Cenvat credit on some inputs does not automatically bar abatement under service tax exemption notification; matter remanded.

Availing Cenvat credit on some inputs did not automatically disentitle the assessee from abatement under Notification No. 12/2003-Service Tax for the value of goods and materials sold along with services. The notification had to be applied by examining its specific conditions, including any requirement to reverse credit or pay an equivalent amount in the relevant situation, rather than by treating any credit availed on other materials as a complete bar. Because the precise breach was not clearly established, the lower authority's approach was set aside, pre-deposit was waived, and the matter was remanded for fresh consideration.

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Issues: Whether the appellant was disentitled to abatement under Notification No. 12/2003-Service Tax dated 26.02.2003 merely because Cenvat credit had been availed on some goods and materials used in providing services, and whether pre-deposit was required in the facts of the case.

Analysis: The exemption under the notification applied to the value of goods and materials sold while providing services. Availment of Cenvat credit on other goods and materials did not, by itself, defeat the entitlement to deduction of the value of goods sold, particularly where the notification contemplated reversal or payment equal to the credit in the specified situation. The demand had proceeded on a broad assumption that once credit was taken on any inputs, the benefit of the notification was unavailable, without clearly establishing the precise breach of the notification conditions. The Tribunal also noted that subsequent reversal of credit could amount to non-availment for the purpose of similar credit restrictions.

Conclusion: The appellant was not denied the benefit of the notification merely because Cenvat credit had been availed on other materials, and the matter required reconsideration by the lower authority. Pre-deposit was waived and the dispute was remanded for fresh decision.

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