REJECTION OF CENTRALIZED REGISTRATION CANNOT BE A GROUND FOR DENIAL OF CENVAT CREDIT

[Mr. M. GOVINDARAJAN]

The output service provider is allowed to avail and utilize CENVAT credit on the service tax paid on input services against the payment of service tax subject to the conditions prescribed in the CENVAT Credit Rules, 2004.

Rule 7 of CENVAT Credit Rules, 2004 provides that input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input services to its manufacturing units or units providing output service, subject to the following conditions, namely,:-

• the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;
• credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed;
• credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and
• credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the  turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period.

In this article one case law is discussed in which CENVAT credit was rejected on the invoices distributed by the head office by the department on the ground that the centralized registration was refused at the time of invoice and they are not at all invoices as per the provisions of law.   However the Tribunal allowed the CENVAT credit.   The case law M/s Rohit Surfactants Private Limited V. Commissioner of Central Excise, Jaipur’ – 2012 (12) TMI 612 – CESTAT, New Delhi, is discussed in detail as below:

In the above said case the appellant was initially known as Shri Mahadeo Soap Industries Private Limited, Alwar and was having registered office at Kanpur. The appellant applied for centralized registration in respect of C&F agent services on 2.12.2002 and was issued to their head office on 16.12.2002. On 1.12.2004 business auxiliary service was included in the service tax registration.  When the Goods Transport Agency service was coming into the service tax net, the appellant made a request to incorporate the said service in their centralized service tax registration on 24.12.2004. The Department incorporated the same on 15.2.2005. 

Amalgamation was taken effect and the present Rohit Surfactants Private Limited was formed. The name transfer was done properly. Later on the Department rejected the centralized registration for Goods Transports Agency Service vide their letter dated 25.05.2006. Vide Notification No. 29/06-ST the Service Tax Rules was amended and allowed the centralized registration for goods transports agency service also. By virtue of this Notification the Department on application of the appellant granted registration on 08.12.2006.  The Department rejected the CENVAT credit taken in respect of GTA services by the appellant during the period from January 2006 to April 2006 and May 2006 to January 2007 on the strength of the invoices issued by their head office as input service distributor. Since the centralized registration in respect of GTA services the Department was of the view that the invoices issued by the head office of the appellant are not proper invoices for availing CENVAT credit. Show cause notice was issued to the appellant and the demand was confirmed. Against which the appellant filed appeal before the Tribunal. taxmanagementindia.com

The Tribunal found that the issue denying the CENVAT credit of Rs. 8,33,606/- relates to availment of credit on the basis of invoices issued by their registered office which stands registered as Input Service Distributor. The revenue’s sole case is that their final application dated 19.7.05 was disposed of on 25.5.06 rejecting their request for inclusion of GTA services in the Head Office. The period involved is 18.1.06 to 25.5.06, i.e. prior to rejection of the said centralized registration in respect of GTA. The Tribunal considering the facts and circumstances of the case held that final rejection of centralized registration vide letter dated 26.5.06 cannot be held to be a justifiable reason for denial of the credit. Apart from the fact that during the said period, the application was pending in the office of Deputy Commissioner, without their being any decision taken by him on the same, the Tribunal found that there is otherwise no dispute about the availability of the credit to the appellant. The substantial benefit, if otherwise available, cannot be denied on the technical and procedural grounds.

The Tribunal further held that in the absence of any dispute that the appellant was otherwise entitled to the benefit of CENVAT credit of service tax paid on GTA services, so received by them the denial of the CENVAT credit on the ground that the same was availed on the basis of invoices raised by the head office of the appellant is neither justifiable nor warranted.  The Tribunal set aside the order of the lower authorities and allowed the appellant to avail CENVAT credit.