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

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 disqualify the appellant from availing CENVAT credit. Additionally, 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.

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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.

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