Temporary Cenvat credit availment without utilisation does not defeat exemption when the credit is later reversed.

Availment of Cenvat credit on input services does not necessarily defeat exemption under Notification No. 6/2005-S.T. where the credit was never utilised and was later reversed. The notification required the service provider not to avail Cenvat credit on input services, but the record showed only temporary availment of credit on telephone service, with no use of that credit for payment of service tax. A prior decision cited in the record supported the principle that a mere accounting entry or transient availment, without retention or utilisation, is insufficient to deny the exemption. The denial of refund was therefore unjustified.

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Issues: Whether availment of Cenvat credit on input services, without utilisation and followed by reversal of the credit balance, disentitled the assessee from exemption under Notification No. 6/2005-S.T. dated 01.03.2005.

Analysis: The condition in the exemption notification required that the provider of taxable service should not avail Cenvat credit of service tax paid on input services. The assessee had taken credit on telephone service, but the record showed that the credit was not utilised for payment of service tax and was reversed. The earlier decision relied upon by the lower authority supported the view that a mere accounting entry or temporary availment of credit does not by itself defeat the exemption when the credit is ultimately not retained or used.

Conclusion: The assessee was entitled to the benefit of the exemption notification and the denial of refund was not justified.

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