CENVAT credit on disputed tax payment remains admissible where tax was collected and supplier-side legality must be tested separately.

CENVAT credit cannot be denied to the recipient merely because the tax on electricity consumption charges was disputed or wrongly paid by the supplier. The text states that credit taken on tax actually paid may remain available where the levy was otherwise refundable and the transaction is revenue neutral. Any challenge to the legality of the tax payment must be examined at the service provider's end, not by withholding credit from the recipient when tax had in fact been collected and paid. The billing arrangement for electricity-related charges was not accepted as a basis to refuse credit. CENVAT credit was therefore admissible at the recipient's end.

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Issues: Whether CENVAT credit could be denied to the recipient merely because the tax paid on electricity consumption charges was disputed or wrongly paid at the supplier's end.

Analysis: The credit was claimed on invoices raised towards electricity consumption charges. The reasoning adopted below relied on the principle that credit taken on tax paid, even if incorrectly paid, may still be available where the levy was otherwise refundable and the transaction was revenue neutral. The decisive consideration was that the legality of the tax payment, if any, had to be examined at the service provider's end and not by denying credit at the receiver's end when the tax had in fact been collected and paid. The argument that the electricity-related billing itself constituted a taxable service was not accepted as a basis to deny credit in this case.

Conclusion: CENVAT credit was admissible and could not be denied at the recipient's end.

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