High Court affirms CENVAT credit for Input Service Distributor pre-registration invoices

The High Court upheld the Customs, Excise & Service Tax Appellate Tribunal's decision in favor of the assessee, allowing CENVAT credit on invoices/debit notes issued by Input Service Distributor (ISD) before registration. The Court emphasized that denial of credit based on procedural irregularity was unjustified, following the precedent set by other High Courts. The appeal by the Revenue was dismissed, affirming the assessee's entitlement to the credit despite the pre-registration issuance of invoices/debit notes.

---

---

Issues:
1. Interpretation of statutory provisions and rewriting of provisions by Tribunal.
2. Eligibility of CENVAT credit on invoices/debit notes issued by Input Service Distributor (ISD) prior to registration.

Issue 1: Interpretation of statutory provisions
The appeal by the Revenue under Section 35G of the Central Excise Act, 1944 challenged the order passed by the Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Bengaluru. The substantial questions of law considered were whether the Tribunal overlooked statutory provisions enacted by Parliament, resulting in rewriting of provisions, and whether the Tribunal was correct in holding that CENVAT credit can be availed on invoices/debit notes issued by ISD prior to their registration under the Service Tax Rules. The dispute arose when the department found that the assessee had availed and utilized CENVAT credit on input services based on invoices/debit notes issued by the head office before its registration as ISD. The Commissioner concluded that the assessee was not entitled to CENVAT credit, leading to an appeal before the CESTAT, which ruled in favor of the assessee.

Issue 2: Eligibility of CENVAT credit on pre-registration invoices
The Revenue argued that the respondent was not entitled to avail CENVAT credit on invoices/debit notes issued before the head office's registration as ISD, citing notification No.27/2005-ST. The Department contended that registration of ISD was mandatory for availing CENVAT credit of input services. However, the respondent's counsel relied on the judgment of the High Court of Gujarat and a Circular issued by the Ministry of Finance, emphasizing that the Rules did not automatically disentitle an ISD from availing CENVAT credit unless registration was applied and granted. The Department accepted the judgment of the High Court of Gujarat, acknowledging that substantial benefit cannot be denied due to procedural irregularity. The High Court, referring to the judgments of the High Courts of Gujarat and Madras, upheld that denial of CENVAT credit based on procedural irregularity was not justified, and input tax credit could not be denied in such cases.

In conclusion, the High Court dismissed the appeal, affirming that the CENVAT credit claimed by the respondent on pre-registration invoices was a procedural irregularity and that the view of the High Court of Gujarat, accepted by the Department, supported the assessee's entitlement to the credit. The substantial questions of law were answered in favor of the assessee, leading to the dismissal of the appeal by the Revenue.

---