2026-VIL-1796-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Admissibility of CENVAT credit of service tax paid by job workers on exempted job work under Notification No. 25/2012-ST - Rule 2(l)(ii) of CENVAT Credit Rules, 2004 read with Section 5A(1A) of Central Excise Act, 1944 – Appellant took CENVAT credit of service tax charged by job workers on job work charges. The Department held that the job work was exempt from the whole of the service tax under Notification No. 25/2012-ST, and so could not be an input service under Rule 2(l)(ii) - Whether the Appellant can be denied CENVAT credit of the service tax paid by its job workers on the ground that the job work was exempt and the tax ought never to have been paid - HELD - The case of the Revenue holds only if the law compels the provider of an exempt service to avail the exemption. Section 5A(1A) of the Act, which forbids a manufacturer to pay duty where an exemption has been granted absolutely, does not travel into the Finance Act, 1994. Section 83 of the Finance Act, 1994 takes in only sub-section (2A) of Section 5A. The omission of sub-section (1A) must be taken to be deliberate and cannot be supplied by construction. A provider of a taxable service is therefore under no obligation to avail an exemption, and tax paid by it is not tax paid without the authority of law - Nothing in Rule 2(l)(ii) makes the character of a service as an input service depend on whether the service is taxable in the hands of its provider. The SCN did not doubt that the job work was used in or in relation to the manufacture of the final products, and the objection therefore reads into the definition a condition which it does not contain - Further, the tax paid by the job workers was accepted by the Department without demur, and nothing on record showed that their assessments were reopened or that the tax was refunded. The Revenue cannot retain the tax as validly paid at the end of the provider and treat it as tax which ought not to have been paid when the recipient claims credit - The credit having been rightly availed, the demand fails. Interest, being accessory to the demand, cannot survive. The penalty under Rule 15(1) presupposes that credit has been wrongly taken or utilised and becomes untenable - The impugned order is set aside and the appeal is allowed
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