2025 (5) TMI 1995 - AT - Service Tax

Entitlement to avail Cenvat Credit of Cesses - validity of the demand for recovery of wrongly availed Cenvat Credit along with interest and imposition of penalties - HELD THAT - After considering the submissions made by both the parties and perusal of the material on record I find that the identical issue has been decided by the Tribunal in the case of Punjab National Bank vs. CCE 2014 (10) TMI 29 - CESTAT NEW DELHI Thus I am of the considered opinion that (a) The appellant is entitled to Canvat Credit on input services amounting to Rs.2, 05, 537/-. (b) As for as Swatch Bharat Cess of Rs.7, 341/- and Krishi Kalyan Cess of Rs.7, 341/- the appellant is not entitled to Cenvat Credit in view of the judgment of Hon ble Kerala High Court in the case of Muthoot Finance Limited vs. Union of India 2024 (10) TMI 1658 - KERALA HIGH COURT and the decision of this Tribunal in the case of SBI Cards And Payment Service Ltd. AND SBI Business Process Management Service Pvt Ltd vs. CCE CGST 2024 (7) TMI 1404 - CESTAT CHANDIGARH Gurugram. Therefore the same is recoverable from them alongwith applicable interest. (c) Penalties under Section 77 as well as under Section 78 are dropped.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the appellant was entitled to avail Cenvat Credit on Education Cess, Secondary and Higher Education Cess (S&H Education Cess), Swachh Bharat Cess, and Krishi Kalyan Cess paid on input services, despite not being separately registered as an Input Service Distributor (ISD).
• Whether an email or similar documents suffice as valid evidence to claim Cenvat Credit on input services.
• Whether procedural lapses, such as the appellant's head office not being registered as an ISD, can result in denial of substantive rights to avail Cenvat Credit.
• The applicability of judicial precedents, particularly the Tribunal's decision in Punjab National Bank vs. CCE, Meerut-I, and subsequent orders in related appeals, to the appellant's case.
• The validity of the demand for recovery of wrongly availed Cenvat Credit along with interest and imposition of penalties under Sections 73, 75, 77, and 78 of the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Entitlement to Cenvat Credit on Input Services Without Separate ISD Registration

Relevant legal framework and precedents: The Finance Act, 1994, Sections 73, 75, 77, and 78 govern the recovery of wrongly availed Cenvat Credit, interest, and penalties. The concept of Input Service Distributor (ISD) is central to the distribution of Cenvat Credit among branches. The Tribunal's decision in Punjab National Bank vs. CCE, Meerut-I (2014 (34) STR 278) is a binding precedent on the issue of entitlement to Cenvat Credit where the appellant was not separately registered as ISD but functionally acted as one.

Court's interpretation and reasoning: The Tribunal held that since the appellant was registered as a provider of banking services since 2004 and effectively functioned as an ISD by distributing service tax credit to its branches through invoices reflected in ST-3 returns, it should be treated as registered as an ISD for all practical purposes. The Tribunal emphasized that there was no dispute that the services were received and qualified as 'Input services'. The absence of formal ISD registration did not preclude the appellant from availing Cenvat Credit.

Key evidence and findings: The appellant's activities of issuing invoices to branches and reflecting credits in statutory returns demonstrated functional compliance akin to an ISD. The appellant's prior registration as a banking service provider and the audit records supported the claim.

Application of law to facts: The Tribunal applied the principle that procedural lapses should not override substantive rights. Since the appellant had effectively fulfilled the role of an ISD, denial of Cenvat Credit solely on the ground of lack of separate ISD registration was not justified.

Treatment of competing arguments: The department argued that the appellant's head office was not registered as ISD and that emails were not proper documents for claiming credit. The Tribunal rejected these arguments, holding that the appellant's functional role and documentary evidence sufficed.

Conclusions: The appellant was entitled to Cenvat Credit on input services amounting to Rs. 2,05,537/- despite the absence of separate ISD registration.

Validity of Cenvat Credit on Various Cesses (Swachh Bharat Cess and Krishi Kalyan Cess)

Relevant legal framework and precedents: The legal framework distinguishes between Education Cess and other cesses like Swachh Bharat Cess and Krishi Kalyan Cess. The Hon'ble Kerala High Court in Muthoot Finance Limited vs. Union of India [Order dated 18.10.2024] and the Tribunal's decision in SBI Cards And Payment Service Ltd vs. CCE & CGST, Gurugram (2024) clarified that Cenvat Credit is not admissible on Swachh Bharat Cess and Krishi Kalyan Cess.

Court's interpretation and reasoning: The Tribunal, relying on these authoritative rulings, held that the appellant was not entitled to Cenvat Credit on Swachh Bharat Cess and Krishi Kalyan Cess. These cesses are not creditable under the Cenvat Credit Rules and thus must be recovered along with applicable interest.

Key evidence and findings: The amounts of Swachh Bharat Cess and Krishi Kalyan Cess wrongly availed were Rs. 7,341/- each. The appellant's claim was contrary to the settled legal position.

Application of law to facts: The Tribunal applied the binding judicial precedents to disallow the credit on these cesses and ordered their recovery.

Treatment of competing arguments: The appellant did not successfully counter the binding precedents. The Tribunal affirmed the department's stand on this issue.

Conclusions: The appellant is liable to repay the Cenvat Credit wrongly availed on Swachh Bharat Cess and Krishi Kalyan Cess along with interest.

Validity of Documentary Evidence (Emails) for Claiming Cenvat Credit

Relevant legal framework and precedents: The Cenvat Credit Rules require proper documentation to substantiate credit claims. The Tribunal in Punjab National Bank vs. CCE, Meerut-I recognized that invoices and statutory returns reflecting credit distribution are valid evidence.

Court's interpretation and reasoning: The Tribunal found that emails alone were not a sufficient ground to deny Cenvat Credit, especially when other documentary evidence, such as invoices and ST-3 returns, demonstrated the appellant's entitlement.

Key evidence and findings: The appellant's issuance of invoices and reflection in statutory returns outweighed the department's contention about emails.

Application of law to facts: The Tribunal emphasized substance over form, holding that procedural irregularities or reliance on emails alone do not justify denial of credit.

Treatment of competing arguments: The department's reliance on emails as insufficient documentation was rejected in light of the broader documentary record.

Conclusions: Emails are not decisive in denying credit when other valid documents exist to establish entitlement.

Imposition and Dropping of Penalties

Relevant legal framework and precedents: Sections 77 and 78 of the Finance Act, 1994, provide for penalties in cases of wrongful availing of Cenvat Credit.

Court's interpretation and reasoning: Since the Tribunal found that the appellant was entitled to Cenvat Credit on input services and that the denial was based on procedural issues without substantive merit, penalties under Sections 77 and 78 were not sustainable.

Key evidence and findings: The appellant's bona fide claim and reliance on binding precedents negated the element of willful wrongdoing or negligence.

Application of law to facts: The Tribunal exercised discretion to drop penalties, recognizing that the appellant's conduct did not warrant punitive measures.

Treatment of competing arguments: The department's insistence on penalties was rejected in view of the Tribunal's findings on entitlement.

Conclusions: Penalties under Sections 77 and 78 were dropped.

Recovery of Demand and Interest

Relevant legal framework and precedents: Section 73 of the Finance Act, 1994, deals with recovery of wrongly availed credit, and Section 75 prescribes interest on delayed payments.

Court's interpretation and reasoning: The Tribunal upheld the demand and recovery of wrongly availed Cenvat Credit relating to Swachh Bharat Cess and Krishi Kalyan Cess along with interest, consistent with legal precedents.

Key evidence and findings: The appellant had availed credit on non-creditable cesses, which was established by audit and corroborated by judicial rulings.

Application of law to facts: The Tribunal applied the law strictly to disallow credit on these cesses and ordered recovery with interest.

Treatment of competing arguments: The appellant's arguments against recovery were not accepted.

Conclusions: Recovery of wrongly availed credit on Swachh Bharat Cess and Krishi Kalyan Cess along with interest was upheld.

3. SIGNIFICANT HOLDINGS

"In the peculiar facts and circumstances of the case, when the Appellant, though not providing the banking/financial services, were registered as provider of banking service since 2004, they should be treated as registered as ISD also, as they were for all practical purposes, functioning as input service distributor and the availment of service tax credit and its distribution to various branches by issue of invoices were being reflected in the ST-3 returns being filed by them, which is what a registered Input Service Distributor would have done."

"I, therefore, hold that the Appellant could take the Cenvat credit and distribute the same by issuing invoices to their branches. The imp