Reversal of CENVAT credit constitutes compliance with abatement rules. Judgment favors assessee, dismissing Revenue's appeal.

The Tribunal held that the reversal of CENVAT credit, even if done subsequently, constitutes substantial compliance with the abatement notification. Emphasizing the purpose of preventing tax cascading, the Tribunal found no prejudice to Revenue and allowed the assessee's appeal while dismissing the Revenue's appeal. The denial of abatement in the initial order was deemed untenable, with the judgment pronounced on 12/06/2017.

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Issues Involved:
1. Denial of abatement benefit under notification no. 1/2006-ST dated 1st March 2006.
2. Reversal of CENVAT credit and its compliance with the abatement notification.
3. Interpretation of exemption notifications and substantial compliance.

Issue-Wise Detailed Analysis:

1. Denial of Abatement Benefit:
The primary issue revolves around the denial of the abatement benefit under notification no. 1/2006-ST, which allows for a 67% abatement of the gross value of consideration for 'commercial and industrial construction service' and 'erection, commissioning or installation service' on the condition that CENVAT credit of duty/tax paid on inputs/input services/capital goods has not been availed. The assessee had availed this abatement but had also availed CENVAT credit, which was subsequently reversed. The Revenue sought to deny the abatement on the grounds that the CENVAT credit was not reversed before the discharge of tax liability on output services, thus not meeting the strict compliance required by the exemption notification.

2. Reversal of CENVAT Credit:
The assessee contended that the reversal of CENVAT credit, even if done subsequently, should be considered sufficient compliance with the condition of the abatement notification. The assessee relied on various judicial precedents, including the Hon’ble Supreme Court's decision in Chandrapur Magnet Wires (P) Ltd v. Commissioner of Central Excise and the Tribunal's decision in Khyati Tours & Travels v. Commissioner of Central Excise, which supported the view that subsequent reversal of credit is as good as non-availment.

3. Interpretation of Exemption Notifications and Substantial Compliance:
The Revenue argued that exemption notifications should be construed strictly and any deviation from the conditions should result in the withdrawal of the exemption benefit. The Revenue placed reliance on the Hon’ble Supreme Court's decision in Commissioner of Central Excise, New Delhi v. M/s Hari Chand Shri Gopal, which emphasized the need for strict compliance with the conditions of exemption notifications. However, the Tribunal noted that the abatement notification does not exempt the rate of tax but merely allows a deduction in the assessable value of taxable services. Therefore, the Tribunal held that the abatement notification should be construed in the context of substantial compliance rather than strict compliance.

Conclusion:
The Tribunal concluded that the reversal of CENVAT credit, even if done subsequently, meets the test of substantial compliance with the abatement notification. The Tribunal emphasized that the scheme of CENVAT credit is to prevent the cascading effect of taxation and that the critical factor is the availability of sufficient eligible credit when utilized for discharge of tax on output services. The Tribunal found no prejudice to Revenue by such reversal as it did not deprive the State of any tax due. The Tribunal allowed the appeal of the assessee and dismissed the appeal of Revenue, holding that the denial of abatement in the impugned order was not tenable.

Pronouncement:
The judgment was pronounced in Court on 12/06/2017.

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