2010 (12) TMI 328 - AT - Service Tax

Demand - In the present case, the appellants undisputedly have taken the credit based on invoices from the service provider and without making payment of service charges and service tax - There is no allegation or finding that the provider of service from whom the appellants have received the services are not genuine or that they are not registered with the excise department - During the interim period i.e. between the date of taking credit and the date of payment to the service provider, the appellants have enjoyed the monetary benefit and therefore the demand of interest for this period as held by the original authority deserves to be upheld - Denial of credit set aside while confirming Interest and penlty.

Summary

Issues:
Appeal against order confirming demand of duty by denying service tax credit and imposing penalty.

Analysis:
The case involves an appeal against the order of the Commissioner (Appeals) upholding the demand of duty by denying service tax credit and imposing a penalty. The appellant received input services during a specific period but paid the service charges and service tax at a later date. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals).

The appellant argued that they were not familiar with the law and mistakenly took credit for service tax based on invoices before making the actual payment. The appellant contended that they were eligible for the credit as they eventually paid the service charges and tax to the provider. The appellant relied on a Tribunal decision where a similar mistake was condoned and credit was allowed upon regularization.

The respondent pointed out Rule 9(3) of the Cenvat Credit Rules, 2004, stating that recipients must take precautions before taking credit. The respondent argued that the appellant violated Rule 9 by taking credit without paying the service charges and tax initially, making the subsequent payment insufficient to rectify the mistake.

The Tribunal analyzed the differences between taking credit for inputs and input services. While payment to the supplier is not a pre-condition for taking credit on inputs, for services, payment of service tax by the provider is linked to receiving service charges. In this case, the appellant took credit without making the initial payment but later settled the charges. The Tribunal held that upon payment to the service provider, the appellant would be eligible for credit but upheld the demand for interest during the interim period when the credit was utilized. The penalty imposed on the appellant was also upheld.

In conclusion, the Tribunal set aside the denial of credit considering the subsequent payment made by the appellant to the service provider. However, the interest for the period of wrongful credit utilization and the penalty were upheld.