2018 (1) TMI 306 - HC - Central Excise

Utilization of CENVAT credit - non-compliance of Rule 7 and 9 of the CENVAT Credit Rules, 2004 read with Rule 4A(2) of the Service Tax Rules, 1994 - only objection raised by the revenue in the present appeal appears to be that the procedure required to be followed for transfer of CENVAT credit has been violated and therefore the assessee was not entitled to avail CENVAT credit at the manufacturing unit. Held that - the CENVAT Rules read with Service Tax Rules do not prescribe or require primary evidence of CENVAT credit arising to be transmitted by the Input Service Distributor /head office to it's manufacturing unit where such credit is to be utilised. Those Rules only require details of such existing CENVAT credit to be transmitted. Obviously, the eventual utilisation would have to be equal to and reconcile with the exact/correct figures of CENVAT credit available with the Input Service Distributor before it's transfer to the manufacturing unit - However, as noted above, there is no allegation of excess claim made by the assessee. Merely because the assessee here had provided the details on it's letter head, it would not entail any further, other or new inquiry mechanism or step to be taken by the revenue to make such reconciliation. It would make no material difference to the revenue. In so far as it is admitted to the revenue that the CENVAT credit that had been transferred to the manufacturing unit had arisen at its head office, mere non-issuance of the invoice bill/challan while transferring that CENVAT credit to another manufacturing unit (of the same assessee) appears to be a purely technical infringement arising from absence of form rather than absence of substance. It is the substance and contents of the documents that was relevant to be disclosed in the interest of revenue and not the form on which such details were required to be furnished. For instance, an invoice if issued is either wanting in necessary details or the details that are filled up are wrong, the assessee would not be entitled to any benefit - no prejudice appears to have been caused to the revenue merely on account of issuance of the letter by the assessee, as has been done in the instant case. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Eligibility of the head office to issue documents for passing on CENVAT credit.
2. Eligibility of a manufacturer to avail and utilize CENVAT credit based on non-prescribed documents.
3. Allowance of CENVAT credit based on documents lacking statutory information.

Issue-wise Detailed Analysis:

1. Eligibility of the Head Office to Issue Documents for Passing on CENVAT Credit:
The primary issue was whether the head office, not registered under Notification No. 26/2005-Service Tax, could issue documents to pass on CENVAT credit to its manufacturing unit. The court noted that the head office, being an "Input Service Distributor," had sufficient CENVAT credit available and had transferred this credit to its manufacturing unit through a letter containing all necessary details. The revenue's objection was based on the non-compliance with Rule 7 and 9 of the CENVAT Credit Rules and Rule 4A(2) of the Service Tax Rules, which mandate the issuance of an invoice, bill, or challan. The court found that the purpose of these rules was to ensure proper distribution and verification of CENVAT credit and that the letter issued by the head office, containing all required details, served this purpose. Therefore, the head office was eligible to issue such documents, and the substantial compliance with the rules was sufficient.

2. Eligibility of a Manufacturer to Avail and Utilize CENVAT Credit Based on Non-Prescribed Documents:
The court examined whether the manufacturer could avail and utilize CENVAT credit based on documents not prescribed under Rule 9 of the CENVAT Credit Rules. It was found that the manufacturer had received a letter from the head office containing all necessary details required for CENVAT credit distribution. The court emphasized that the substance of the information provided was more important than the form of the document. As long as the details were accurate and verifiable, the manufacturer was eligible to avail and utilize the CENVAT credit. The court held that the rules were directory and not mandatory, and substantial compliance was sufficient to meet the requirements.

3. Allowance of CENVAT Credit Based on Documents Lacking Statutory Information:
The issue was whether CENVAT credit could be allowed based on documents that did not contain statutory information as per Rule 4A(2) of the Service Tax Rules. The court noted that the letter issued by the head office contained all necessary details, such as the name and address of the service provider, the amount of credit distributed, and other relevant information. The court referred to previous judgments, emphasizing that procedural rules should be interpreted in a manner that serves their purpose without causing undue hardship. The court concluded that the rules were directory and that substantial compliance with the requirements, as demonstrated by the letter, was sufficient. There was no prejudice to the revenue, and the assessee had rightfully availed the CENVAT credit.

Conclusion:
The court dismissed the revenue's appeal, holding that the head office was eligible to issue documents for passing on CENVAT credit, the manufacturer was eligible to avail and utilize CENVAT credit based on the letter, and the substantial compliance with the statutory requirements was sufficient. The rules were interpreted as directory, and no prejudice was caused to the revenue. The appeal was dismissed with no order as to costs.