2010 (12) TMI 649 - AT - Service Tax

Cenvat credit - Rule 15 of the Cenvat Credit Rules, 2004 - whether the service tax credit on the basis of invoices dated 6-8-2004 and 8-9-2004, issued by the service providers was available to the appellant, when the service tax in respect of these invoices had been paid by the service providers after 10-9-2004 as the complete payment had been received only after 10-9-2004 - The service tax credit in respect of service received prior to 10-9-2004 would be governed only by the transitional provisions of sub-rule (1) of Rule 11 and in terms of sub-rule (1) of Rule 11, the service tax credit in respect of services received prior to 10-9-2004 would be available only to service provider, as prior to 10-9-2004, a manufacturer was not entitled for credit of service tax paid on any input services - neither in terms of the transitional provisions of Rule 11(1) nor in terms of 3(1) of Cenvat Credit Rules, 2004, the credit of service tax would be available - since this is a case of taking wrong Cenvat credit, normal penalty under Rule 15(1) would be applicable - Decided against the assessee

Summary

Issues:
1. Availability of service tax credit to the appellant for services received before 10-9-2004 but with payment made after that date.
2. Interpretation of Cenvat Credit Rules, 2004 regarding transitional provisions and eligibility for service tax credit.

Analysis:
1. The appellant, a manufacturer of refrigerator door gaskets and ferrite magnets, availed Cenvat credit for service tax paid on input services received in August and September 2004. The service tax was paid by the service providers after 10-9-2004, when the payment was received by them. The central excise audit objected to this credit, resulting in its reversal in 2006. The appellant re-credited the amount based on legal advice and informed the department. A show cause notice was issued in 2007 seeking recovery of the credit, interest, and penalty. The dispute centered around whether the appellant was entitled to the credit due to the timing of service receipt and payment.

2. The appellant argued that Rule 4(7) of the Cenvat Credit Rules, 2004 allowed credit when payment was made to the service provider after 10-9-2004. They also cited Rule 11(1) for unutilized credit earned before 10-9-2004. The department contended that Rule 3(1) restricted credit to services received on or after 10-9-2004. The service tax credit for services pre-10-9-2004 was only available to service providers under Rule 11(1). The Tribunal found that as the services were received before 10-9-2004, the appellant was not entitled to the credit under transitional provisions or Rule 3(1). Despite upholding the credit demand, the penalty was reduced due to the appellant's disclosure, avoiding a charge of suppression of facts.

This detailed analysis of the judgment outlines the key issues, arguments presented by both sides, relevant legal provisions, and the Tribunal's decision, providing a comprehensive understanding of the case.