CENVAT credit utilisation for service tax payment was treated as valid, making denial of credit, interest and penalty unsustainable.

Service tax paid by debit in the CENVAT credit account, rather than in cash, was treated as valid payment for availing input service credit under the then prevailing interpretation of Rule 2(p) of the CENVAT Credit Rules, 2004, including its Explanation. The assessee was regarded as providing output service and entitled to utilise credit for service tax on GTA services connected with receipt of inputs into the factory. Earlier Tribunal rulings supported this view, and the contrary authority cited did not displace the binding Division Bench decision for the relevant period, so denial of credit, interest and penalty was unsustainable.

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Issues: Whether service tax paid through debit in the CENVAT credit account, instead of cash payment, could be treated as valid payment for availing input service credit, and whether the denial of credit and consequential demand, interest and penalty were sustainable.

Analysis: The issue was governed by the then prevailing interpretation of rule 2(p) of the CENVAT Credit Rules, 2004, including its Explanation, under which the assessee was treated as providing output service and was permitted to utilise credit for payment of service tax on GTA services connected with receipt of inputs into the factory. Earlier Tribunal decisions had already settled the point in favour of assessees, and the contrary view cited was held not to displace the binding Division Bench ruling applicable to the material period.

Conclusion: The denial of credit, together with interest and penalty, was unsustainable and the appeal was allowed.

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