2019 (1) TMI 444 - AT - Service Tax

CENVAT Credit - distribution of credit by ISD in respect of capital goods - denial of credit on the ground that equipments being in the nature of capital goods credit of duty paid on such equipments cannot be passed on by an ISD - Held that - The distribution of capital goods credit by the head office prior to introduction of Rule7(a) of the CCR 2004, or, for that matter, the transfer of credit availed on the basis of a M.R.O which is not listed as an acceptable document for the purpose of Rule 9 of the CCR cannot be disallowed only on the basis of such procedural infractions - the procedural inadequacies will not be enough to deny the availment of credit by assessee in respect of various equipments etc. imported by their head office and distributed to the former by way of M.R.Os. The ratio laid down in Cosmos Casting India Ltd. 2011 (2) TMI 511 - CESTAT, NEW DELHI will apply on all fours in favour of the appellant, where it was held that When there is no dispute about the realisation of the demand by the exchequer, the technicalities shall not be a bar to deny credit to the assessee. Appeal dismissed - decided against Revenue.

Summary

Issues involved:
- Denial of input Cenvat credit by the original authority
- Validity of distribution of capital goods credit by the head office
- Applicability of Rule 7(a) of the Cenvat Credit Rules, 2004
- Allegation of suppression of facts and imposition of penalty under Section 78
- Interpretation of legal provisions regarding deemed sale and service tax liability

Analysis:

1. Denial of input Cenvat credit:
The dispute centered around whether the credit availed by the respondent-assessee on various imported equipments and materials distributed by their head office as an Input Service Distributor (ISD) was in accordance with the law. The original authority contended that an ISD can only distribute service tax credit on input services, not on capital goods. However, the Tribunal found merit in the assessee's assertions that the equipments were imported, suffered duty, and were actually transferred to them. The Tribunal held that denial of credit solely on procedural grounds was not justified, especially when the capital goods were used for providing output services.

2. Validity of distribution of capital goods credit:
The Tribunal noted that the assessee, being a PAN India service provider, had the impugned equipment imported by their head office for accounting purposes. The Tribunal emphasized that the procedural inadequacies in the distribution of credit by the head office should not be a reason to disallow the assessee's claim for credit on the imported equipments. The Tribunal relied on legal precedents to support their decision that such procedural infractions should not hinder the availment of credit by the assessee.

3. Applicability of Rule 7(a) of Cenvat Credit Rules, 2004:
The Tribunal highlighted that Rule 7(a) allowing credit on capital goods received from an ISD was introduced later, and the denial of credit based on this rule before its implementation was not justified. The Tribunal emphasized that credits on capital goods used by the assessee for providing output services should not be denied based on technicalities surrounding the distribution process.

4. Allegation of suppression of facts and penalty under Section 78:
The Tribunal considered the argument regarding suppression of facts and the imposition of penalty under Section 78 of the Finance Act, 1994. The Tribunal noted that the assessee had been regularly filing returns and paying service tax, indicating no deliberate suppression. Therefore, the Tribunal held that the penalty under Section 78 was not applicable in this case.

5. Interpretation of legal provisions regarding deemed sale and service tax liability:
The Tribunal addressed the issue of whether the renting of set-top boxes amounted to deemed sale and whether service tax was applicable. The Tribunal considered the bonafide belief of the assessee regarding the tax liability on the rental charges and deemed sale transactions. The Tribunal concluded that the extended period for invoking penalties was not applicable in this case due to the issue being a matter of interpretation of legal provisions.

In conclusion, the Tribunal rejected the department's appeal on the issues related to denial of input Cenvat credit, distribution of capital goods credit, and suppression of facts. The Tribunal's decision was based on the procedural inadequacies not being sufficient to deny the credit to the assessee and the lack of merit in the penalty imposition under Section 78.