CENVAT credit reversal cannot rest on a debit note for courier charges where no input service credit was taken.

Credit reversal under the third proviso to rule 4(7) of the CENVAT Credit Rules, 2004 was not justified where the dispute arose from a debit note for courier charges linked to returned goods. The proviso applies only when payment for an input service is refunded or a credit note is received by the person who had taken credit on that service. Here, the courier service was rendered to the vendor, the assessee was not the recipient of that service, and there was no evidence that it had availed credit on the tax paid. In the absence of proof of ineligible credit, the demand for reversal failed and was set aside.

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Issues: Whether credit reversal could be demanded under the third proviso to rule 4(7) of the CENVAT Credit Rules, 2004 on the basis of a debit note raised for courier charges connected with returned goods.

Analysis: The proviso applies where payment towards an input service is refunded or a credit note is received by the manufacturer or service provider who had taken credit on such input service. The dispute involved a debit note issued in relation to contractual liability arising from non-compliant supply of goods, not a credit note relating to input service received by the appellant. The courier service was rendered to the vendor of the goods, and the appellant was neither the recipient of that service nor shown to have availed credit of tax paid on it. In the absence of evidence of availment of ineligible credit, reversal could not be sustained.

Conclusion: The demand for reversal of credit was not sustainable and was set aside in favour of the assessee.

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