Denial of JSW Steel’s CENVAT Credit on GTA Services Solely on Rule 2(p) Amendment and Abatement Notifications is Legally Unsustainable: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chennai has set aside a demand of ₹139.2 crore, ruling that the denial of CENVAT credit for Goods Transport Agency (GTA) services based solely on the 2008 amendment to Rule 2(p) and abatement notifications was legally unsustainable.

The appellant, JSW Steel Limited, filed the appeal. The matter arises from the fact that the Commissioner of GST & Central Excise had disallowed credit availed between April 2008 and August 2012, imposed equal penalties, and invoked the extended period of limitation. Two show cause notices alleged that GTA services ceased to qualify for credit after March 2008.

The appellant argued that the 2008 amendment to Rule 2(p) of the CENVAT Credit Rules only affected the utilisation of credit for payment of service tax on GTA services, not the eligibility to claim such credit, and that GTA services continued to qualify as “input services” under Rule 2(l) even after the 2008 amendment, which only affected utilisation under Rule 2(p).

It is also pointed out that the show cause notices were limited to the Rule 2(p) amendment, while the Commissioner introduced new grounds about “place of removal,” going beyond the notices. They strengthened their arguments with several judicial precedents, as well as Supreme Court rulings clarifying that interpretational disputes cannot amount to suppression.

The respondent argued that after 01.03.2008, GTA services were expressly excluded from the definition of “output service” under Rule 2(p). For that reason appellant could not avail CENVAT credit on tax paid for such services. They maintained that service tax on GTA was payable only on 25% of freight under abatement notifications, subject to the condition that no CENVAT credit was availed.

It was argued that JSW Steel had availed huge credits contrary to statutory provisions, and the irregularity came to light only during the audit

The tribunal held that the denial of CENVAT credit on GTA services solely based on the amendment to Rule 2(p) of the CENVAT Credit Rules, 2004 and the conditions contained in the abatement notifications is legally unsustainable

The amendment to Rule 2(p) only withdrew the facility of using credit to pay GTA tax, not the eligibility to claim it and Abatement notifications imposed restrictions on service providers, not recipients.

The tribunal clarified that only minor civil penalties under Rule 15(1) could apply if ineligible credit is found after remand. Penalties under Section 11AC were set aside.

The bench of P. Dinesha (judicial member), Vasa Seshagiri Rao ( technical member) held that the appeal is thus allowed by way of remand, with consequential relief in accordance with law. Interest and penalties, if any, will be determined only after re‑examination.

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