2018 (7) TMI 522 - AT - Central Excise

CENVAT Credit - credit on retained amount - from each of the progressive bills raised by the contractors during the execution of the contract, the respondents used to deduct certain percentage as retention amount and made the balance payment to the contractors - whether CENVAT Credit is allowed on this retained amount - Rule 4(7) of CCR 2004 - Circular No. 122/3/2010-ST dated 30.4.2010 - Held that - There is no dispute regarding the fact that though the respondent retained a part of the value of services, however, no part of the service tax reflected in the invoices was ever retained by the Respondent. Respondent has paid the service tax on entire invoice value - The credit of full service tax paid by the service provider in respect of services provided would be available even if amount payable to the service provider has been withheld so long as the service tax paid by the service provider has not changed. Therefore, the credit is admissible to the respondent. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Admissibility of Cenvat credit for service tax paid by the respondent on retained amounts.
- Interpretation of Rule 4(7) of Cenvat Credit Rules, 2004.
- Application of Circular No. 122/3/2010-ST dated 30.4.2010.

Analysis:
1. The case involved a dispute regarding the admissibility of Cenvat credit for service tax paid by the respondent on retained amounts from invoices. The respondent, engaged in manufacturing, withheld certain percentages from payments to contractors for performance guarantees. The Department issued show cause notices seeking the demand of proportionate Cenvat credit. The adjudicating authority confirmed the demand, leading to appeals by the respondent.

2. The key issue revolved around the interpretation of Rule 4(7) of Cenvat Credit Rules, 2004, and Circular No. 122/3/2010-ST dated 30.4.2010. The rule states that credit for input service shall be allowed after payment of the value of the service and service tax. The Circular addressed scenarios where the final payment differs from the invoiced amount. The Department argued that full payment within three months of the invoice is mandatory for credit, emphasizing the word 'shall' in the rule.

3. The learned AR for the appellant contended that the rule's language mandates full payment within three months for credit eligibility. The appellate authority was criticized for disregarding this requirement. The AR highlighted that the Circular was not applicable to retained amounts for performance guarantees, emphasizing the pre-amendment context of the Circular.

4. In contrast, the respondent's counsel cited a Tribunal decision in the respondent's favor based on the Circular. The Tribunal's previous orders favored the respondent, emphasizing that as long as the service tax paid by the provider remains unchanged, credit is permissible even if the payment to the provider is withheld. The respondent had paid the full service tax on the invoices, supporting the admissibility of credit.

5. Ultimately, the Tribunal upheld the impugned order, dismissing the Department's appeal. The decision was based on the fact that the respondent paid the full service tax on the invoices, making the credit admissible despite retaining amounts. The order highlighted the importance of service tax payment and maintained consistency with previous Tribunal decisions in the respondent's favor.