Tribunal overturns credit disallowance & penalty, citing retention of consideration for performance guarantee.

The Tribunal allowed the appeal, setting aside the disallowance of credit amounting to Rs. 1,21,73,487 and the imposed penalty of Rs. 12,00,000 under Rule 15 (1) of CCE, 2004. The Tribunal held that no reversal of credit under Rule 14 could be ordered when a portion of the consideration was retained by the appellant as a performance guarantee. Relying on a Board's circular and previous decisions, the Tribunal ruled in favor of the appellant, finding the original order unsustainable.

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Issues:
Dispute over availing credit on service tax paid on input services due to non-payment of full consideration as per the invoice.

Analysis:
The appellant, engaged in the manufacture of Zinc & lead concentrate, availed credit on various inputs and input services under Cenvat Credit Rules, 2004. The dispute arose when the appellant did not pay the full consideration for the service tax paid on input services as per the invoice. A part of the amount shown in the invoice was retained by the appellant as a performance guarantee. The Revenue initiated proceedings to disallow the Service Tax credit attributable to the consideration not paid to the service provider. The original authority upheld the disallowance of credit amounting to Rs. 1,21,73,487 and imposed a penalty of Rs. 12,00,000 under Rule 15 (1) of CCE, 2004.

The appellant argued that the issue had been clarified by the Board through a Circular dated 30.04.2010, stating that even if the amount paid by the recipient is less than the invoice amount, the service tax paid must be varied proportionately. The appellant also cited various decisions, including the Tribunal's decision in their own case, to support their stance.

After hearing both parties and examining the records, the Tribunal found that the facts were undisputed. The Tribunal noted that the appellant had retained a portion of the consideration towards service rendered by the service provider as a performance guarantee. Referring to the Board's clarification and previous decisions, the Tribunal held that no reversal of credit under Rule 14 could be ordered in such a situation. Citing similar cases, the Tribunal set aside the impugned order, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, following the settled cases and finding the original order unsustainable. The judgment was dictated and pronounced in open court by the Tribunal.

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