2010 (12) TMI 342 - AT - Service Tax

Stay order - Waiver of interest and penalties - Cenvat credit to the service recipient - Circular No. 122/3/2010-S.T. dated 30-4-2010, clarifies that mere fact that the service recipient has cleared the duties of the service provider partially, that itself would not be justification to deny the benefit of Cenvat credit to the service recipient in relation to such service tax paid on invoices issued by the service provider and when in fact entire duty has already been discharged by the service provider - Hence, prima facie case has been made for stay of the order - Accordingly, stay application is allowed and the amount demanded under the impugned order is waived till disposal of the appeal.

Issues: Stay of recovery of cenvat credit - Interpretation of Rule 4(7) of Cenvat Credit Rules, 2004 - Applicability of Circular No. 122/3/2010-S.T.

In this judgment by the Appellate Tribunal CESTAT, New Delhi, the appellants sought a stay of the order for the recovery of cenvat credit amounting to Rs. 60,51,237/- along with interest and penalty. The dispute arose from the appellants availing credit without fully paying the dues to the service provider, even though the duty element on the invoices was discharged, and the credit was restricted to the duty amount. The impugned order relied on Rule 4(7) of the Cenvat Credit Rules, 2004, while the appellants referenced Circular No. 122/3/2010-S.T. dated 30-4-2010. The Circular clarified that partial payment by the service recipient does not justify denying Cenvat credit if the service provider has discharged the entire duty. The Tribunal found a prima facie case for granting a stay of the recovery order based on this interpretation. Thus, the stay application was allowed, and the demanded amount was waived pending the appeal's disposal.

The key issue in this case was the interpretation of Rule 4(7) of the Cenvat Credit Rules, 2004, concerning the availing of cenvat credit without full payment to the service provider. The impugned order justified the recovery based on this rule, while the appellants relied on Circular No. 122/3/2010-S.T. dated 30-4-2010, which clarified the conditions for availing credit even with partial payment. The Circular emphasized that if the service provider had discharged the duty in full, the service recipient should be entitled to the credit, regardless of partial payment. This interpretation was crucial in determining whether the appellants were eligible for the cenvat credit despite not fully paying the service provider.

The Tribunal's analysis focused on reconciling the provisions of Rule 4(7) of the Cenvat Credit Rules, 2004, with the guidance provided in Circular No. 122/3/2010-S.T. The Circular's clarification that partial payment does not preclude the service recipient from availing credit if the service provider has paid the full duty was pivotal. By aligning this interpretation with the facts of the case where the duty element on invoices was fully discharged, the Tribunal found a prima facie case for granting a stay of the recovery order. This decision underscored the importance of considering the full context of payment and duty discharge in determining the eligibility for cenvat credit, as outlined in the Circular.

Overall, the judgment delved into the nuances of cenvat credit rules and the implications of partial payment on credit eligibility. By examining the specific circumstances of the case in light of Rule 4(7) and Circular No. 122/3/2010-S.T., the Tribunal provided a comprehensive analysis to justify granting a stay of the recovery order. The decision highlighted the significance of ensuring that service recipients are not unduly penalized for partial payments when the service provider has fulfilled their duty obligations, emphasizing a balanced approach to cenvat credit entitlement and recovery proceedings.

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