2018 (11) TMI 846 - AT - Service Tax

CENVAT Credit of service tax paid - outstanding dues - restriction under Rule 4(7) - Department observed that the Appellant is not making full payment of the value of the input services received by them from their contractor, and retaining the part payment of service provider on account of performance guarantee - Rule 4 (7) of Cenvat Credit - Held that - Rule 4 (7) of CCR stands amended w.e.f. 1st April, 2011 and after the said amendment taking of Cenvat Credit is not linked with the payment of invoice to the service provider but it is linked with the invoice/bill/challan of input service. Though the grievance of the Department seems that irrespective, the payment was still to be made within 3 months, but we observe that since the respondent had paid the entire Service Tax on which they were liable for taking the credit i.e. on the amount as mentioned in the Bill/invoice, they were entitled to avail credit. The circular No.122/03/2010- ST dated 30th April, 2010 further clarifies the situation that the Service Tax paid is allowed as credit. Credit allowed - appeal dismissed - decided against Revenue.

Summary

Issues:
- Whether the appellant wrongly availed Cenvat Credit of Service Tax paid on input services.
- Whether the appellant is entitled to avail the credit of full Service Tax paid despite withholding part payment to the service provider.
- Interpretation of Rule 4 (7) of Cenvat Credit Rules regarding the linkage of Cenvat Credit with payment of invoice to the service provider.

Analysis:
- The appeal was against the Commissioner (Appeals) order alleging that the appellant did not make full payment of input services, retaining part payment for performance guarantee, thus wrongly availing Cenvat Credit. Various show cause notices were issued and initially confirmed, but the Commissioner (Appeals) allowed the appeal, leading to the Department's appeal.
- The Department argued that credit can only be allowed when full payment of input services and Service Tax is made within a specified time. They emphasized Rule 4 (7) of Cenvat Credit Rules, stating that failure to make timely payment requires repayment of Cenvat credit.
- The appellant cited previous Tribunal decisions where they were allowed to avail the credit of full Service Tax paid, regardless of withheld payments to the service provider. They argued that the Department's appeal should be rejected based on these precedents.
- The Tribunal found that the appellant had paid the Service Tax on the entire contractor payment, making them eligible for Cenvat Credit on the paid amount. The issue was whether withholding part payment affected the credit entitlement under Rule 4 (7) of Cenvat Credit Rules.
- Rule 4 (7) was amended, delinking Cenvat Credit from payment to the service provider, linking it instead to the invoice/bill/challan of input service. The Tribunal noted that the appellant paid the Service Tax on the amount mentioned in the invoice, making them eligible for credit. A circular further clarified that credit is based on the Service Tax paid.
- The original adjudicating authority confirmed the demand due to lack of evidence of full payment within the stipulated period. However, the Tribunal found that the entire amount was paid within the required time, even if some was retained until the project's completion.
- Relying on previous decisions with similar facts and involving the same appellant, the Tribunal dismissed the Department's appeal, stating that the credit of full Service Tax paid is admissible even if part payment to the service provider is withheld, as long as the Service Tax paid remains unchanged.