CENVAT credit cannot be denied merely because the service provider may have been exempt if tax was actually paid.

CENVAT credit on grooving job-work charges was held admissible where service tax had actually been paid and the service was used in or in relation to manufacture; the recipient could not be denied credit merely because the provider might have been eligible for exemption. Credit on manpower supply services depended on factual proof of use in manufacture, and the evidence placed by the appellant required fresh examination because it had not been considered by the lower authorities. The matter was remitted for reconsideration only on the manpower supply component, while the disallowance of credit on grooving job-work charges was set aside.

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Issues: (i) whether CENVAT credit could be denied on grooving job-work charges on the ground that the service provider was eligible for exemption under Notification No. 8/2005-ST, despite service tax having been paid; (ii) whether CENVAT credit on manpower supply services was admissible on the basis of the evidence produced and whether the matter required fresh consideration.

Issue (i): whether CENVAT credit could be denied on grooving job-work charges on the ground that the service provider was eligible for exemption under Notification No. 8/2005-ST, despite service tax having been paid.

Analysis: Once service tax had been paid by the service provider and the service was used in or in relation to manufacture of the final products, the recipient could not be denied credit merely because the provider might have been entitled to exemption. The recipient authorities were not to re-open the provider's liability on that basis when tax had in fact been discharged.

Conclusion: Credit on grooving job-work charges was admissible and the disallowance was set aside.

Issue (ii): whether CENVAT credit on manpower supply services was admissible on the basis of the evidence produced and whether the matter required fresh consideration.

Analysis: Credit on manpower supply services would depend on whether the labour was used in or in relation to manufacture. The appellant produced an affidavit and muster roll support, but those materials had not been placed before the lower authorities. Fresh examination by the original adjudicating authority was therefore necessary, with an opportunity of hearing to the appellant.

Conclusion: The manpower supply credit issue was remanded for reconsideration on the evidence.

Final Conclusion: The order was set aside and the matter was remitted for fresh adjudication only on the manpower supply component, while the denial of credit on grooving job-work charges did not survive.

Ratio Decidendi: CENVAT credit cannot be denied to the recipient merely because the service provider might have been eligible for exemption if service tax was actually paid, and admissibility of manpower supply credit turns on its use in or in relation to manufacture and requires factual verification.

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