Tribunal allows credit despite performance guarantee deduction, penalty overturned

The Tribunal set aside the impugned order disallowing a credit of &8377;60,51,237/- and imposing a penalty of &8377;2000. The Tribunal upheld the appellant's credit availed on services despite a portion of the invoice amount being retained as a performance guarantee, citing a Board Circular that allowed full credit of service tax paid even if amounts were retained or discounted post-invoicing. The Tribunal found the appellant's case aligned with the Circular and previous decisions, leading to the appeal being allowed in favor of the appellant.

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Issues:
Application of Provisions of Rule 4(7) of Cenvat Credit Rules, 2004 regarding availing credit on services and inputs in relation to retained performance guarantee amount.

Analysis:
The appeal before the Appellate Tribunal CESTAT NEW DELHI was against an order dated 15.09.2010 of the Commissioner of Central Excise, Jaipur-II. The Appellants, engaged in the manufacture of lead and zinc Concentrate liable to Central Excise duty, were availing credit on various services and inputs. The dispute revolved around the application of Provisions of Rule 4(7) of Cenvat Credit Rules, 2004. The appellant had availed various services from service providers under contract, paying the consideration along with applicable service tax. However, a part of the invoiced amount was retained by the appellant as a performance guarantee. The Revenue contended that since the full invoice consideration for the service was not paid to the service provider, the service tax attributable to the retained amount cannot be allowed as credit under Rule 4(7) of the Cenvat Credit Rules, 2007. This led to proceedings resulting in the impugned order disallowing a credit of &8377; 60,51,237/- and imposing a penalty of &8377; 2000/-.

Upon hearing both sides and examining the records, the Ld. Counsel for the appellant referred to Board's Clarification dated 30.04.2010 and previous Tribunal decisions in the appellant's case to argue that Rule 4(7) did not apply in the present scenario. Additionally, it was highlighted that the retained money had been subsequently paid to the service providers as per the contract terms.

The Tribunal noted that the issue had been clarified by the Board in a Circular dated 30.04.2010, which covered the situation presented in the current case. The Circular stated that if any amount was retained or discounted after issuing the invoices, the credit need not be altered, and full credit of service tax paid to the service provider would remain eligible for credit. The invoice would be deemed amended to reflect this adjustment. Referring to the appellant's own case where a similar issue was addressed, the Tribunal upheld the credit availed by the appellant based on the Circular.

Considering the settled position and the precedents, the Tribunal found the impugned order to be without merit and consequently set it aside, allowing the appeal in favor of the appellant. The decision was dictated and pronounced in the open court by the Members of the Tribunal.

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