CENVAT credit condition for service tax exemption must be proved by evidence, not carried-forward balances alone.

Exemption under Notification No. 6/2005-ST was available because the service provider did not avail CENVAT credit on capital goods during the exempted period and took credit on inputs or input services only from the date service tax payment commenced. The ST-3 returns and supporting records showed no credit availed on inputs, capital goods, or input services during the relevant period. Revenue did not produce tangible evidence of credit being taken in that period, and a carried-forward balance from an earlier year did not, by itself, establish breach of the notification condition. The demand for service tax was therefore unsustainable.

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Issues: Whether the appellant was entitled to exemption under Notification No. 6/2005-ST dated 01.03.2005 in view of the condition that CENVAT credit should not be availed during the exempted period.

Analysis: The exemption notification required the service provider not to avail CENVAT credit on capital goods during the period of exemption, and to avail credit on inputs or input services only from the date service tax payment commenced. On the ST-3 returns and supporting extract produced, it was found that no CENVAT credit was availed on inputs, capital goods, or input services during the relevant period. The Revenue failed to establish by tangible evidence that credit had in fact been availed during that period, and the existence of a carried forward balance from an earlier year did not by itself establish breach of the condition for the period in question.

Conclusion: The appellant satisfied the conditions of the exemption notification and the demand of service tax was unsustainable.

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