2025 (10) TMI 113 - AT - Central Excise

Appeal allowed, CENVAT credit restored for Aug 2014-May 2015; vague denial rejected without specific dispute

Bharat Heavy Electricals Ltd. Versus Commissioner of GST & Central Excise, Chennai

CESTAT CHENNAI - AT allowed the appeal and set aside the impugned order denying CENVAT credit for Aug 2014-May 2015. The tribunal relied on earlier ... CENVAT Credit availed by the appellant - credit availed on the basis of invoices issued by their various other offices, which are registered as Input Service Distributors (ISD) denied - HELD THAT:- The impugned order pertains to the period August 2014 to May 2015. Similar input credits taken during the earlier period Sep 2013 to July 2014 have already ben decided in the appellants favour in the appellants case [2024 (7) TMI 683 - CESTAT CHENNAI] where it was held that 'We find that all the services are eligible input services. The credit cannot be denied on such vague allegations at the end of the manufacturing unit without disputing the credit availed by the input service distributor. For these reasons we find that the impugned order cannot sustain.' For the subsequent period viz., April 2016 to June 2017 also similar input credits have been allowed by the First Appellate Authority vide Order in Appeal NO. 12/2022 dated 30.03.2022. It has not been informed by either of the parties that the said orders have been varied or set aside or are pending in appeal. This being so the impugned order merits to be set aside. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether input service tax/CENVAT credit distributed by registered Input Service Distributors (ISDs) is eligible at the manufacturing unit where there is no specific finding or dispute against the ISDs regarding the propriety of credit availed and distributed. 2. Whether services listed in the impugned order (including repairs & maintenance, advertising, telecommunication, manpower supply, erection/commissioning, business auxiliary services, technical consultancy, training, professional services, banking & financial services, cable, accommodation, insurance, civil works, printing/designing, finance lease charges, GTA/cargo handling, sponsorship, reverse auction, travel, generator hiring, cleaning, forex, etc.) qualify as 'input services' used 'directly or indirectly, in or in relation to manufacture and clearance of final products' under the CENVAT Credit Rules, 2004. 3. Whether denial of credit at the manufacturing unit is sustainable where the show cause notice contains only vague/general allegations without service-specific findings or proof of non-compliance with distribution rules (Rule 7 CCR, 2004). 4. Whether interest and penalties can be levied where the disputed distributed credit has not been shown to have been utilized and where there is no finding against the ISD distributors. ISSUE-WISE DETAILED ANALYSIS - 1. Eligibility of ISD-distributed credit absent challenge to ISDs Legal framework: CENVAT Credit Rules, 2004 - definition of 'input service' (Rule 2(1) / relevant definitions) and Rule 3 (eligibility) read with Rule 7 (distribution by ISD); statutory scheme contemplates registration of ISDs, filing of returns and audit/verification by jurisdictional authorities. Precedent treatment: Tribunal's prior orders in the appellant's own matters and other decisions have recognized that services integrally connected or indirectly used in relation to manufacture are eligible; larger bench precedent (referenced) supports broad interpretation where services are integrally connected to output. Interpretation and reasoning: Where ISDs are registered, declare credits in periodical returns and have not been subjected to any adjudication, audit-finding or specific allegation of impropriety by authorities, the departmental machinery cannot ignore those facts and deny credit at the manufacturing unit on vague allegations. The statutory mechanism places primary responsibility and exposure on the ISD's compliance and on the department to challenge the ISD; mere denial at the recipient end without service-specific findings is unsustainable. Ratio vs. Obiter: Ratio - denial of ISD-distributed credit at recipient unit is impermissible in absence of any adverse finding against the ISD or non-compliance with Rule 7; Obiter - observations on administrative practice of ISD returns and audits that inform but do not expand statutory text. Conclusions: Credit distributed by ISDs must be upheld at recipient manufacturing unit unless the department specifically disputes the ISD's entitlement or distribution under Rule 7 or produces service-specific evidence of ineligibility. ISSUE-WISE DETAILED ANALYSIS - 2. Eligibility of the listed categories of services as 'input services' Legal framework: Definition of 'input service' under CENVAT Credit Rules includes services used 'directly or indirectly, in or in relation to manufacture of final products and clearance of final products upto the place of removal.' Exclusions (e.g., works contract portion relating to civil structure) read narrowly and contextually. Precedent treatment: The Court/Tribunal has in prior decisions (including the appellant's earlier favorable orders) held a wide range of services - including telecommunication, software/IT services, advertising (for non-product publicity such as tenders/recruitment), banking & financial charges, insurance, printing, manpower supply, erection/installation of plant/equipment (servers, generators, UPS), GTA/transportation to place of removal, cargo handling/CHA, storage/warehousing (as incident to clearance), professional/consultancy services, training for operational staff, and certain civil repair/renovation - to be eligible where they are used directly or indirectly in relation to manufacture/clearance. Interpretation and reasoning: The Court applies the inclusive phraseology of the statutory definition, recognizing that services which support manufacturing operations, facilitate manufacture/clearance, or are essential for business operations that bear on production/output qualify as input services. Exclusions are applied only where services plainly fall beyond the scope (e.g., works contract portion for erection of civil structures used to set up a factory), and where the record establishes such exclusion. Vague or generalized denials that do not identify service-specific nexus or misuse are inadequate. Ratio vs. Obiter: Ratio - services that are used directly or indirectly in or in relation to manufacture and clearance (including administrative/support services that facilitate production/clearance) qualify as input services; Tribunal decisions applying this interpretation to the listed service categories are treated as binding on the facts. Obiter - commentary distinguishing specific sub-categories when facts would indicate primary non-nexus (not present here). Conclusions: The impugned list of disallowed services, on the record before the adjudicating authority, are correctly characterized as eligible input services where the appellant demonstrated their use in relation to manufacture/clearance and prior appellate findings in the appellant's own cases supported eligibility; therefore denial is unsustainable. ISSUE-WISE DETAILED ANALYSIS - 3. Sufficiency of show cause notice and requirement of service-specific findings Legal framework: Principles of reasoned adjudication require that show cause notices and orders specify allegations with sufficient particularity so that the recipient may meet them; denial of credit must be supported by findings of fact and application of law to particulars. Precedent treatment: Tribunal has set aside orders based on vague, general allegations where specific proof or findings as to particular services or non-compliance were absent; earlier appellate orders in the same factual matrix were relied upon. Interpretation and reasoning: The impugned order's generalized assertion that services were not used 'directly or indirectly, in or in relation to manufacture' without specific findings on individual services or evidence that ISDs were non-compliant fails to meet minimum standards of adjudicatory specificity. Where the departmental case lacks granularity and the ISDs' distributions were not challenged, the denial cannot stand. Ratio vs. Obiter: Ratio - adjudicatory orders denying credit must record service-wise findings or documentary basis; general conclusions are inadequate. Obiter - statements on administrative expectation of record-keeping and proof standards. Conclusions: The impugned order is vitiated for lack of specific, service-wise findings and therefore cannot be sustained. ISSUE-WISE DETAILED ANALYSIS - 4. Liability for interest and penalties where disputed credit remains undistributed/not utilized and no adverse finding against ISD Legal framework: Levy of interest and penalty under central excise/service tax/CENVAT regime hinges on adjudicated determination of wrong availment/utilization; statutory provisions condition interest and penalty on misuse/short payment and utilization. Precedent treatment: Where credit is not shown to have been utilized or where denial is based on vague allegations, tribunals have declined to sustain interest and penalty demands; prior appellate decisions in the matter treated consequential relief accordingly. Interpretation and reasoning: Because the primary disallowance itself is unsustainable for the reasons above, and in the absence of any finding that the credit was utilized in breach of law or that ISDs improperly availed/distributed credit, imposition of interest and penalties cannot be sustained. The burden to show utilization or culpable conduct rests on the revenue, which was not discharged. Ratio vs. Obiter: Ratio - interest and penalty cannot be sustained where the foundational demand for credit recovery is set aside due to lack of specific findings; Obiter - observations on interplay of utilization records and penalty assessment. Conclusions: Interest and penalties linked to the disallowed credits are not sustainable where the disallowance itself is quashed for lack of specific findings and absence of challenge to ISDs; appellant entitled to consequential relief. FINAL CONCLUSION (COLLECTIVE RATIO) Where registered ISDs have availed and distributed credit by following the statutory distribution mechanism and there is no specific adjudicated dispute or adverse finding against the ISDs, and where the show cause and orders contain only vague/general allegations without service-specific findings or proof of non-nexus or misuse, the denial of CENVAT/input service credit at the recipient manufacturing unit is unsustainable. The broad inclusive statutory definition of 'input service' encompasses the listed categories where they are shown to be used directly or indirectly in or in relation to manufacture and clearance; consequential demands for interest and penalties tied to such unsupported disallowances cannot stand.