2017 (1) TMI 643 - AT - Central Excise

CENVAT credit - demand of proportionate Cenvat Credit pertaining to the amounts retained from the invoices - Held that - in case of any amount retained or discounted after the invoices were issued, the credit need not be changed and full credit of service tax paid to the service provider will be eligible for credit - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against impugned order-in-original regarding Cenvat Credit Rules application.

Analysis:
The case involved appeals by the respondent against the order-in-original passed by the Commissioner of Central Excise. The respondent, engaged in manufacturing lead and zinc, had contracts with companies for various projects where a percentage of payment was withheld as a performance guarantee. The respondent deducted 5%-10% from bills raised by contractors and paid the service tax reflected on invoices. The department sought Cenvat Credit for the amounts retained. The Tribunal referred to a previous decision where it was clarified that full credit of service tax paid to the service provider would be eligible for credit even if amounts were retained. Relying on this precedent, the Tribunal allowed the appeals, setting aside the impugned order as without merit. The appeals were thus allowed based on the settled position established by the previous decision.

This judgment primarily dealt with the interpretation and application of Rule 4(7) of the Cenvat Credit Rules, 2004 in the context of amounts retained from invoices. The Tribunal considered the respondent's practice of deducting amounts from contractor bills for performance guarantees and retaining a percentage until project completion. The department sought Cenvat Credit for these retained amounts. The Tribunal referred to a previous decision and a Board circular clarifying that full credit of service tax paid to the service provider would be eligible for credit, even if amounts were retained. Based on this clarification, the Tribunal found the impugned order to be without merit and allowed the appeals in favor of the respondent.

The key issue in this case was the eligibility of Cenvat Credit for the amounts retained by the respondent from contractor bills. The respondent had paid the service tax reflected on invoices and took Cenvat Credit for the entire service tax paid. The department invoked Rule 4(7) of the Cenvat Credit Rules, 2004 to demand proportionate Cenvat Credit for the retained amounts. However, the Tribunal, following a previous decision and a Board circular, held that full credit of service tax paid to the service provider would be eligible for credit, even for amounts retained. This interpretation led to the allowance of the appeals and the setting aside of the impugned order as lacking merit.