Procedural lapse in Cenvat credit distribution does not justify denial where substantive eligibility is undisputed.

Cenvat credit could not be denied merely for absence of Input Service Distributor registration or for non-proportionate distribution of common input service credit where the relevant version of Rule 7 did not yet impose the later pro rata condition. The lapse was treated as procedural and curable, and the underlying entitlement to credit was not in dispute. In that setting, and against the backdrop of revenue neutrality, denial of credit was held unsustainable and the assessee succeeded.

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Issues: Whether Cenvat credit was deniable for want of Input Service Distributor registration and for non-proportionate distribution of common input service credit under Rule 7 of the Cenvat Credit Rules, 2004.

Analysis: The governing rule, during the relevant period, required distribution of credit subject to the then-existing conditions in Rule 7. The additional pro rata distribution requirement was introduced later. The absence of ISD registration was treated as a procedural irregularity, not as a substantive ground to deny credit, particularly where the eligibility to credit was otherwise not in dispute and the irregularity was curable. The demand was also viewed against the backdrop of revenue neutrality.

Conclusion: The credit denial was not sustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where the substantive entitlement to input service credit is not in dispute, a procedural lapse such as non-registration as ISD or absence of pro rata distribution under a subsequently introduced condition does not, by itself, justify denial of credit.

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