CENVAT credit through input service distributor cannot be denied at recipient end when revenue neutrality and no suppression are shown.

CENVAT credit distributed by a head office as an input service distributor could not be disallowed at the recipient unit's end where the arrangement formed part of the service tax credit mechanism, the dispute was revenue neutral, and no independent role or mismatch was shown against the recipient. The Tribunal also held that the extended period could not be invoked because wilful suppression and intent to evade tax were not proved, and the department was already aware of the credit distribution pattern through audit. The credit demand was therefore unsustainable on merits and time-barred.

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Issues: (i) whether the disallowance and recovery of CENVAT credit in the hands of the recipient unit, where the credit was distributed by the Head Office as an input service distributor, was sustainable; (ii) whether the demand could be sustained by invoking the extended period on the allegation of wilful suppression and intent to evade tax.

Issue (i): Whether the disallowance and recovery of CENVAT credit in the hands of the recipient unit, where the credit was distributed by the Head Office as an input service distributor, was sustainable.

Analysis: The dispute turned on credit distributed by the Head Office to the recipient unit on common input services. The matter had already been decided in the appellant's own case on the same issue, and the Tribunal followed that decision. The reasoning accepted that the credit distribution was part of the existing service tax and credit mechanism, that the recipient unit had no independent role in the alleged mismatch, and that the overall exercise was revenue neutral. In such a situation, disallowance of credit at the recipient's end was held to be unsustainable.

Conclusion: The disallowance and recovery of CENVAT credit were not sustainable and were set aside in favour of the assessee.

Issue (ii): Whether the demand could be sustained by invoking the extended period on the allegation of wilful suppression and intent to evade tax.

Analysis: The demand was issued beyond the normal period and rested on allegations of suppression and intent to evade. The Tribunal found no supporting material to establish wilful suppression by the recipient unit. It further noted that the department was aware of the distribution pattern through audit, that the situation was revenue neutral, and that the factual matrix did not justify invocation of the extended period.

Conclusion: The extended period of limitation was not invocable and the demand was hit by time bar.

Final Conclusion: The impugned order was unsustainable on merits and on limitation, and the appeal succeeded with the credit demand set aside.

Ratio Decidendi: Where CENVAT credit distributed by an input service distributor is disallowed at the recipient unit's end despite revenue neutrality and absence of proved suppression, the demand and extended limitation cannot be sustained.

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