CESTAT Mumbai Rules CENVAT Credit Cannot Be Denied Service Tax Paid By Grindwell Norton Supplier

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 17 February set aside the denial of Cenvat Credit of Rs. 3,99,183 to Grindwell Norton Ltd., reiterating that once service tax has been paid by the service provider and accepted by the department, it cannot be questioned.

A Single Member Bench comprising Dr. Suvendu Kumar Pati (Judicial Member) passed the Final Order, noting that the disputed invoices were raised by the job worker under a belief that the services were taxable.

The Bench stated:

“Admittedly in the instant case disputed invoices were raised by the job worker under a belief, may be erroneous, that such service was taxable and it had paid the tax that was appropriated by the Department under self-assessment provision… error if any, noticeable by the Department, is not on the part of the appellant but on the part of the service provider (Job Worker)… legality of such payment of service tax by the service provider cannot be questioned at the recipient's end so as to deny Cenvat Credit to it/him.”

Grindwell Norton, engaged in the manufacture of excisable goods such as self-adhesive foil tapes and electrical insulator tapes, had availed Cenvat Credit on input services used in relation to manufacture. A Show Cause Notice dated 16 June 2020 sought reversal of Rs. 3,99,183 on the ground that job work services were covered under the negative list under Section 66D(f) of the Finance Act, 1994. A demand under the reverse charge mechanism on manpower recruitment services was also proposed.

While the Adjudicating Authority dropped the demand relating to reverse charge services, it confirmed denial of Cenvat Credit with interest and penalty. The Commissioner (Appeals) upheld the denial, leading to the present appeal.

Before the Tribunal, Grindwell Norton submitted that the disputed credit related to job work services for printing metal sheets, which were treated as taxable by the service provider and for which service tax was duly paid. It argued that reassessment of such taxability, if required, could only be undertaken by the jurisdictional authority of the service provider and not by the officer having jurisdiction over the recipient.

The Department contended that during the relevant period, job work services fell under the negative list, and credit was therefore not admissible under Rule 3(1) of the CENVAT Credit Rules, 2004.

After examining the record, the Tribunal noted that the job worker had paid service tax under self-assessment, and the payment had not been disputed by the jurisdictional officer of the service provider. The Department had not denied receipt of tax nor the use of such services in manufacture by the appellant.

The Bench observed that if there was any error, it was on the part of the service provider, not the recipient. It further held that the jurisdictional authority of the recipient cannot initiate reassessment of service tax paid by a supplier situated in another territorial jurisdiction.

Relying on settled law, including the Supreme Court's decision in CCE vs. MDS Switchgear Ltd., the Tribunal held that the legality of tax paid by the service provider cannot be questioned at the recipient's end for denying CENVAT Credit.

Accordingly, the Tribunal allowed the appeal and granted consequential relief to Grindwell Norton.

Appearance for the Appellant: Shri Vinay S. Sejpal, Advocate

Appearance for the Respondent: Shri Ranjan Kumar, Asstt. Commissioner, Authorised Representative