2018 (12) TMI 1018 - AT - Central Excise

CENVAT Credit - duty paying documents or not - invoices issued prior to registration by an ISD - Held that - It has been consistently held that non-registration by an ISD is merely procedural in nature and hence credit cannot be denied - present issue is settled in favour of the assessee by the decision of the Hon ble High Court of Gujarat in the case of CCEx., Vs. Dashion Ltd. 2016 (2) TMI 183 - GUJARAT HIGH COURT - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Denial of Cenvat Credit on the ground of distribution by Input Service Distributor (ISD) prior to registration.

Analysis:
The appellant, engaged in manufacturing paints and varnishes, appealed against the denial of Cenvat Credit by the Commissioner of Central Excise, Kolkata, due to distribution by ISD before registration. The appellant availed Cenvat Credit on inputs and input services, with the Head Office handling goods from various manufacturing units and paying service tax on common services. The dispute arose from the denial of credit distributed by ISD before registration for a specific period. The Adjudicating Authority disallowed the credit, ordered recovery with interest, and imposed a penalty under Section 11AC of the Central Excise Act, 1944, leading to the appeal before the Tribunal.

The Tribunal noted that the issue of credit validity from invoices distributed by ISD before registration is well-settled, following the decision of the Hon’ble High Court of Gujarat in a specific case. The Rules allowed an ISD to distribute credit to manufacturing units, subject to certain conditions. The Tribunal found that the Department's objections regarding credit utilization and non-registration of ISD were not tenable. The absence of a previous restriction on credit distribution and the procedural nature of non-registration were crucial in the Tribunal's decision. The Tribunal emphasized that mere wrongful availment of credit, without intent to evade duty payment, was insufficient to impose a penalty.

Moreover, a circular by the CBEC accepted the High Court's decision, emphasizing that substantial benefit should not be denied due to procedural irregularities. The circular highlighted a case where the Department's objections regarding credit utilization and non-registration of ISD were dismissed by the High Court. The Court ruled that non-registration of ISD was a procedural irregularity that should not lead to denying Cenvat Credit when all necessary records were maintained. Consequently, the Tribunal set aside the impugned order and allowed the appellant's appeal.

In conclusion, the Tribunal's detailed analysis emphasized the procedural nature of non-registration by ISD and the importance of maintaining necessary records. The decision underscored that procedural irregularities should not result in denying Cenvat Credit when the core requirements are met, aligning with the legal principles established by the High Court and the CBEC circular.