CESTAT allows credit of service tax paid to contractor despite part amount retained on performance guarantee

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Fact- C.C.E. & S.T., Udaipur (“the Appellant”) was engaged in manufacture of Lead and Zinc concentrates. The department stated that the respondent was not making full payment of value of input services received from contractors and had retained part payment of service provider on account of performance guarantee. Revenue stated that the respondent has wrongly availed CENVAT credit of service tax paid on value of such services and issued show cause notice. Aggrieved by the decision of Commissioner (Appeals), Department filed the present appeal to CESTAT.

Appellant’s Interpretation of Law- Revenue was of the opinion that credit can be allowed only when service recipient makes full payment of value of input services as well as service tax both within 3 months of date of invoice/bill/challan as the case may be as per Rule 9 of CENVAT Credit Rules, 2004 (CCR). Further, emphasis was laid on Rule 4 (7) of Cenvat Credit Rules impressing upon that in cases where payment is not been made within the time stipulated in this rule needs to pay it back the Cenvat credit availed.

Held- The Hon’ble CESTAT, Delhi in the case of CCE & ST Udaipur Vs Hindustan Zinc Ltd. vide order no. 53278-53281/2018 dated October 30, 2018 held that as per 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. 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. Therefore, the appellant’s appeal is dismissed and allowed credit of service tax paid to contractor despite fact that part amount retained/withheld on account of performance guarantee.

Citation: TS-704-CESTAT-2018-ST