CENVAT Credit Rules: ISD recovery of disputed credits disallowed under Rule 14

The Tribunal held that recovery of CENVAT Credit from an Input Service Distributor (ISD) against disputed credits to manufacturing units is not permissible under Rule 14 of the CENVAT Credit Rules, 2004. The demand against the ISD was deemed unsustainable, and the disputed credits were found admissible. The appeals were allowed, setting aside the Commissioner's order with consequential relief.

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Issues involved: Confirmation of demand for recovery of CENVAT Credit from Input Service Distributor (ISD) against credits disputed by it to its manufacturing units along with interest and penalty under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11 of the Central Excise Act for three different periods by one common Order-in-Appeal passed by the Commissioner of GST & Central Excise (Appeals-Thane), Mumbai is assailed in these three appeals.

Facts of the case:
The Appellant's Thane Office was registered as ISD during the Service Tax regime for its several manufacturing units located Pan India, primarily engaged in manufacturing Cement and Clinker. The Appellant reimbursed Excise duty and other expenses made by M/s. BCCL, a sister concern, which was involved in receiving and supplying bulk cement. An EA-2000 Audit raised objections to certain credits availed by the Appellant, leading to a show-cause cum demand notice for refund of the entire amount with interest and penalties. The Adjudicating Authority passed an Order-in-Original confirming the demand, proportionate interest, and equal penalty. The appeal before the Commissioner (Appeals) was unsuccessful, covering the period from financial year 2010-11 to 2014-15, April 2015 to June 2017, and April 2015 to March 2016 in respect of distribution of credit to its manufacturing units at Karnataka and Chandipur.

Appellant's Arguments:
During the hearing, the Appellant's Counsel argued that demand against allegedly irregular credit is not maintainable against an ISD, citing Rule 14 that permits recovery only against the "person" who has availed credit. The Counsel also contended that credits on various services should not be denied, as the services were essential for the Appellant's operations. The Counsel relied on various judgments to support the Appellant's stand on the availment of credits and argued against the imposition of penalties.

Respondent's Arguments:
The Authorised Representative for the Respondent-Department supported the order passed by the Commissioner (Appeals), arguing that show-cause notices to ISDs were valid based on previous Tribunal decisions. The Representative defended the inadmissibility of credits, stating that the Commissioner had correctly examined the documents and found the credits to be inadmissible.

Judgment:
After reviewing the case record, written submissions, and relevant circulars, the Tribunal held that Rule 14 of the CENVAT Credit Rules, 2004 can only be applied against the manufacturer/service provider who availed the credit, not against the ISD. The Tribunal highlighted previous judgments and circulars supporting this position. The Tribunal found that the demand raised against the ISD was not sustainable in law, and the disputed credits were deemed admissible. Consequently, the appeals were allowed, and the order of the Commissioner (Appeals) was set aside with consequential relief.

Separate Judgment:
The Order was pronounced in the open court on 13.09.2023 by Dr. Suvendu Kumar Pati, Member (Judicial) of the Appellate Tribunal CESTAT Mumbai.

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