2025 (1) TMI 421 - AT - Central Excise

CENVAT credit allowed despite invoices addressed to closed unit when operational unit paid service tax

The CESTAT Chandigarh allowed the appeal, holding that the appellant's Gurgaon unit could avail CENVAT credit despite invoices being inadvertently ... CENVAT credit can be availed by the Gurgaon unit of the appellant when the invoices had been inadvertently addressed to the Bangalore office - Extended period of limitation - HELD THAT:- The appellant is presently the only unit engaged in the manufacture of the said goods and it’s another unit at Bangalore which was operative has closed down from April 2007. It is also found that it is not in dispute that the service tax under reverse charge has been paid by the Gurgaon unit and GAR-7 challan also mention the address of the Gurgaon unit and payment has also been made by the appellant and therefore, the Gurgaon unit is eligible to avail CENVAT credit in respect of these invoices. Further, the appellant has produced on record the service tax payment challan which is a valid document for availment of CENVAT credit in terms of Rule 9(1)(e) of CENVAT Credit Rules. It is found that in the present case, the input services could not have been used by any other unit other than the Gurgaon unit being the only manufacturing unit and moreso, when they have discharged the service tax liability under reverse charge, it has been consistently held in the decisions relied upon by the appellant that CENVAT credit can be availed on the basis of challan evidencing payment of duty. The Department has not been able to establish suppression on the part of the appellant with intent to evade payment of service tax and therefore, the invocation of extended period of limitation is not justified in the present case. The impugned order is not sustainable in law - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit can be availed by the manufacturing unit which paid service tax under reverse charge where the service invoices were addressed to a different (non-operational or differently registered) office of the same assessee. 2. Whether a GAR-7 challan evidencing payment of service tax by the service recipient qualifies as a valid duty-paying document under Rule 9(1)(e) of the CENVAT Credit Rules, 2004 for availment of CENVAT credit in respect of reverse charge services. 3. Whether inadvertent mentioning of an incorrect address on service provider invoices (i.e., address of another office) disentitles the service receiver to avail CENVAT credit. 4. Whether extended period of limitation can be invoked where there is no finding of suppression with intent to evade duty and the credit has been disclosed in returns; and consequent questions as to imposition of interest and penalty where demand is not sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility of the manufacturing unit to avail CENVAT credit where invoices addressed to a different office Legal framework: CENVAT Credit Rules, 2004 govern availment of credit; reverse charge liability places obligation on service recipient to discharge service tax and entitles recipient to CENVAT credit when proper duty-paying documents are available and services are received and used in manufacture. Precedent treatment: Tribunal and High Court decisions relied upon by the appellant (including decisions holding credit admissible where reverse charge duty paid and challan produced) were followed. Interpretation and reasoning: The Tribunal examined factual position that the Gurgaon unit was the sole operative manufacturing unit since 2009, that the service tax liability in respect of the impugned invoices was discharged by the Gurgaon unit and that the GAR-7 challans mention the Gurgaon unit address and evidence payment by that unit. Given consumption/use of services at the Gurgaon unit and actual payment by it, the Tribunal held that the Gurgaon unit was eligible to avail CENVAT credit despite invoices being addressed elsewhere. Ratio vs. Obiter: Ratio - Where the service recipient unit has paid tax under reverse charge and the services are received/used by that unit, that unit is entitled to avail CENVAT credit notwithstanding invoices addressed to a different office (subject to documentary proof of payment and use). Obiter - peripheral observations on factual singularity of unit closure at earlier location. Conclusion: The Gurgaon manufacturing unit could avail CENVAT credit in respect of the subject invoices. Issue 2 - Validity of GAR-7 challan as duty-paying document under Rule 9(1)(e) Legal framework: Rule 9(1)(e) of the CENVAT Credit Rules, 2004 treats 'a challan evidencing payment of service tax by the service recipient as the person liable to pay tax' as a duty-paying/documentary requirement for availment of credit in reverse charge cases. Precedent treatment: Decisions cited by the appellant (Tribunal/High Court authorities) hold that payment challan under reverse charge is a valid document for availment of credit. Interpretation and reasoning: The Tribunal found GAR-7 challans produced on record and noted payment by the Gurgaon unit; applying Rule 9(1)(e) and the cited precedents, it concluded that the challan is a valid duty-paying document entitling the unit to credit. Ratio vs. Obiter: Ratio - GAR-7 challan evidencing payment of service tax by the recipient under reverse charge satisfies Rule 9(1)(e) and supports availment of CENVAT credit. Conclusion: The GAR-7 challans produced by the appellant constituted valid duty-paying documents permitting availment of CENVAT credit. Issue 3 - Effect of inadvertent wrong address on invoices on admissibility of credit Legal framework: CENVAT Credit Rules and principle that substantive eligibility cannot be denied on mere procedural/clerical errors absent prejudice or evasion; consistency with jurisprudence that inadvertent clerical mistakes on invoices do not ipso facto deny credit. Precedent treatment: The Tribunal relied upon multiple authorities which held that incorrect address or clerical errors in invoices by the service provider are inadvertent and do not disentitle the service recipient to credit where tax liability is discharged by the recipient and other documentary requirements are met. Interpretation and reasoning: The Tribunal assessed that the service provider's addressing of invoices to a closed/non-operative office was inadvertent; since the recipient had paid service tax, produced GAR-7 challans, and the services were consumed by the Gurgaon unit which alone operated, the clerical error could not be a ground to deny substantive credit. The Court emphasized that a substantial benefit like CENVAT credit should not be denied for procedural irregularities absent mala fides. Ratio vs. Obiter: Ratio - Inadvertent mis-description or wrong address in service provider's invoices does not defeat the recipient's right to CENVAT credit where recipient has discharged reverse charge liability and documentary proof of payment and use exist. Obiter - remarks stressing the policy against denying substantial benefits for mere procedural lapses. Conclusion: Wrong address on invoices, being an inadvertent error, did not justify denial of CENVAT credit to the Gurgaon unit. Issue 4 - Invocation of extended period of limitation, mens rea, and consequences for interest and penalty Legal framework: Provisions permitting invocation of extended period of limitation require suppression with intent to evade duty; penalty and interest considerations follow if demand is sustainable and culpability established. Precedent treatment: The Tribunal referred to authority that show cause notice forms the foundation of case and that extended limitation cannot be invoked absent suppression/mala fides; and that interest/penalty are not exigible if primary demand is unsustainable. Interpretation and reasoning: The Tribunal found no positive finding or material establishing suppression with intent to evade duty by the appellant; the availment of credit had been disclosed in returns and detected during audit. Absent suppression or mens rea, the extended period of limitation could not be invoked. As the substantive demand was held unsustainable, consequential imposition of interest and penalty was also unjustified. Ratio vs. Obiter: Ratio - Extended period of limitation cannot be invoked where there is no evidence of suppression or intent to evade duty and where credit has been disclosed; interest and penalty do not survive where the substantive demand is unsustainable. Obiter - procedural remarks on scope of Departmental pleading vis-à-vis show cause notices. Conclusion: Invocation of extended limitation was unjustified; consequential interest and penalty could not be sustained when the primary demand failed. Cross-References See Issue 1 and Issue 2: entitlement to credit depended both on actual payment/use (Issue 1) and on presence of valid duty-paying document (GAR-7 under Rule 9(1)(e)) (Issue 2). See Issue 3 and Issue 4: the Tribunal treated the mis-addressing of invoices as a procedural irregularity (Issue 3) and, coupled with absence of suppression/mens rea, refused invocation of extended limitation and penalty (Issue 4). Final Disposition The Tribunal allowed the appeal, set aside the impugned demand and penalty, and granted consequential relief in favor of the appellant on the grounds stated above (credit admissible; GAR-7 valid; wrong address inadvertent; extended limitation and penalties unjustified).