax only for the reason that the liability for payment of service tax has been shifted to the service receiver. Accordingly, the consignor or the consignee has to be pay service tax in cash on goods transport by road service. vi) The noticee is a manufacturing unit and not a goods transport company. The noticee in the instant case is actually a receiver of GTA services and not service provider, though substitutionally liable to pay service tax on the services of GTA (received by them), by virtue of Rule 2 (1) (d) (v) of Rules. Therefore, the input service on which the noticee had availed credit has not gone in providing the services of the GTA as the same were not provided by them. Thus, the credit of input service is not to be utilized for the payment of service tax on an input service, which a noticee is vicariously liable to pay. vii) A holistic interpretation reveals that a deemed service provider, by virtue of a legal fiction cannot be stretched and assumed and presumed to be and to be an actual service provider so the availment of such credit appears to be ab-initio void.

6. It thus, prima facie appears that service tax of Rs.91, 986/- along with interest is demandable in this case under section 73 and 75 of the act for the non-payment of service tax and appropriate penalty is require to be imposed under section 76 for failure to pay service tax. II. REPLY TO THE SHOW CAUSE NOTICE

7. The notice filed there written reply to the show cause notice on 11.11.08, submitted there under that:-

i) That the show cause notice is hyper technical, nugatory without force of law and is in utter disregard to the substantive law and the judicial discipline on the subject and therefore needs to be dropped in entirety so that the ends of justice and equity, the corner pillars of quasi judicial system ultimately stands the day.

ii) That the noticee craves the leave to submit that the service tax on the goods transport operator was levied w.e.f. 01.01.2005 and the issue as regard the person liable to pay tax as well as the manner of payment of the tax remained a grey area for long. Even some of the departmental authorities were of the view that the service tax in respect of goods transport operator could be paid through Cenvat account by the Central Excise licenses. Since there was no clarification on the issue, the noticee paid some portion of the service tax liability through Cenvat account. Here the noticee craves leave to submit that the point which requires determination in present proceedings in whether the noticee requires discharging their service tax liability on inward and outward freight under the category of Goods Transport Agency from the Cenvat account liability was required to be discharged only through cash. Rule 3 (4) of the Cenvat Credit Rules, 2004 lays down the manner in which the credit may utilized it reads as under:-

(4) The Cenvat credit may be utilized for payment of(a) Any duty of excise duty on any final product; or (b) An amount equal to Cenvat credit taken on inputs if such inputs are removed as such after being partially processed; or (c) An amount equal to Cenvat credit taken to capital goods if such capital goods are removed as such; or (d) An amount under sub rule (2) of rule 16 of central excise rules, 2002; or

(e) Service tax on any output service:

Now a perusal of the provision of the Rule 3(4) of Cenvat Credit Rules reproduced above reveals beyond iota of doubt that the Cenvat credit may utilized for the payment of service tax inter alia on any output service. Further Rule 2(p) of Cenvat Credit Rules, 2004 defines that output service as below:-