CENVAT credit under voluntary compliance scheme must be tested against actual proof of payment, not a nil return presumption.

Under the voluntary compliance scheme, the bar on utilisation of CENVAT credit applied only to unpaid tax dues, and liability had to be determined on actual proof of payment rather than on an incomplete return. Documentary records such as registers and worksheets had to be examined to verify which part of the service tax liability was already discharged by cash or credit and which part, if any, remained unpaid. The original demand based on a presumption from a nil return could not be sustained, and the matter was remanded for fresh examination on the evidence.

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Issues: Whether CENVAT credit utilised by the assessee could be treated as inadmissible for payment of service tax dues under the voluntary compliance scheme, and whether the demand required reconsideration on the basis of documentary proof of tax already paid by cash or credit.

Analysis: The record showed that the assessee had utilised CENVAT credit during the relevant period before filing the declaration under the scheme, and that the declaration was stated to have been settled by cash deposit. The restriction in Rule 6(2) operated only in relation to tax dues, and tax dues under the scheme were confined to unpaid service tax or amounts payable under section 73A. A return showing nil payment could not, by itself, displace documentary proof that tax had in fact been discharged. The proper course was to examine the registers, worksheets, and other proof to ascertain which portion of the liability was already paid and which portion, if any, remained unpaid.

Conclusion: The demand could not be sustained on the basis of the presumption adopted in the original order, and the matter had to be re-examined by the original authority on the documentary evidence, with the impugned order set aside and the matter remanded.

Ratio Decidendi: Under the voluntary compliance scheme, the bar on utilisation of CENVAT credit applies only to unpaid tax dues, and a liability must be determined on actual proof of payment rather than on an erroneous or incomplete return.

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