Appellant wins service tax credit appeal but faces interest and penalty. Importance of Rule 9 compliance emphasized.

The Tribunal allowed the appellant's appeal against the denial of service tax credit, considering the subsequent payment made to the service provider. However, the interest for the period of wrongful credit utilization and the penalty were upheld. The appellant's argument that they were eligible for credit despite the delayed payment was accepted, distinguishing between credit for inputs and input services. The Tribunal emphasized the importance of complying with Rule 9 of the Cenvat Credit Rules, 2004, regarding precautions before taking credit.

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Issues:
Appeal against order confirming demand of duty by denying service tax credit and imposing penalty.

Analysis:
The case involves an appeal against the order of the Commissioner (Appeals) upholding the demand of duty by denying service tax credit and imposing a penalty. The appellant received input services during a specific period but paid the service charges and service tax at a later date. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals).

The appellant argued that they were not familiar with the law and mistakenly took credit for service tax based on invoices before making the actual payment. The appellant contended that they were eligible for the credit as they eventually paid the service charges and tax to the provider. The appellant relied on a Tribunal decision where a similar mistake was condoned and credit was allowed upon regularization.

The respondent pointed out Rule 9(3) of the Cenvat Credit Rules, 2004, stating that recipients must take precautions before taking credit. The respondent argued that the appellant violated Rule 9 by taking credit without paying the service charges and tax initially, making the subsequent payment insufficient to rectify the mistake.

The Tribunal analyzed the differences between taking credit for inputs and input services. While payment to the supplier is not a pre-condition for taking credit on inputs, for services, payment of service tax by the provider is linked to receiving service charges. In this case, the appellant took credit without making the initial payment but later settled the charges. The Tribunal held that upon payment to the service provider, the appellant would be eligible for credit but upheld the demand for interest during the interim period when the credit was utilized. The penalty imposed on the appellant was also upheld.

In conclusion, the Tribunal set aside the denial of credit considering the subsequent payment made by the appellant to the service provider. However, the interest for the period of wrongful credit utilization and the penalty were upheld.

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