CENVAT credit cannot be denied solely because the underlying activity is disputed; factual tax verification still required.

Where tax paid on an activity has been accepted by the Revenue, CENVAT credit on input services used for that activity cannot be denied merely because the underlying activity is alleged not to amount to manufacture or provision of service. Applying that principle, the credit claim was not rejected on merits. However, the record did not clearly show whether the service tax paid during the relevant period was equal to or greater than the CENVAT credit availed, so factual verification was still necessary. The matter was therefore remanded to the original authority for fresh adjudication and verification of tax payment against credit availed.

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Issues: Whether denial of CENVAT credit on input services used for the impugned passenger-related collections was sustainable, and whether the matter required remand for verification of the tax actually paid by the appellant.

Analysis: The dispute turned on the principle that where tax has been accepted by the Revenue on an activity, credit linked to inputs or input services used for that activity cannot be denied merely on the ground that the underlying activity may not amount to manufacture or provision of service. Applying that principle, the credit claim could not be rejected outright. However, the record did not clearly establish whether the service tax paid by the appellant during the relevant period was equal to or greater than the CENVAT credit availed. The matter therefore required factual verification by the original authority.

Conclusion: The denial of credit was not finally sustained, and the matters were remanded to the original authority for fresh adjudication and verification of tax payment vis-a -vis credit availed.

Ratio Decidendi: Once tax paid on an activity is accepted by the Revenue, credit on inputs or input services used for that activity cannot be denied solely because the underlying activity is alleged not to be taxable or not to amount to manufacture or provision of service.

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