2019 (2) TMI 1416 - AT - Central Excise

CENVAT credit - distribution of credit by the Head Office - Head Office is registered as an ISD - credit denied on the ground that - Held that - The rejection of credit is only for the reason of technical defects in the invoices. There is no dispute with regard to the services consumed - The argument of the ld. consultant that as per proviso to Rule 9(2), the AC / DC ought to have verified the accounts of the assessee when there are technical defects in the invoices is correct. The impugned order is modified to the extent of setting aside the penalty only without disturbing the disallowance of credit or the interest thereon - appeal allowed in part.

Summary

Issues:
1. Disallowance of credit due to technical defects in invoices.
2. Imposition of penalty under section 11AC r/w Rule 15(2) of CCR, 2004.

Analysis:

Issue 1: Disallowance of credit due to technical defects in invoices
The case involved the appellant, a manufacturer of paper products, who distributed credit among its manufacturing units through its registered Input Service Distributor (ISD) located at the Head Office. The department disallowed a portion of the credit amounting to &8377; 31,35,652/- distributed through 7185 entries, citing technical defects in the invoices. The appellant contended that the rejection was solely based on technical grounds, specifically the absence of necessary details like service value, service provider's registration number, and address in 50 ISD invoices out of 30,000 entries. The appellant argued that as per the proviso to Rule 9(2) of CCR, 2004, the authorities should have verified the accounts and allowed credit since there was no dispute regarding the services availed or tax paid. The Tribunal agreed that the disallowance was unjustified as it was solely due to technical defects in the invoices, and set aside the penalty while upholding the disallowance of credit and interest thereon.

Issue 2: Imposition of penalty under section 11AC r/w Rule 15(2) of CCR, 2004
Both the adjudicating authority and the Commissioner (Appeals) imposed an equal penalty on the appellant under section 11AC r/w Rule 15(2) of CCR, 2004. The appellant argued that since the disallowance was a result of technical defects in the documents, the penalty should not be imposed. The Tribunal, after considering the arguments from both sides, agreed with the appellant and held that the penalty imposed for wrongly availed credit was unwarranted. Consequently, the Tribunal modified the impugned order by setting aside the penalty while maintaining the disallowance of credit and interest thereon. The appeal was partly allowed with consequential relief, if any.

In conclusion, the Tribunal's judgment addressed the issues of disallowance of credit due to technical defects in invoices and the imposition of penalty under section 11AC r/w Rule 15(2) of CCR, 2004. The Tribunal found the disallowance unjustified and set aside the penalty, emphasizing that the rejection was solely based on technical grounds and there was no dispute regarding the services consumed.