Cenvat credit on input services is not denied merely because the supplier did not remit tax, with refund also admissible.

Credit of service tax on input services is not contingent on the supplier actually remitting tax to the Government where the recipient has paid the billed service value and tax and the transaction is bona fide. Reading Rules 3 and 4(7) of the Cenvat Credit Rules, 2004 together, the recipient may take credit on the basis of the prescribed invoice and payment, and the Board circular indicates that action need not be taken against the recipient in the absence of mala fides. On that basis, denial of credit was unwarranted and refund of accumulated unutilised credit on export of output services was admissible.

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Issues: Whether credit of service tax paid on input services could be denied, and whether refund of accumulated unutilised credit was admissible, merely because the service providers had not remitted the tax to the Government.

Analysis: Rule 3 of the Cenvat Credit Rules, 2004 permits credit of service tax paid on input services. Rule 4(7) allows such credit after payment of the value of input service and the service tax paid or payable as shown in the prescribed invoice, and Rule 4(1) similarly permits credit on receipt of inputs. Reading these provisions together, the taking of credit is not made contingent upon actual remittance of tax by the supplier. The Board circular further clarifies that action need not be taken against the recipient when the bona fide nature of the transaction is not in dispute. Since there was no indication of mala fide arrangement and the recipient had paid the service value and tax as billed, denial of credit was unwarranted.

Conclusion: The recipient was entitled to take credit of service tax on the input services, and refund of the accumulated credit on export of output services was admissible. The impugned orders were set aside and the appeals were allowed.

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