HC quashes CESTAT split decision on CENVAT credit for insurance companies from automotive dealer invoices

The HC quashed a CESTAT Member (Technical)'s order that created a split decision on CENVAT credit availability for insurance companies on invoices from automotive dealers. The court held that coordinate CESTAT benches had already decided this issue in favor of allowing such credits in multiple precedents, including Cholamandalam and ICICI Lombard cases. The HC ruled that referring the matter to a third member was unnecessary when coordinate benches had consistently held that denying CENVAT credit was unreasonable when tax was already paid by dealers to the government. The petition was allowed, emphasizing judicial discipline and the doctrine of precedents.

---

---

Issues Involved:
1. Validity of the CESTAT order dated 25.07.2023.
2. Eligibility of the petitioner to avail CENVAT credit on service tax charged by automobile dealers.
3. Impact of unsigned invoices on CENVAT credit eligibility.
4. Judicial propriety and adherence to precedent in tribunal decisions.

Issue-wise Detailed Analysis:

1. Validity of the CESTAT Order Dated 25.07.2023:
The petitioner, engaged in general insurance services, challenged the CESTAT order dated 25.07.2023, which was prejudicial due to a split verdict between the Judicial and Technical Members. The Member (Judicial) allowed the appeals, while the Member (Technical) dismissed them, leading to a reference to a third Member. The petitioner argued that the split verdict and subsequent reference were unnecessary as the issue had been settled by previous decisions of coordinate benches of the Tribunal and the jurisdictional High Court. The court found that the prejudicial portion of the CESTAT order was passed in derogation of established precedents and quashed it, emphasizing the need for judicial discipline and adherence to binding precedents.

2. Eligibility of the Petitioner to Avail CENVAT Credit on Service Tax Charged by Automobile Dealers:
The petitioner argued that the dealers provided infrastructure support services and paid service tax, which the Department had accepted for years without dispute. The Department's investigation concluded that the dealers, not being authorized insurance agents, could not solicit insurance business or receive commissions, and the invoices raised were a means to pass insurance commissions under the guise of services. The petitioner relied on several decisions, including the High Court's ruling in Modular Auto Ltd. and Tribunal decisions in Cholamandalam MS General Insurance Co. Ltd. and ICICI Lombard General Insurance Co. Ltd., which held that unless the assessment at the dealer's end is revised, the credit at the recipient's end cannot be denied. The court upheld this view, stating that the denial of CENVAT credit at the recipient's end without questioning the dealer's assessment was unjustified.

3. Impact of Unsigned Invoices on CENVAT Credit Eligibility:
The petitioner contended that the denial of CENVAT credit on unsigned invoices was untenable, as the tax was paid, and the invoices were not fake or bogus. The Department argued that the invoices did not conform to Rule 4A of the Service Tax Rules, 1994. The court referred to the Tribunal's decision in Automax vs. CCE Delhi, which held that credit cannot be denied merely due to incorrect descriptions in invoices if the duty paid and receipt of goods are undisputed. The court agreed with the petitioner, stating that the absence of signatures on invoices did not justify denying CENVAT credit.

4. Judicial Propriety and Adherence to Precedent in Tribunal Decisions:
The petitioner argued that the Tribunal failed to follow binding precedents set by coordinate benches and the jurisdictional High Court, leading to an arbitrary and perverse decision. The court emphasized the importance of judicial discipline, citing the Supreme Court's rulings in Union of India vs. Kamlakshi Finance Corporation Ltd. and East India Commercial Co. Ltd. vs. Collector of Customs, Calcutta, which mandate that coordinate benches must follow established precedents. The court criticized the Tribunal's deviation from settled law and reiterated that judicial propriety requires adherence to binding decisions. The court concluded that the reference to a third Member was unnecessary and quashed the prejudicial portion of the CESTAT order.

Conclusion:
The court allowed the writ petitions, quashing the prejudicial portion of the CESTAT order dated 25.07.2023. The court emphasized the need for judicial discipline and adherence to binding precedents, holding that the denial of CENVAT credit to the petitioner was unjustified without revising the dealer's assessment. The court also ruled that unsigned invoices did not warrant denying CENVAT credit.

---