Court dismisses revenue's appeal on Cenvat credit disallowance for Pandal/Shamiana service; emphasizes no need for one-to-one relationship

The court dismissed the revenue's appeal regarding the disallowance of Cenvat credit on grounds of invoice cancellation and service tax paid for Pandal and Shamiana service. It clarified that there is no provision for a proportionate disallowance of credit due to invoice cancellation and emphasized that a one-to-one relationship between input and output is not necessary for claiming Cenvat credit. The court criticized the lack of inquiry by the department into the nature of services and genuineness of claims, ruling in favor of the respondent in both instances.

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Issues: Disallowance of Cenvat credit on the grounds of invoice cancellation and service tax paid for Pandal and Shamiana service.

Issue 1: Disallowance of Cenvat credit due to invoice cancellation
The judgment addresses the disallowance of Cenvat credit amounting to Rs. 1,07,207 based on the cancellation of the invoice. It clarifies that there is no provision in law for a proportionate disallowance of Cenvat credit in such circumstances. The court emphasizes that a one-to-one relationship between input and output is not required to claim Cenvat credit. Once the inputs reach the factory and are used for manufacturing, the law allows the manufacturer to avail input credit. Citing legal precedents, including the case of C.C.E., Pune v. Dai Ichi Karkaria Ltd., the court dismisses the appeal and rules in favor of the respondent, stating that the disallowance of Cenvat credit in this case is unwarranted.

Issue 2: Disallowance of Cenvat credit for Pandal and Shamiana service
Another disallowance of Cenvat credit amounting to Rs. 67,980 is discussed, relating to service tax paid for availing Pandal and Shamiana service to protect raw material, specifically coal, from rain. The court notes that the department failed to conduct an inquiry into the nature of the service provided and the genuineness of the claim. It criticizes the authority for assuming that similar services were not availed in the subsequent year without proper investigation. The court emphasizes that without justification from an independent inquiry, mere suspicion or assumption cannot support the revenue's position. Consequently, the revenue's appeal is dismissed on this count as well.

In conclusion, the judgment dismisses the revenue's appeal on both counts of disallowance of Cenvat credit, highlighting the importance of following established legal principles and conducting thorough inquiries to substantiate claims and decisions.

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