2013 (6) TMI 137 - AT - Service Tax

Cenvat Credit - input services - denial of the proportionate credit of Service Tax credit, on the ground that the appellant had written off the certain amount as bad debts from the books of accounts for which input services were utilised. - held that - Department is trying to co-relate the input services to the output services. It is settled law that there cannot be one to one co-relation in availing of the CENVAT Credit of the input service to the provision of output service. As per Rule 6 of Service Tax Rules, Service Tax is payable when the payment towards taxable services are received. No Service Tax is payable on that part of the payment which is not received. No Service Tax is payable on that part of the payment which is not received. There is no provision in the CENVAT Credit rules to deny proportional credit on the inputs which were used in providing the output service on which recovery is pending. The rule envisages reversal of credit wrongly utilized or erroneously refunded. In this case, the services rendered are taxable services. The credit of inputs/input services availed is utilized in providing taxable output services. Hence, there is nothing wrong in availing and utilization of the credit. Rule 14 does not envisage recovery of credit in situations where Service Tax recovery was pending and written off as bad debts later. - demand not sustainable - decided in favor of assessee.

Summary

Issues Involved:
Denial of proportionate credit of Service Tax credit due to write-off of bad debts.

Detailed Analysis:

Issue 1: Denial of Proportionate Credit
The appeal was against the Order-in-Appeal confirming the demand of CENVAT Credit amounting to Rs. 1,45,808 against the appellants under Section 73(1) of the Finance Act, along with interest and penalties imposed. The dispute arose from the appellants writing off certain amounts as bad debts in their books of accounts, leading to the demand for reversal of CENVAT Credit. The Department contended that the input services were utilized, but the output services were not paid for by some recipients, resulting in the write-off. The Department argued that as per Service Tax Rules, if the amount is not received, the Service Tax liability need not be discharged, leading to the reversal of CENVAT Credit.

Issue 2: Co-Relation of Input and Output Services
The Department attempted to correlate the input services with the output services, emphasizing the need for proportional credit denial due to bad debts write-off. However, it was established that there is no one-to-one correlation required for availing CENVAT Credit concerning the provision of output services. The first appellate authority correctly noted that the inputs were used in providing taxable output services, and the utilization of credit was legitimate. The authority highlighted that Rule 14 of the CENVAT Credit Rules does not mandate credit recovery in cases where Service Tax recovery is pending and later written off as bad debts.

Conclusion:
The Tribunal rejected the Department's appeal, upholding the Order-in-Appeal's decision. It was concluded that the appellants were not liable to reverse the proportional credit on the bad debts written off, as the credit availment and utilization were in compliance with the law. The judgment emphasized that there was no merit in the allegation of wrongful credit utilization, leading to the dismissal of the appeal and disposal of the cross objection in favor of the respondent.