Revenue-neutral Cenvat credit on reverse charge service tax cannot justify denial of exemption-linked refund for timing difference.

Availment of Cenvat credit on service tax paid under reverse charge was not treated as a substantive contravention where the tax was discharged on 31.03.2014 and credit was taken in April 2014. The Tribunal applied the principle of revenue neutrality and followed its earlier view that this timing difference did not justify denial of exemption-linked refund or recovery of the credited amount. On the facts stated, the demand and refund denial were set aside, and relief was granted to the appellant.

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Issues: Whether the appellant's availment of Cenvat credit of service tax paid under reverse charge mechanism, where the tax was discharged on 31.03.2014 but credit was taken in April 2014, violated the exemption notification and justified denial of refund.

Analysis: The appellant was entitled to exemption under Notification No. 20/2007-CE dated 25/04/2007, and the disputed amount represented service tax paid on input services under reverse charge mechanism. The Tribunal followed the earlier decision treating the situation as covered by the principle of revenue neutrality, and held that the availment of credit in the Cenvat register in April 2014 did not warrant the impugned demand. The dispute therefore did not justify recovery of the credited amount or denial of the refund claim on the facts presented.

Conclusion: The denial of refund and the recovery demand were set aside, and the issue was decided in favour of the appellant.

Final Conclusion: The appellant succeeded on the substantive tax issue, and the impugned order was reversed with consequential relief.

Ratio Decidendi: Where credit is taken on tax paid under reverse charge in a revenue-neutral situation, a mere timing difference in availment does not justify denial of exemption-based refund absent a substantive contravention.

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