2019 (12) TMI 240 - HC - Service Tax

CENVAT Credit - service tax on that portion of value of services which was not paid by the assessee at the time of taking credit and was retained as performance guarantee - Rule 4(7) of the Cenvat Credit Rules, 2004 - main argument of the Revenue is that withholding of amounts towards performance guarantee is not covered by the circular but the other forms of payment withheld from service provider might be - circular dated 30.04.2010. - HELD THAT - This Court is of the opinion that the argument of the Revenue that performance guarantee amounts withheld by the asseessee are not per se covered by the circular, is incorrect. A clear reference to amounts withheld towards various counts including security, in the opinion of the court, comprehends the withholding of amounts towards performance guarantee. The question of law is answered against the Revenue - Appeal dismissed.

Summary

Issues:
1. Recall of order dated 13.09.2019 in D.B. Misc. Application No. 82/2019
2. Error in passing order in D.B.Central Excise Appeal No.96/2018
3. Interpretation of Rule 4(7) of the Cenvat Credit Rules, 2004 in D.B.Central Excise Appeal No.126/2017

Recall of Order:
In D.B. Misc. Application No. 82/2019, the High Court allowed the application and recalled the order dated 13.09.2019 based on the reasons stated in the application.

Error in Passing Order:
In D.B.Central Excise Appeal No.96/2018, it was acknowledged by both parties that the order dated 13.09.2019 was erroneously passed instead of in D.B.Central Excise Appeal No.126/2017. The appeal was withdrawn as the tax effect was less than ?1 crore as per a circular issued by the Ministry of Finance.

Interpretation of Rule 4(7) - D.B.Central Excise Appeal No.126/2017:
The main issue in this case was the interpretation of Rule 4(7) of the Cenvat Credit Rules, 2004. The question raised was whether the assessee could avail Cenvat credit of service tax on the value of services not fully paid at the time of taking credit. The case involved an assessee engaged in manufacturing seeking Cenvat credit on excise duty paid on inputs and capital goods, as well as service tax on input services. The dispute arose when the full payment for input services was allegedly not made to the service providers. The Adjudicating Authority dropped the demand, but the Excise Department appealed to the CESTAT. The CESTAT allowed the appeal based on a circular dated 30.04.2010, which raised doubts on the requirement of full payment for availing credit.

The circular clarified issues related to availing Cenvat credit in cases of reduced payments or withheld amounts. It addressed whether credit could be claimed for payments made through debit/credit notes or when the service receiver did not pay the full invoice value and service tax due to various reasons. The circular emphasized that if the service charges and service tax were paid in any prescribed manner, credit should be allowed. It also stated that in cases of reduced payments, the final settled amount should be considered as the final payment, allowing the service receiver to take credit proportionately reduced. The CESTAT relied on this circular to allow the credit in the present case.

The Court analyzed the Revenue's argument that performance guarantee amounts withheld were not covered by the circular. However, the Court disagreed, stating that the circular encompassed withholding amounts towards various counts, including security and performance guarantee. The Court answered the question of law against the Revenue and dismissed the appeal accordingly.