2014 (12) TMI 913 - AT - Service Tax

CENVAT Credit - appellant has taken Cenvat credit on the basis of proper cenvatable documents but during the course of Audit it was observed that the service providers did not pay the required service tax - Held that - It is evident from the provisions contained in Rule 4(7) of the Cenvat Credit Rules that Cenvat credit in respect of input services has to be allowed for the service tax paid or payable as indicated in the invoice, bill or, challan referred to in Rule 9 of the Cenvat Credit Rules. There is no provision in the Cenvat Credit Rules that if any amount of service tax shown to have been paid or payable in the duty paying document is not paid by the original manufacturer or the service provider, then Cenvat credit taken is required to be varied at credit taking end. To clarify this matter further it is observed that C.B.E. & C. under Circular No. 766/82/2003-CX., dated 15-12-2003, issued vide No. 201/45/43-CX, has given clarification and made amply clear that the recipient of the inputs/input services should not be asked to reverse the Cenvat credit availed in such cases so long as the bona fide nature of the consignee s transaction is not in dispute. In the case of the appellant there is no evidence that the transaction between the service provider and the service recipient was not bona fide. At the time of receiving of duty paying document appellant cannot be expected to verify whether proper service tax has been paid by the appellant or not. In view of the above after allowing the stay applications/appeals themselves are taken up for final disposal. - For the reasons recorded above when service tax credit has been taken on the basis of valid documents by the appellant the credit is required to be allowed in view of Rule 4(7) of the Cenvat Credit Rules which has also been clarified under C.B.E. & C. Circular dated 15-12-2003 by the Revenue - Decided in favour of assessee.

Summary

Issues involved:
Appellant's appeal against Orders-in-Appeal upholding Orders-in-Originals regarding Cenvat credit based on service tax payment by service providers.

Detailed Analysis:

1. Issue of Cenvat Credit:
The appellant took Cenvat credit based on proper cenvatable documents, but it was later found during an audit that the service providers had not paid the required service tax. The Adjudicating Authority and the first Appellate Authority decided against the appellant on this issue.

2. Appellant's Argument:
The appellant argued that Rule 4(7) of the Cenvat Credit Rules allows credit based on documents showing service tax paid or payable. They also cited a circular stating reversal proceedings cannot be initiated against the recipient of input services.

3. Revenue's Stand:
The Revenue, represented by Sh. K.J. Kinariwalla, supported the decisions of the Adjudicating Authority and the first Appellate Authority.

4. Judicial Review:
The issue revolved around whether Cenvat credit taken by the recipient could be altered if the service providers had not paid proper duty. Rule 4(7) of the Cenvat Credit Rules was examined to determine the applicability of the credit.

5. Legal Interpretation:
Rule 4(7) mandates that Cenvat credit for input services is allowed based on service tax indicated in the relevant documents. There is no provision to vary credit if the service tax is not paid by the provider. A circular further clarified that the recipient should not reverse credit unless the transaction's bona fide nature is in question.

6. Court's Decision:
Since the appellant took credit based on valid documents and there was no evidence of non-bona fide transactions, the credit was allowed as per Rule 4(7) and the circular. The appeals by the appellant were allowed, emphasizing the importance of following the rules and circulars in such cases.

This judgment highlights the significance of following the provisions of the Cenvat Credit Rules and related circulars when dealing with Cenvat credit based on service tax payments by service providers. The decision underscores the importance of bona fide transactions and the recipient's reliance on valid documents for claiming credit.