Cenvat credit reversal cannot rest on non-taxable services or unproven personal use of input services.

Cenvat credit reversal was held unsustainable for export cargo handling because that activity was not a taxable exempted service for purposes of the 8% reversal rule. Credit relating to supply of tangible goods was also disallowed incorrectly, as the service came into force only on 16.05.2008 and the disputed period preceded its introduction. For repair of cars and telephone services, no evidence established employee personal use, and landline telephone credit had already been accepted in settled precedent. On these facts, the demand for credit reversal, together with penalty and interest, was set aside.

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Issues: Whether the demand of reversal of Cenvat credit and the consequential penalty and interest were sustainable in respect of credit attributed to export cargo handling, supply of tangible goods prior to its introduction, and repair and telephone services.

Analysis: Export cargo handling was treated as an activity outside the scope of taxable exempted services, so 8% reversal on that basis was not maintainable. The service of supply of tangible goods was introduced only on 16.05.2008, and the disputed period preceded that date, making the demand unsustainable on that count. As to repair of cars and telephone services, no evidence showed personal use by employees, and landline telephone credit had already been recognized as eligible in settled precedent. Since the credit itself was not liable to be denied, the penalty and interest demands could not survive.

Conclusion: The demand, penalty, and interest were not sustainable and were set aside in favour of the assessee.

Ratio Decidendi: Services that are not taxable exempted services cannot be treated as exempted services for Cenvat reversal, and credit cannot be disallowed without establishing ineligibility on the facts.

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