2017 (2) TMI 15 - AT - Central Excise

CENVAT credit - inputs services availed by the appellant for rent paid in respect of their head office - denial on the ground that the head office has not been registered as Input Service Distributor (ISD) as defined under Rule 2 (m) of the Cenvat Credit Rules, 2004 and requires to be distributed in the manner laid down in Rule 7 ibid - Held that - reliance was placed in the case of Murugappa Morgan Thermal Ceramics Ltd. Versus Commissioner of Central Excise, Chennai 2016 (6) TMI 313 - CESTAT CHENNAI , where it was held that non-registration as ISD should not deprive the assessee of substantial benefit of credit - matter remanded to the original authority for de novo consideration - appeal allowed by way of remand.

Summary

Issues: Denial of cenvat credit on inputs services for rent paid due to non-registration as Input Service Distributor (ISD) under Cenvat Credit Rules, 2004.

The judgment concerns the denial of cenvat credit on inputs services for rent paid by the appellant for their head office due to non-registration as an Input Service Distributor (ISD) under the Cenvat Credit Rules, 2004. The Department contended that the credit was irregular as the head office was not registered as an ISD and should have been distributed as per Rule 7 of the Cenvat Credit Rules, 2004. Three show cause notices were issued for different periods, and on adjudication, the credits availed on rent were confirmed, along with interest. The adjudicating authority imposed a penalty of ?6000. The Commissioner (Appeals) set aside a portion of the order, holding the services as not "input service" but upheld the demand for reversal of total credit along with the penalty. The appellant argued that the non-registration as ISD was a procedural lapse, rectified by obtaining ISD registration later. The Tribunal referred to a previous order where it held that non-registration as ISD should not deprive the appellant of credit, and remanded the matter for re-consideration by the original authority.

The main issue revolved around whether the denial of cenvat credit on inputs services for rent paid due to non-registration as ISD was justified. The Tribunal held that non-registration as ISD should not deprive the appellant of the credit, considering it as a procedural lapse. The Tribunal referred to a previous order where it reached a similar conclusion and remanded the matter for further consideration by the original authority. The Tribunal emphasized that the appellant rectified the lapse by obtaining ISD registration later, and the denial of credit was not warranted due to this procedural issue.

The appellant argued that the denial of credit was unjustified, considering the rectification of the procedural lapse by obtaining ISD registration later. The Tribunal agreed with this argument, citing a previous order where it held that non-registration as ISD should not deprive the appellant of credit. The Tribunal emphasized that the tax payment nature was not disputed, and the denial of credit solely based on non-registration as ISD was not justified. The Tribunal set aside the penalty and remanded the matter for re-consideration by the original authority to determine any credit used for trading activities, if applicable.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the denial of cenvat credit on inputs services for rent paid due to non-registration as ISD was not justified. The Tribunal considered the non-registration as ISD a procedural lapse, rectified by obtaining ISD registration later, and remanded the matter for further consideration by the original authority. The Tribunal emphasized that the denial of credit solely based on non-registration as ISD should not deprive the appellant of the substantial benefit of credit.