Cenvat credit under Rule 4(7) depends on substantial tax payment and verified justification for invoice withholding.

Rule 4(7) of the Cenvat Credit Rules, 2004 was required to be applied pragmatically where service tax shown in the invoice had been substantially paid and only 5% of the amount was withheld due to a dispute. The matter turned on verifying the reason for the withholding and whether the tax already paid could support Cenvat credit. The issue was remanded for fresh examination by the Adjudicating Authority after enquiry into the invoice discrepancy and the justification for retaining part of the amount.

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Issues: Whether Cenvat credit could be denied under Rule 4(7) of the Cenvat Credit Rules, 2004 when service tax shown in the invoice was substantially paid and only a part of the amount remained withheld on account of a dispute.

Analysis: The dispute turned on the interpretation of Rule 4(7). The procedural requirement under the Rule was to be applied in a manner that did not operate harshly where tax attributable to the invoice had been paid in substance and only a part of the payment was retained for a valid reason. The matter required verification of the reason for withholding 5% of the invoice amount and examination of whether the remaining paid service tax could be treated as sufficient for credit purposes.

Conclusion: The issue was remanded to the Adjudicating Authority for fresh examination and decision after enquiry into the invoice discrepancy and the justification for retention of 5% of the amount.

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