2014 (10) TMI 29 - AT - Service Tax

CENVAT Credit - Whether appellant as Zonal Audit Office of PNB could take Cenvat credit on the basis of invoices issued in their name and distribute the same to the branches as input service distributor - Held that - there is no dispute that the services in question had been received and are covered by the definition of Input service and if the appellant had obtained separate registration as input service distributor , there would have been no objection to availing Cenvat credit on the basis of invoices in the name of Zonal Audit Office and distributing the same to the branches of PNB. In the peculiar facts and circumstances of the case, when the Appellant, though not providing the banking/financial services, were registered as provider of banking service since 2004, they should be treated as registered as ISD also, as they were for all practical purposes, functioning as input service distributor and the availment of service tax credit and its distribution to various branches by issue of invoices were being reflected in the ST-3 returns being filed by them, which is what a registered Input Service Distributor would have done. Appellant could take the Cenvat credit and distribute the same by issuing invoices to their branches. The impugned order is, therefore, not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Whether the appellant, a Zonal Audit Office of a bank, could avail Cenvat credit and distribute it to branches without being registered as an input service distributor.

Analysis:
The appellant, a Zonal Audit Office of a bank, had obtained service tax registration for providing banking and financial services but were actually responsible for auditing branches within their jurisdiction. The concept of 'input service distributor' (ISD) was introduced, allowing the head office to avail Cenvat credit and distribute it to branches. During a specific period, the appellant, though not registered as ISD, took Cenvat credit based on invoices issued in their name and distributed it to branches. The Department issued a show cause notice for recovery, leading to a confirmation of demand and imposition of penalty by the Assistant Commissioner, upheld by the Commissioner (Appeals), resulting in the appeal before the Tribunal.

The appellant argued that they were under the impression that their service tax registration was for distributing credit, started availing credit as ISD from a certain date, and contended that denial of credit is unjustified since they were functioning practically as ISD. The Department defended the order citing previous judgments. The Tribunal noted that the appellant, as a Zonal Audit Office, were not providing banking services directly, and the dispute centered on their eligibility to avail Cenvat credit and distribute it as an ISD. The Tribunal found that the services received were covered under 'Input service' and that if the appellant had obtained separate registration as ISD, there would have been no objection to availing credit. In the given circumstances, the Tribunal held that the appellant, though not providing banking services, should be treated as registered ISD as they were functioning practically as one, reflected in their ST-3 returns. The Tribunal distinguished the cited judgments and allowed the appeal, setting aside the impugned order.

In conclusion, the Tribunal held that the appellant, a Zonal Audit Office of a bank, could take Cenvat credit and distribute it to branches by issuing invoices, even without being specifically registered as an input service distributor, based on the practical functioning and filing of returns as an ISD. The impugned order for recovery and penalty was set aside, and the appeal was allowed.