2018 (2) TMI 636 - AT - Central Excise

CENVAT credit - bill discount service - denial on the premise that the said service is falling under negative list and on this negative list service the appellant cannot avail Cenvat credit - Held that - It is fact on record that appellant has received service on which service tax has been paid - in terms of Rule 3 of Cenvat Credit Rules, on the service, if service tax has been paid, the assessee is entitled to avail Cenvat credit. Admittedly, on the service in question the appellant has paid the service tax therefore, in terms of Rule 3 of Cenvat Credit Rules, 2004 the appellant has correctly availed Cenvat credit - appeal allowed - decided in favor of appellant.

Summary

Issues: Appeal against denial of Cenvat credit on bill discount service falling under negative list.

Analysis:
1. The appellant, a manufacturer of auto parts, appealed against the denial of Cenvat credit on bill discount service falling under the negative list. The dispute arose when the appellant availed Cenvat credit on discounts received from buyers, who were paying service tax on the discount amount. The authorities contended that since the service was in the negative list, the appellant was not entitled to Cenvat credit.

2. The appellant argued that the denial of Cenvat credit based on the service being in the negative list was contrary to the provisions of Cenvat Credit Rules, 2004. The appellant's contention was that nowhere in the rules does it state that if a service is in the negative list and service tax is paid by the provider, the assessee cannot avail Cenvat credit. The appellant challenged the adjudicating authority's findings on this matter.

3. The adjudicating authority issued a show cause notice on two grounds: first, that the service was not an input service as per Rule 2(l) of Cenvat Credit Rules, 2004, and second, that since the service was in the negative list, the service provider was not required to pay service tax. The authority did not provide a finding on the issue of input service, indicating that this point was not disputed and was held in favor of the appellant.

4. Upon hearing both parties, the tribunal found that the key issue was whether the appellant, despite the service falling under the negative list, was entitled to avail Cenvat credit since the service provider had paid the service tax. The tribunal referred to Rule 3 of Cenvat Credit Rules, which allows an assessee to avail Cenvat credit if service tax has been paid on the service received. Since the appellant had paid the service tax on the discount received, and it was not disputed that the service provider was not required to pay service tax, the tribunal concluded that the appellant correctly availed Cenvat credit.

5. Consequently, the tribunal set aside the impugned order, allowing the appeal and granting consequential relief to the appellant. The decision was based on the fact that the appellant had paid service tax on the service, making them eligible for Cenvat credit as per the rules.