2025 (5) TMI 56 - AT - Central Excise

CENVAT credit on service tax paid on GTA (Goods Transport Agency) services when the credit is availed through the Head Office - denial of credit on the ground that the Head Office of the appellant is not registered as an ISD - HELD THAT - Reliance placed on the decision of Hon ble High Court of Gujarat in the case of Dashion Ltd 2016 (2) TMI 183 - GUJARAT HIGH COURT where it was held that there is nothing in the said Rules of 2005 or in the Rules of 2004 which would automatically and without any additional reasons disentitle an input service distributor from availing Cenvat credit unless and until such registration was applied and granted. It was in this background that the Tribunal viewed the requirement as curable. Particularly when it was found that full records were maintained and the irregularity if at all was procedural and when it was further found that the records were available for the Revenue to verify the correctness the Tribunal in our opinion rightly did not disentitle the assessee from the entire Cenvat credit availed for payment of duty. Conclusion - The appellants have correctly availed the CENVAT credit on GTA services distributed by their Head Office even though their Head Office is not registered as an ISD. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the appellants are entitled to avail CENVAT credit on service tax paid on GTA (Goods Transport Agency) services when the credit is availed through the Head Office, which is not registered as an Input Service Distributor (ISD) under the CENVAT Credit Rules, 2004.
• Whether the Head Office's non-registration as an ISD constitutes a substantive bar to credit, or if it is merely a procedural irregularity that cannot deny the substantial benefit of credit.
• The validity and admissibility of credit availed on the basis of consolidated payment and distribution of credit by the Head Office to various manufacturing units.
• Whether the extended period for issuance of the show cause notice can be invoked given the delay between the audit report and the notice issuance.
• Whether penalty can be imposed on the appellants for alleged wrongful availment of credit without mens rea or fraudulent intent.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to CENVAT Credit through Head Office not registered as ISD

Relevant legal framework and precedents: The CENVAT Credit Rules, 2004, particularly Rule 14 and Rule 2(m), define the role and registration requirements of an Input Service Distributor (ISD). Rule 3 and Rule 4(7) govern the eligibility and manner of availing credit. Rule 9(1)(e) recognizes challans as admissible documents for credit. The appellant relied on judicial precedents including decisions in Greenwich Meridian Logistics India Pvt Ltd and IDMC Ltd, which held that credit cannot be denied merely on the ground of non-registration as ISD if the credit is properly distributed.

Court's interpretation and reasoning: The Tribunal examined whether the Head Office's non-registration as an ISD was a substantive bar or a procedural lapse. It noted that the Head Office was centrally registered for payment of service tax on GTA services under the Reverse Charge Mechanism (RCM) and made consolidated payments on behalf of all units, distributing credit accordingly. The Tribunal relied heavily on the Gujarat High Court decision in Dashion Ltd, which held that non-registration as an ISD is a curable procedural irregularity and does not disentitle the assessee from availing credit if records are maintained and available for verification.

Key evidence and findings: The appellants produced e-payment receipts and records evidencing the payment of service tax by the Head Office and the distribution of credit to the manufacturing units. The Revenue did not dispute the genuineness of these payments or records but focused on the procedural requirement of ISD registration.

Application of law to facts: Applying the principles from Dashion Ltd and other cited cases, the Tribunal concluded that the Head Office's failure to register as an ISD was procedural and did not affect the substantive right to credit. The credit was correctly availed in terms of the Rules, and the distribution mechanism was transparent and verifiable.

Treatment of competing arguments: The Revenue argued that the absence of ISD registration invalidated the credit claim. The Tribunal rejected this, emphasizing that the Rules do not automatically disentitle credit for non-registration and that the substantial benefit cannot be denied for procedural lapses.

Conclusion: The appellants were entitled to avail the CENVAT credit on GTA services through their Head Office despite its non-registration as an ISD.

Issue 2: Validity of credit availed on the basis of consolidated payment and distribution

Relevant legal framework and precedents: Rule 14 of the CENVAT Credit Rules allows distribution of credit by an ISD to manufacturing units. The appellants relied on several precedents including Faurecia Automotive Seating India Pvt. Ltd., Cargill India Pvt. Ltd., DSM Sinochem Pharmaceuticals India Pvt. Ltd., and Essel Pro-pack Ltd., which recognize challans and consolidated payments as valid documents for credit.

Court's interpretation and reasoning: The Tribunal accepted that consolidated payment of service tax by the Head Office and subsequent distribution of credit to branches is a recognized practice. The challans and records submitted by the appellants were admissible documents under Rule 9(1)(e).

Key evidence and findings: The appellants submitted e-payment receipts and records showing the consolidated payment and distribution. These were not disputed as invalid by the Revenue.

Application of law to facts: The Tribunal held that the appellants complied with the procedural requirements for availing credit through consolidated payments and distribution, and that the challans were valid documents for credit.

Treatment of competing arguments: The Revenue's objection was limited to the non-registration of the Head Office as ISD rather than the validity of the payment or distribution mechanism itself. The Tribunal found no merit in denying credit on these grounds.

Conclusion: The credit availed on the basis of consolidated payment and distribution by the Head Office was valid and admissible.

Issue 3: Invoking extended period for issuance of show cause notice

Relevant legal framework and precedents: The limitation period for issuance of show cause notices is governed by the relevant provisions of the Central Excise Act and related rules. The appellants argued that the show cause notice issued on 21.03.2016, based on an audit report dated 12.12.2012, was barred by delay. Precedents cited included Suvikram Plastex (P) Ltd., Commissioner of C. Ex., Allahabad vs. A.P.S.M. Study Centre, JSW Steel Limited, and Sunder International, which held that extended period cannot be invoked where there is an inordinate delay between audit and issuance of notice.

Court's interpretation and reasoning: The Tribunal noted the significant gap between the audit report and the show cause notice and found that the extended period for issuance of notice was not justified under the circumstances.

Key evidence and findings: The audit report dated 12.12.2012 and the show cause notice dated 21.03.2016 were on record, showing a delay of over three years.

Application of law to facts: Applying the precedents, the Tribunal held that the extended period for issuance of the show cause notice could not be invoked due to the delay.

Treatment of competing arguments: The Revenue did not provide sufficient justification for the delay or invocation of extended period.

Conclusion: The show cause notice was issued beyond the permissible period and was therefore not maintainable.

Issue 4: Imposition of penalty for alleged wrongful availment of credit

Relevant legal framework and precedents: Penalty provisions require proof of mens rea, willful misstatement, suppression of facts, or fraud. The appellants relied on the Gujarat High Court ruling in Dashion Ltd and other precedents which held that mere wrongful availment without mens rea or fraudulent intent is insufficient to impose penalty.

Court's interpretation and reasoning: The Tribunal observed that from the show cause notice stage to final disposal, there was no evidence of willful misstatement, suppression, or fraud. The adjudicating authority mechanically recorded allegations without basis or clarity on the nature of the contravention.

Key evidence and findings: No evidence of mens rea or fraudulent intent was produced by the Revenue.

Application of law to facts: The Tribunal applied the principle that penalty cannot be imposed without establishing culpable mental state, and found the penalty claims unsustainable.

Treatment of competing arguments: The Revenue failed to substantiate allegations of willful wrongdoing.

Conclusion: Penalty cannot be imposed on the appellants for the alleged wrongful availment of credit.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"There is nothing in the said Rules of 2005 or in the Rules of 2004 which would automatically and without any additional reasons disentitle an input service distributor from availing Cenvat credit unless and until such registration was applied and granted."

"The Tribunal viewed the requirement as curable. Particularly when it was found that full records were maintained and the irregularity, if at all, was procedural and when it was further found that the records were available for the Revenue to verify the correctness, the Tribunal, in our opinion, rightly did not disentitle the assessee from the entire Cenvat credit availed for payment of duty."

"Mere wrongfully availment without element of mens rea and that too for the purpose of evading payment of duty would not be sufficient to impose penalty."

Core principles established include:

• Non-registration of the Head Office as an ISD is a procedural irregularity and does not bar the entitlement to CENVAT credit if records are maintained and credit is properly distributed.
• Consolidated payment of service tax by a centrally registered Head Office and distribution of credit to manufacturing units is a valid mechanism for availing credit.
• Extended period for issuance of show cause notice cannot be invoked where there is an inordinate delay between audit report and notice issuance.
• Penalty requires proof of mens rea or fraudulent intent; mere wrongful availment without such elements is insufficient for penalty.

Final determinations on each issue:

• The appellants are entitled to CENVAT credit on GTA services availed through their Head Office despite non-registration as ISD.
• The consolidated payment and distribution method employed by the appellants is valid and admissible.
• The show cause notice issued beyond the limitation period is not maintainable.
• No penalty can be imposed due to lack of evidence of willful wrongdoing.
• The appeal was allowed accordingly.