2016 (12) TMI 268 - AT - Central Excise

CENVAT credit - input services - outstanding debtors - not making full payment of the billed amount and retaining with them a part of the amount billed by the service providers as performance guarantee - Held that - cenvat credit will be eligible to the respondent even though the part of the payment due to the service provider has been held by the respondent - appeal disposed off - decided against Revenue.

Summary

Issues:
Dispute over Cenvat credit of service tax on input services due to retention of payment by respondent. Interpretation of Rule 4(7) of Cenvat Credit Rules, 2004. Adjudication of show cause notice for recovery of allegedly wrongly availed service tax Cenvat credit. Appeal against order-in-original confirming Cenvat credit demand, interest, and penalty. Application of previous Tribunal decision in a similar case.

Analysis:
The respondent, a zinc manufacturer, availed Cenvat credit of service tax on input services but retained a portion of payment as performance guarantee. The dispute arose when the department sought to disallow Cenvat credit proportionate to the retained amount, invoking Rule 4(7) of Cenvat Credit Rules, 2004. A show cause notice was issued for recovery of allegedly wrongly availed service tax Cenvat credit. The Assistant Commissioner confirmed the demand, interest, and imposed a penalty. The respondent argued that since service providers paid service tax on the full invoice amount, Cenvat credit should be allowed. However, the Assistant Commissioner rejected this plea, stating that credit for the unpaid portion of service value is not admissible under Rule 4(7).

The appeals covered demands made in three order-in-originals, which were set aside by the Commissioner (Appeals). The Revenue challenged this decision, arguing that Rule 4(7) requires credit only after full payment to the service provider. The Tribunal considered both sides' submissions and cited a previous decision in the respondent's favor, where it was held that Cenvat credit is available even if payment to the service provider is retained. Referring to a Board's Circular, the Tribunal emphasized that credit of full service tax paid by a provider is available to the manufacturer, regardless of the reduced payment amount, as long as the service tax paid remains unchanged.

In conclusion, the Tribunal upheld the impugned order, rejecting the appeals filed by Revenue. The decision was based on the interpretation of Rule 4(7) and the application of the previous Tribunal ruling in a similar case, emphasizing that full service tax credit is allowable even if the payment to the service provider is retained by the recipient.