Cenvat credit reversal before notice can cure defect and preserve abatement benefit under the service tax notification.

Abatement under Notification No. 01/2006-ST was available only where Cenvat credit was not used for payment of service tax. Although the assessee initially used such credit, it reversed the entire credit with interest before issuance of the show cause notice. That later reversal was treated as curing the defect for the purpose of the notification, so the assessee remained entitled to the abatement and the denial of the benefit could not be sustained.

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Issues: Whether the appellant was entitled to abatement under Notification No. 01/2006-ST dated 01/03/2006 despite having initially used Cenvat credit for payment of service tax, where the credit was later reversed with interest before issuance of the show cause notice.

Analysis: The abatement under the notification was conditional upon non-utilisation of Cenvat credit for payment of service tax. Although credit had been used during the disputed period, the entire amount was reversed along with interest before the show cause notice was issued. On that basis, the credit use was treated as not having occurred ab initio, and the later reversal was held to cure the defect for the purpose of availing the notification benefit.

Conclusion: The appellant was held entitled to the abatement, and the denial of the notification benefit was set aside.

Final Conclusion: The demand based on denial of abatement could not survive once the Cenvat credit was reversed with interest before initiation of proceedings, and the assessee obtained the consequential benefit under the notification.

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