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Issues: Whether cenvat credit could be denied on the service tax component relating to the amount retained as liquidated damages from the invoice value of input services.
Analysis: Rule 4(7) of the CENVAT Credit Rules, 2004 permits credit of input service tax on payment of the value of the service and the tax indicated in the invoice, while Section 67 of the Finance Act, 1994 proceeds on the gross amount charged for taxable services. Circular No. 122/3/2010-ST clarified that where the receiver of service reduces the invoice amount and makes discounted payment, the reduced amount is treated as final payment and the invoice stands amended to that extent; credit is admissible to the extent of service tax actually paid. The circular relied upon by the Revenue dealt with a different situation and did not support denial of credit. The record also showed that the service tax paid by the provider had not been reduced and the issue had already been settled in the assessee's own earlier proceedings.
Conclusion: Cenvat credit was admissible and its denial was unsustainable; the issue was decided in favour of the assessee.
Ratio Decidendi: When the service tax actually paid on an input service remains unchanged and the invoice reduction is only on account of liquidated damages or similar post-invoice adjustment, credit cannot be denied merely because part of the billed amount is retained or adjusted by the recipient.
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