2023 (10) TMI 955 - AT - Central Excise

Tribunal Allows Appeal: Procedural Irregularity of ISD Registration Doesn't Disqualify CENVAT Credit; 100% Credit Distribution Permitted

Unifrax India Ltd Versus C.C.E. & S.T. -Bhavnagar

The Tribunal set aside the impugned order and allowed the appeal. It held that the lack of ISD registration was a procedural irregularity that did not ... Reversal of CENVAT Credit distributed by its head office prior to its registration as Input Service Distributor - HO (registered as ISD) of the appellant while distributing 100% of the credit to a single unit has contravened the mandate under Rule 7 (d) of CENVAT Credit Rules, 2004 (as existed during the relevant period) or not. Whether the appellant can avail the CENVAT Credit on ISD invoice which was issued by their head office without having ISD registration is correct or otherwise? - HELD THAT:- There is no dispute about the payment of Service Tax on the service received by the appellant. Therefore, merely because the ISD invoice was issued without having registration of the appellant’s head office, the fact of the payment of Service Tax will not get extinguished. Hence the credit cannot be disallowed. This issue has been considered by the Hon’ble Jurisdictional Gujarat High Court in the case of M/s. Dashion Ltd [2016 (2) TMI 183 - GUJARAT HIGH COURT], wherein the Hon’ble Court has held Tribunal, in our opinion, rightly did not disentitle the assessee from the entire Cenvat credit availed for payment of duty. Before the amendment was carried out in the year 2016, the assessee was given the option to distribute the CENVAT Credit to one unit or also to other unit, and provision for proportionate credit was brought only post amendment of 2016. Therefore, it is at the option of the head office whether it wanted to distribute the credit to the appellant only or to distribute it to other units. Therefore, in view of existing provisions of CENVAT Credit Rules, 2004 during relevant period, the 100% credit availed by the appellant is in order in terms of Rule 2007, existing at the relevant time. Therefore on this count also the adjudicating authority has wrongly denied the credit. The impugned order is set aside. The appeal is allowed. Issues Involved:(A) Whether the appellant is liable to reverse the CENVAT Credit distributed by its head office prior to its registration as Input Service DistributorRs.(B) Whether the HO (registered as ISD) of the appellant while distributing 100% of the credit to a single unit has contravened the mandate under Rule 7(d) of CENVAT Credit Rules, 2004 (as existed during the relevant period)Rs.Summary:Issue (A):The appellant argued that the issue of distributing CENVAT Credit by the head office prior to its registration as an Input Service Distributor (ISD) is no longer res integra. Various judgments, such as CCE Vs. Hinduja Global Solutions Ltd (2022), CCE Vs. Dashion Ltd. (2016), and others, have consistently held that prior to ISD registration, credit can still be passed to the manufacturing unit. The Tribunal found that there is no dispute about the payment of Service Tax on the services received by the appellant. Therefore, the credit cannot be disallowed merely because the ISD invoice was issued without registration. This position was supported by the Gujarat High Court in M/s. Dashion Ltd., which stated that the lack of ISD registration is a procedural irregularity and does not disqualify the input service distributor from availing CENVAT credit.Issue (B):Regarding the distribution of 100% credit to a single unit by the head office, the appellant contended that prior to 2016, there was no restriction under Rule 7 of the CENVAT Credit Rules, 2004, on such distribution. This claim was supported by judgments like CCE Vs ECOF Industries Pvt Ltd (2011) and others. The Tribunal noted that Rule 7, both pre and post-2012 amendments, allowed the option to distribute CENVAT credit among units. The Bombay High Court in M/s. Overlikon Balzers Coating India Pvt Ltd (2018) interpreted that the option to distribute credit was at the discretion of the head office before the 2016 amendment, which made such distribution mandatory. Therefore, the Tribunal concluded that the 100% credit distribution by the appellant was in compliance with the relevant rules at the time.Conclusion:The Tribunal set aside the impugned order and allowed the appeal, noting that the procedural irregularity of not having ISD registration did not warrant the denial of CENVAT credit and that the distribution of 100% credit to a single unit was permissible under the rules existing during the relevant period. The issue of the demand being time-barred was left open. Pronouncement:The judgment was pronounced in the open Court on 19.10.2023.