2016 (6) TMI 1299 - AT - Central Excise

Refund claim - wrongly availed CENVAT credit - Rule 4(7) of CCR 2004 - Held that - at the time of sanction of refund when the service charges and service tax stood paid to the service provider the refund cannot be denied for the reason that the appellant was not entitled for the CENVAT credit initially. But after payment of service charges and service tax to the service provider they became entitled for the CENVAT credit and the sanction of refund claim thereafter cannot be disputed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Refund claim rejection on the grounds of premature availing of Cenvat credit.

Analysis:
The appellant filed an appeal against the rejection of a refund claim amounting to &8377; 17,57,529 by the Commissioner (Appeals) Central Excise, Pune-I. The rejection was based on the appellant availing credit before making payment of service value and service tax to the service provider, which was deemed a contravention of Rule 4(7) of Cenvat Credit Rules 2004. The Commissioner held that Cenvat credit could only be availed after such payments, thus disallowing the refund claim under Rule 5 of Cenvat Credit Rules 2004. The appellant challenged this decision before the Tribunal.

The appellant's representative argued that although the service charges and service tax were not paid to the service provider at the time of taking credit, they were subsequently settled. Therefore, the refund should not be denied based on the initial credit availing. Reference was made to a Tribunal judgment in the case of Gujarat Pipavav Port Ltd. Vs. Commissioner of Central Excise, Bhavnagar 2009 (14) STR 53 (Tri.-Ahmd.) to support this argument.

After considering the submissions from both sides and examining the records, the Tribunal found that while the initial credit availing was premature, the subsequent payment of service charges and service tax entitled the appellant to the Cenvat credit. The Tribunal relied on the Gujarat Pipavav Port Ltd. case, which emphasized that premature availing of credit should not be a reason for denial, and at most, interest could be charged. In the present case, as the credit was only utilized for the refund claim under Rule 5 and not for service tax payment, the Tribunal concluded that even interest was not applicable. Therefore, the Tribunal modified the impugned order and allowed the appeal.

In light of the Gujarat Pipavav Port Ltd. case and the specific circumstances of the present case, the Tribunal held that the appellant's entitlement to the refund claim should not be denied solely based on the premature availing of Cenvat credit. The Tribunal emphasized that the subsequent payment of service charges and service tax rectified the initial lapse, allowing the appellant to claim the refund without penalty or interest implications.