2008 (10) TMI 141 - AT - Service Tax

Tribunal grants CENVAT credit on capital goods, emphasizes substantive over procedural requirements.

BHARAT SANCHAR NIGAM LTD. Versus CCE, SALEM

The Tribunal ruled in favor of the appellants, holding them eligible for CENVAT credit on capital goods received during the disputed period of 2004-05 and ... Denial of credit on capital goods on the ground that the credit had been taken by SSA Salem without there being invoice issued by registered “first stage dealer” - since substantive conditions of taking credit i.e. capital goods are duty paid and used in output service are satisfied by appellant, credit cannot be denied - since registration is a mere a procedural requirement, credit can’t be denied on a procedural ground – credit allowed on Capital Goods received at SSA Salem from CSD, Madurai Issues:Denial of CENVAT credit on capital goods for the period 2004-05 and 2005-06 due to lack of invoices from a registered first stage dealer.Analysis:The appeal challenges the denial of CENVAT credit on capital goods amounting to over Rs. 32 lakhs for the period 2004-05 and 2005-06. The appellants, a telecom service provider, divided the country into Secondary Switching Areas (SSAs) and had a Central Stores Department (CSD) at Madurai supplying capital goods to SSAs like Salem. The denial of credit was based on the lack of invoices from a registered first stage dealer prior to September 2005.The appellant argued that CSD, Madurai is not a dealer in the traditional sense but merely transfers goods to SSAs for rendering taxable services. They contended that the CENVAT credit should not be denied based on procedural grounds, citing relevant case law. The transfer of goods was supported by manufacturer's invoices and Stores Issue Notes, fulfilling substantive conditions for the credit.The authorities referred to the definition of 'first stage dealer' and CENVAT Credit Rules, emphasizing the necessity of specific documents for availing credit. They defended the denial of credit based on procedural non-compliance during the disputed period.The Tribunal noted that post-September 2005, CENVAT credit was being availed by Salem SSA from CSD, Madurai. It emphasized that substantive benefits cannot be denied on procedural grounds if substantive conditions are met. While CSD, Madurai did not fit the definition of a first stage dealer, registration alone was insisted upon post-September 2005, indicating a procedural shift. The Tribunal ruled in favor of the appellants, holding them eligible for CENVAT credit on capital goods received during the disputed period, setting aside the impugned order.