Input service credit on clearing and forwarding service remanded for factual verification; penalty set aside for bona fide belief.

Cenvat credit on clearing and forwarding agent service could not be conclusively allowed or denied because the factual question whether the service involved sales promotion, which falls within the inclusive definition of input service, had not been verified. The credit dispute was therefore remanded to the adjudicating authority for fresh factual examination. Penalty under Rule 15(1) was held unsustainable because credit had been taken under a bona fide belief, and no mala fide intent, suppression, or other material justifying penalty was shown. The penalty was accordingly set aside while the credit issue was sent back for reconsideration on facts.

---

---

Issues: (i) whether Cenvat credit on clearing and forwarding agent service was admissible where the factual nature of the service as involving sales promotion had not been verified; (ii) whether penalty under Rule 15(1) was sustainable.

Issue (i): whether Cenvat credit on clearing and forwarding agent service was admissible where the factual nature of the service as involving sales promotion had not been verified.

Analysis: Credit on clearing and forwarding agent service could not be finally determined without verifying whether the service included sales promotion activity, since sales promotion forms part of the inclusive limb of the definition of input service. The factual position had not been examined, and the matter required verification by the adjudicating authority.

Conclusion: The issue of admissibility of Cenvat credit was remanded for fresh decision after verification of facts.

Issue (ii): whether penalty under Rule 15(1) was sustainable.

Analysis: The department had allowed credit for earlier and subsequent periods, and the factual controversy had not been verified. In these circumstances, the respondent's availment of credit was held to be under a bona fide belief, with no material to show mala fide conduct or suppression warranting penalty.

Conclusion: Penalty under Rule 15(1) was not sustainable and was set aside.

Final Conclusion: The penalty was deleted, while the credit dispute was sent back to the adjudicating authority for reconsideration on facts.

Ratio Decidendi: Where admissibility of input service credit depends on an unverified factual determination, the matter must be remanded for verification, and penalty cannot survive when credit was availed under bona fide belief without evidence of mala fides.

---