Tribunal grants appeal, sets aside demand for irregular Cenvat credit, emphasizes procedural nature

The Tribunal allowed the appeal, setting aside the demand for irregular availment of Cenvat credit without ISD registration and proportionate credit distribution. Relying on precedents and a circular, the Tribunal emphasized that Rule 7 did not mandate ISD distribution proportionate to turnover and viewed non-registration as a curable defect. The decision highlighted the procedural nature of the issue and the revenue neutrality of the appellant's actions, ultimately granting consequential reliefs.

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Issues:
1. Irregular availment of Cenvat credit without Input Service Distributor (ISD) registration and proportionate credit distribution to other units.

Analysis:
The appellant, a manufacturer of automotive brake appliances, faced a demand alleging irregular availment of Cenvat credit without ISD registration and proportionate credit distribution to other units for services common to all its factories. The Commissioner confirmed the demands, but the appellants challenged this before the Tribunal.

On behalf of the appellants, it was argued that Rule 7 of the Cenvat Credit Rules does not mandate ISD distribution proportionate to turnover during the impugned period. The non-registration as ISD was considered a procedural and curable defect, not justifying denial of Cenvat credit. The appellant cited precedents like CCE Vs. Dashion Ltd. and CCE Vs. National Engineering Industries Ltd., which were accepted by the department as per Circular No. 1063/2/2018-CX. The argument emphasized that the exercise was revenue neutral, as there was no revenue loss to the government.

The department, represented by the Ld. AR, supported the findings in the impugned order, emphasizing the lack of ISD registration and proportionate credit distribution as the basis for the demand confirmation.

The Tribunal, referring to the case of Dashion Ltd., observed that Rule 7 did not restrict credit utilization without pro rata distribution by the ISD, making the objection invalid. The Tribunal viewed the non-registration as a curable defect, especially when full records were maintained and available for Revenue verification. The decision in Dashion Ltd. was accepted by the department through a circular, leading the Tribunal to set aside the impugned order and allow the appeal with consequential reliefs.

In conclusion, the Tribunal held that the demand could not sustain based on the precedent set by Dashion Ltd., emphasizing the procedural nature of the non-registration issue and the revenue neutrality of the appellant's actions.

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