2013 (8) TMI 497 - AT - Service Tax

Cenvat credit of service tax - Rule 4(7) - Proportionate credit equal to amount received - certain amount withheld by the recipient of services while making payment to service provider - Rule 4 (7) of the Cenvat Credit Rules, 2004 states that the Cenvat credit in respect of input services shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable, as is indicated in the invoice, bill or as the case may be, challan referred to in Rule 9 - Held that - According to the Board s Circular No. 122/3/2010-ST dated 30/4/10, credit of full service tax paid by a service provider in respect of service provided to a manufacturer would be available to the manufacturer even if the amount payable to the service provider has been reduced, so long as the service tax paid by the service provider has not changed Decided against the Revenue. Rule 4(7) had been framed to prevent a situation where while on the basis of the invoice issued by a service provider in respect of some service provided or to be provided, the service recipient takes the Cenvat credit, even though the service provider has not paid the service tax for the reason that for some reasons, there is delay in receipt of payment by him from the service recipient. Rule 4 (7) would be applicable only in a situation where though the service provider has issued the invoice, but he has not paid the service tax. But where there is no dispute that service tax has been paid by the service provider on the full invoice value, even though he has not received full payment from the service recipient and part of the payment due to him has been withheld by the service recipient due to some reason, this rule would not be applicable. Moreover, it is also not the department s case that the amount withheld was never paid or that the service providers subsequently sought and obtained refund of the service tax amount not reimbursed to them by the respondent. When the service tax paid by the service provider has not varied, the Cenvat credit also cannot be reduced. - Full claim of credit allowed - Decided in favor of assessee.

Summary

Issues:
Dispute over Cenvat credit of service tax in respect of certain input services received by manufacturers of zinc. Interpretation of Rule 4 (7) of the Cenvat Credit Rules, 2004 regarding the allowance of Cenvat credit when a part of the billed amount is retained as performance guarantee.

Analysis:
The appeal by the Revenue concerns the dispute regarding the Cenvat credit of service tax in relation to certain input services received by the manufacturers of zinc. The issue revolves around the interpretation of Rule 4 (7) of the Cenvat Credit Rules, 2004, which states that the Cenvat credit for input services shall be allowed after the payment is made of the value of the input service and the service tax indicated in the invoice. The Revenue sought to disallow the proportionate amount of Cenvat credit corresponding to the billed amount retained by the manufacturers as performance guarantee. A show cause notice was issued for the recovery of the allegedly wrongly availed service tax Cenvat credit. The Assistant Commissioner confirmed the demand, but the Commissioner (Appeals) set aside this decision, relying on a Board's Circular and a Supreme Court judgment. The Revenue appealed against this decision.

The main argument presented by the Revenue was that the availability of Cenvat credit should be governed by the plain language of Rule 4 (7) of the Cenvat Credit Rules. They contended that since the full payment for the input service had not been made by the manufacturers at the time of availing the Cenvat credit, the credit should not be allowed for the proportionate amount. On the other hand, the manufacturers argued that the service providers had paid the full service tax on the invoice value, even though they did not receive the full billed amount immediately. They relied on a Board's Circular which clarified that Cenvat credit should be allowed if the service provider had paid service tax on the full amount receivable.

The Tribunal analyzed the submissions from both sides and examined the Board's Circular dated 30th April 2010. The Circular addressed issues related to the availment of Cenvat credit in cases where the receiver of the service does not pay the full invoice value due to various reasons. It clarified that credit should be allowed if the service charges and service tax have been paid in any prescribed manner, regardless of the form of payment. The Circular also specified that if the service provider has paid the full service tax on the service provided, the manufacturer is entitled to take the full credit, even if the amount payable to the service provider has been reduced.

The Tribunal further explained that Rule 4 (7) of the Cenvat Credit Rules aimed to ensure that service tax is paid by the service provider before the recipient claims the credit. However, in cases where the service provider has paid the service tax on the full invoice value, even if the recipient has not paid the full amount immediately, the rule does not apply. The Tribunal highlighted that the department did not claim that the withheld amount was never paid or refunded by the service providers. Therefore, the Tribunal dismissed the Revenue's appeal, emphasizing that the Board's Circular was not contrary to the law and that the Cenvat credit cannot be reduced if the service tax paid by the service provider remains unchanged.