CESTAT Chennai allows input tax credit appeal against department's vague allegations and insufficient evidence

CESTAT Chennai allowed the appeal against disallowance of input tax credit. The tribunal held that when jurisdictional authorities did not dispute credit availed by input service distribution centres, the department cannot deny credit at manufacturing unit on vague allegations. The show cause notice lacked specific allegations regarding particular input services. Previous tribunal decisions in appellant's own case for different periods had allowed similar credits. Services including outdoor catering and works contract services for repair/maintenance were deemed eligible input services. The tribunal found no evidence that civil works were for factory setup and set aside the impugned order.

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Issues Involved:
1. Eligibility of input service credit availed by the appellant.
2. Nexus between the input services and the manufacturing activity.
3. Validity of the show cause notice issued by the department.
4. Previous judgments in similar cases of the appellant.

Issue-wise Detailed Analysis:

1. Eligibility of Input Service Credit:
The appellant, engaged in manufacturing Electrostatic Precipitators and Industrial Fans, availed input service credit based on Input Distributor Service Invoices from their Input Service Distributor (ISD) called "Cost Centres." The department contended that the services availed through ISD invoices lacked a nexus with the manufacturing activity, making them ineligible for credit. The services under dispute included Maintenance or Repair Service, Advertising Agency Service, Telecommunication Service, among others.

2. Nexus Between Input Services and Manufacturing Activity:
The appellant argued that the input services were used directly or indirectly in relation to the manufacture and clearance of final products, thus qualifying as input services under Rule 2(l) of Cenvat Credit Rules 2004. The Cost Centres, registered as ISDs, distributed the service tax credit to various manufacturing units and erection divisions based on turnover. The appellant maintained that the services procured and distributed by ISDs were essential for their manufacturing activities.

3. Validity of the Show Cause Notice:
The show cause notice alleged that the appellant failed to establish the use of input services in manufacturing activities. However, the appellant countered that the invoices for each service were available at the ISD level, and the credit distribution complied with Rule 7 of Cenvat Credit Rules 2004. The department's vague allegations lacked specific findings to deny the credit. The Cost Centres, subject to verification and audit by jurisdictional officers, had not faced any adverse findings regarding the credit availed.

4. Previous Judgments in Similar Cases:
The appellant cited previous judgments where similar show cause notices were issued and subsequently set aside. In the appellant's own case for earlier periods, the Tribunal and Commissioner (Appeals) had ruled in favor of the appellant, recognizing the eligibility of the disputed input services for credit. The Tribunal's Final Order No.42996/2018 dated 05.12.2018 and other orders highlighted that the department could not deny credit distributed by ISDs without disputing the credit availed by the ISDs themselves.

Conclusion:
The Tribunal found that the department's allegations were vague and unsupported by specific findings. The Cost Centres, registered as ISDs, had distributed the credit in compliance with the law, and no disputes were raised against them. The services in question were deemed eligible input services, and the credit could not be denied based on the department's vague allegations. Consequently, the impugned order was set aside, and the appeal was allowed with consequential reliefs.

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