Cenvat credit for subcontractor service tax remained available from the outset, and prior payment could not be reopened to deny credit.

Cenvat credit of service tax paid by a sub-contractor on repair services could not be denied to the recipient assessee where the underlying agreement between the assessee and the sub-contractor existed and service tax had in fact been paid by the supplier. The recipient could not reopen the correctness of that tax payment at its end to defeat credit. The Service Tax Credit Rules were operative from 01.08.2002, so credit was available from inception; the 2004 alignment of the credit rules did not remove that earlier entitlement. The denial of credit was therefore unsustainable and the assessee was entitled to avail the credit.

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Issues: Whether Cenvat credit of service tax paid by the sub-contractor on repair services could be denied to the recipient assessee, and whether such credit was available from the inception of the Service Tax Credit Rules.

Analysis: The agreement between the assessee and the sub-contractor was found to exist, so the foundation for denying tax liability at the supplier's end was not sustainable. Once the service tax had in fact been paid by the supplier, its correctness could not be reopened at the recipient's end for the purpose of denying credit. The Service Tax Credit Rules were in force from 01.08.2002, and the later alignment of the credit rules in 2004 did not eliminate the earlier availability of credit.

Conclusion: The denial of credit was unsustainable and the assessee was entitled to avail the credit of service tax paid by the sub-contractor.

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