2017 (5) TMI 330 - AT - Central Excise

CENVAT credit - job-work - The case of the department is that the Cenvat credit on production or processing of goods is not liable to be paid by the job worker as service provider as the same was exempted under N/N. 8/05-ST dated 1-3-2005 - Held that - From the combined reading of both the provisions of Section 93 and Section 5A of CEA, it is an option to the assesee in service tax whether to avail exemption notification or to pay service tax - In the present case the service tax provider i.e. job worker has opted to pay service tax without availing the exemption N/N. 8/05-ST which cannot be objected, therefore service tax paid by the job worker is correct and legal therefore the Cenvat credit availed by the appellant cannot be disallowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Disallowance of Cenvat credit on production or processing of goods due to exemption under Notification No. 8/05-ST.
- Criteria for allowing Cenvat credit irrespective of service tax liability.
- Interpretation of Section 93 and Section 5A of the Central Excise Act regarding exemption notification.

Analysis:
1. The issue in this case revolves around the disallowance of Cenvat credit on the production or processing of goods by a job worker due to exemption under Notification No. 8/05-ST. The appellant availed Cenvat credit for input services provided by the job worker under Business Auxiliary Services. The department argued that since the service was exempted, the service provider wrongly paid service tax, making the Cenvat credit inadmissible.

2. The appellant's counsel argued that the payment of service tax by the service provider should not be the sole criterion for allowing Cenvat credit. As long as the service tax is paid and utilized in manufacturing or providing output services, the credit should be available. The counsel cited various judgments to support this argument.

3. On the other hand, the Revenue contended that since the job worker paid service tax on the exempted services, the credit should be denied. The Revenue relied on specific judgments to support their position.

4. The Member(Judicial) carefully considered both sides' submissions and analyzed the provisions of Section 93 and Section 5A of the Central Excise Act. The Member noted that the exemption notification provides an option for the assessee to either avail exemption or pay service tax. In this case, the job worker chose to pay service tax without availing the exemption, making the payment correct and legal.

5. The Member further emphasized that the Cenvat credit rules do not impose a condition that credit cannot be allowed for service tax paid on exempted or non-taxable services. As long as the service tax is paid, documented, and used in manufacturing or output services, the Cenvat credit is admissible. Therefore, the Member concluded that the Cenvat credit is legally permissible, and the impugned order disallowing the credit was set aside, allowing the appeal.

6. The judgment was pronounced on 26/4/2017 by the Appellate Tribunal CESTAT MUMBAI, with the Member(Judicial) delivering the decision.