2019 (5) TMI 128 - AT - Central Excise

Distribution of CENVAT Credit - ISD - non-distribution of credit on pro-rata basis u/r 7 of CCR - duty paying documents - improper documents - credit availed also on invoices issued to the Head Office - HELD THAT - With regard to amount of ₹ 1,73,33,050/-, the ld. counsel for appellant has submitted that the issue is not contested on merits. He submitted that the appellant could not furnish the documents to the adjudicating authority and has reversed the credit even prior to issuance of the show cause notice - Penalty also unwarranted - demand do not sustain. Denial on the ground that the manufacturing unit has availed credit on the invoices issued on ISD (name and address of the Head Office) - denied also on the ground that certain services were not included in the ISD registration during the disputed period and required endorsement for including such services were not obtained by the appellant - HELD THAT - In M/S. WABCO INDIA LTD. VERSUS CCE, CHENNAI-II 2018 (5) TMI 777 - CESTAT CHENNAI , the Tribunal has relied upon the decision of the Hon ble High Court of Gujarat in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS DASHION LTD 2016 (2) TMI 183 - GUJARAT HIGH COURT which held that even if Head Office did not obtain ISD registration, the credit distributed cannot be denied - credit cannot be denied on this ground. Period from January 2010 to August 2011 - Denial on the ground that the entire credit has been distributed to the manufacturing unit and that the ISD registered Head Office has not distributed on pro-rata basis as required under Rule 7 - HELD THAT - The period is prior to 1.4.2012 and the requirement of pro-rata distribution was introduced with the amendment brought forth with effect from 1.4.2012. The Hon ble High Court of Karnataka in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE-I COMMISSIONERATE VERSUS ECOF INDUSTRIES (P.) LTD. 2011 (4) TMI 560 - KARNATAKA HIGH COURT has held that prior to 1.4.2012, the assessee cannot be compelled to comply with the requirement of pro-rata distribution - the credit availed is legal and proper. The impugned order is modified to the extent of setting aside the penalty in respect of an amount of ₹ 1,73,33,052/- confirmed in the impugned order and also set aside the demand of ₹ 3,74,77,389/- entirely - appeal allowed in part.

Summary

Issues:
- Availing irregular credit without proper documents
- Failure to distribute credit on a pro-rata basis
- Disallowance of credit on invoices issued to the Head Office
- Disallowance of credit due to lack of ISD registration endorsement
- Disallowance of credit for not making pro-rata distribution

Analysis:

The appellant, engaged in manufacturing power cord and telecommunication cables, availed CENVAT credit on inputs, capital goods, and input services. They had an Export Oriented Unit (EOU) registered with the Customs Department, later transferred to the Central Excise Department. The appellant also operated as a dealer at Ponneri Taluk. The appellant maintained a combined balance sheet for EOU, DTA Unit, and dealer, managed by a common office at Neelankarai. Irregular credit availed without proper documents and failure to distribute credit on a pro-rata basis led to show cause notices for demanding input service credit, interest, and penalties. The adjudicating authority confirmed a demand of ?5,48,10,441/- along with interest and imposed penalties, resulting in the appeal.

Regarding the denied amounts, the appellant contested a portion but admitted and reversed a significant sum before the show cause notice issuance. The appellant argued against penalties citing Tribunal decisions supporting their case. The appellant's counsel highlighted procedural errors in availing credit on invoices issued to the Head Office, emphasizing the legality of such credit based on past decisions. The counsel also referenced Rule 9(2) of CCR, 2004, to support their argument against disallowance due to invoices being in the Head Office's name.

The appellant further argued against disallowance based on lack of ISD registration endorsement, citing legal precedents and circulars supporting credit availment even before registration. They contended that disallowance for not making pro-rata credit distribution was unjustified during the disputed period, as the requirement was introduced later. The counsel emphasized that penalties and the invocation of the extended period were unwarranted.

The respondent supported the findings in the impugned order, emphasizing the appellant's lack of necessary documents for availing credit. The respondent argued against credit on invoices issued to the Head Office, asserting that credit should only be based on ISD unit documents.

The Tribunal considered the arguments and legal precedents presented by both sides. They set aside penalties for a specific amount and completely overturned the demand for another amount. The Tribunal ruled in favor of the appellant concerning credit disallowance for various reasons, including invoices issued to the Head Office and lack of pro-rata distribution, citing legal precedents and the absence of legal grounds for disallowance during the relevant period. The impugned order was modified accordingly, partially allowing the appeal with consequential relief as per law.