2025 (7) TMI 1541 - AT - Service Tax

Double distribution of credit - credit has been incorrectly distributed in contravention of rule 7 of the CCR - Rule 9(2) of the CENVAT Credit Rules 2004 - Service tax on R D Cess and GTA Services. CENVAT Credit - credit has been incorrectly distributed in contravention of rule 7 of the CCR - denial of credit already distributed by the Appellant on the ground that the invoices do not pertain to the jurisdiction of the East Zone - HELD THAT - It is observed that there is no territorial restriction placed upon the Appellant by the law. Therefore availment and distribution of credit by an ISD is not limited to a territorial jurisdiction. In any case the HO ISD had no jurisdictional limitation of regarding availment of credit only on invoices pertaining to East Zone. It is observed that for East Zone there was a separate ISD registration which can distribute the ISD credit. Therefore the understanding of the department regarding the practice of the Appellant for distribution of credit is not correct. It is further observed that availment of CENVAT credit based on invoices addressed to other ISD registration of the Company is a mere procedural infirmity on which substantive benefit of CENVAT credit cannot be denied. It is also observed that as per Rule 9(2) of the CENVAT Credit Rules 2004 address of the recipient of goods/services is not a mandatory requirement hence CENVAT credit cannot be denied on this procedural ground alone. The receipt and utilisation of the input services by the appellant are not in dispute - the demand of Rs. 4, 71, 71, 118/-confirmed in the impugned order is legally not sustainable aand is set aside - As the demand is not sustained the question of demanding interest or imposing penalty does not arise. Accordingly the demands of interest and penalty imposed in the impugned order set aside on this count. Demand of service tax of Rs. 32, 648/- confirmed on GTA service - HELD THAT - The appellant submitted that the actual difference would be Rs. 13, 281/- which was discharged in the subsequent years when actual payment was made. This claim of the appellant was supported by CA certificate. In light of the above and basis the certification submitted by the Appellant it is held that the demand of Rs. 20, 137/- cannot be sustained. In support of this view reliance placed in the case of Hero Motocorp Ltd. vs. Commissioner of Customs (Import General) 2014 (9) TMI 325 - DELHI HIGH COURT wherein it has been held that CA certification cannot be brushed aside without any contrary evidence. In view of the above findings the demand of service tax along with interest and penalty confirmed on this count is not sustainable and hence the same set aside. Demand of Service tax of Rs. 5, 58, 786/- on R D Cess and service tax of Rs. 771/- on GTA - HELD THAT - The said amount has been paid along with appropriate interest prior to issuance of the Show Cause Notice. Hence no penalty is imposable on this amount as per section 73(3) of the Finance Act 1994. Accordingly the penalty imposed in the impugned order on this count is set aside. Appeal disposed off.

Summary

ISSUES:

Whether CENVAT credit distributed by an Input Service Distributor (ISD) at the Head Office (HO) on invoices addressed to other ISD registrations located in different territorial zones is permissible under Rule 7 of the CENVAT Credit Rules, 2004.Whether there is any territorial restriction on availment and distribution of CENVAT credit by an ISD under the CENVAT Credit Rules, 2004.Whether denial of CENVAT credit on the ground that invoices are not addressed to the distributing ISD constitutes a valid reason for demand and penalty.Whether procedural irregularities relating to invoice address and ISD registration location justify denial of substantive CENVAT credit benefits.Whether short payment of service tax under Reverse Charge Mechanism (RCM) on Goods Transport Agency (GTA) services based on ledger maintained on accrual basis is sustainable.Whether penalty is imposable under section 73(3) of the Finance Act, 1994 where service tax and interest have been paid prior to issuance of show cause notice.

RULINGS / HOLDINGS:

The distribution of CENVAT credit by the HO ISD on invoices addressed to other ISD registrations located in different territorial zones is permissible as there is "no territorial restriction placed upon the Appellant by the law" and the availment and distribution of credit by an ISD is "not limited to a territorial jurisdiction."The impugned demand based on the ground that invoices do not pertain to the jurisdiction of the East Zone is "legally not sustainable" and is set aside along with interest and penalty imposed.Denial of credit on the sole ground that invoices are not addressed to the distributing ISD is a "mere procedural infirmity" and cannot justify denial of substantive benefit of CENVAT credit.Rule 9(2) of the CENVAT Credit Rules, 2004 clarifies that "the address of the recipient of goods/services is not a mandatory requirement," and thus CENVAT credit cannot be denied on this ground alone.The demand of service tax on GTA services raised on ledger basis (accrual) is not sustainable where payment was made subsequently, supported by a Chartered Accountant's certificate; such certification "cannot be brushed aside without any contrary evidence."No penalty is imposable under section 73(3) of the Finance Act, 1994 where admitted service tax and interest have been paid prior to issuance of the show cause notice.

RATIONALE:

The Court applied the provisions of the CENVAT Credit Rules, 2004, particularly Rule 7 (manner of distribution of credit by ISD) and Rule 9(2) (requirements for invoice particulars), and interpreted the term ISD under Section 2(m) of the Rules.The Court relied on precedents holding that when a situation is "revenue neutral," demands for recovery of credit are "not sustainable," including reliance on rulings where procedural irregularities without substantive misuse do not justify denial of credit.The Court emphasized that the only statutory restriction on ISD distribution is Rule 7 and found no violation thereof; the receipt and use of input services were undisputed, and payment of invoices was made by the HO ISD.The Court gave weight to a Chartered Accountant's certification regarding the timing of service tax payment under RCM, holding that such evidence cannot be disregarded absent contrary proof.The Court applied section 73(3) of the Finance Act, 1994, which precludes penalty where tax and interest have been paid before the show cause notice, thus negating penalty liability on admitted amounts.No dissent or doctrinal shift was noted; the decision follows established principles protecting substantive credit rights against procedural technicalities and ensuring penalties are not imposed where compliance has been rectified pre-litigation.