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2016 (2) TMI 183 - GUJARAT HIGH COURT

2016 (2) TMI 183 - GUJARAT HIGH COURT - 2016 (41) S.T.R. 884 (Guj.) , [2016] 90 VST 367 (Guj) - Distribution of Cenvat credit without obtaining registration and without pro rata distribution - revenue neutral exercise - input service distributor (ISD) - Held that:- It is true that the Government had framed Rules of 2005 for registration of input service distributors, who would have to make application to the jurisdictional Superintendent of Central Excise in terms of Rule 3 thereof. Sub-rule (2) .....

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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 dis-entitle the assessee from the entire Cenvat credit availed for payment of duty - Decided against revenue - Coming to the question of penalty, right from the show cause notice stage till the fi .....

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ithout any basis or evidence, merely mechanically recorded that the assessee had, by reason of willful misstatement, suppression of fact or in contravention of the provisions of the Rules, evaded payment of central excise duty. He was not even sure whether this was a case of willful misstatement or suppression of fact or contravention of provisions of the Rules.- Decided against revenue - TAX APPEAL NO. 415 of 2013, TAX APPEAL NO. 662 of 2014 - Dated:- 8-1-2016 - MR.AKIL KURESHI AND MR.MOHINDER .....

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ppeals) confirming the demand for wrongfully availed Cenvat credit of ₹ 1,07,07,142/- on the ground that the issue is revenue neutral? 2.1 By the same order dated 01.05.2013, another question regarding penalty under Section 11AC of the Central Excise Act proposed by the Revenue was dismissed. We are, however, informed that the Revenue carried this issue in appeal before the Supreme Court and by order dated 03.08.2015, also admitted the additional question of penalty proposed by the Revenue .....

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ules, 2004 (hereinafter to be referred as the Rules of 2004 ). The assessee had five manufacturing units and had its registered office at Vatva, Ahmedabad. The assessee was also providing several taxable services such as erection and commissioning, repairing and maintenance of water treatment plant, etc. 3.1 The revenue authorities, during scrutiny of the records of the assessee, noticed that it was availing the credit of service tax paid for various services by one unit for the purpose of clear .....

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t appear to be that the assessee had not registered itself under the Service Tax (Registration of Special Category of Persons), Rules 2005 ((hereinafter to be referred as the Rules of 2005 ) and that the tax credit from one unit was utilized for discharging tax liability of another unit instead of pro rata distribution amongst different units. Despite resistance from the assessee, the adjudicating authority by the Order in Original dated 15.12.2008 confirmed the duty demands with interest and pe .....

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such legislation are defeated. A Rule has to be followed in substance. All variation of observance of such rule cannot be termed as procedural lapse. In this case, the noticee has not followed the whole substance of concerned rule. In view of this, the lapses on the part of the said noticee cannot be accepted as a mere procedural /technical lapse. Before availing the Cenvat credit on goods in question, the noticee should have fulfilled the basic conditions to avail the Cenvat credit such as Rul .....

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cee at their manufacturing unit at Vatva, which cannot be denied or recovered from them. To that extent the noticee is eligible for the service tax credit out of the total credit demanded to be recovered from the noticee. The cenvat credit of service tax pertaining to the other units is not eligible to them as discussed above. 3.2 In order to impose penalty, it was observed as under:- 20. All the above said acts of omissions and commissions, on the part of the said noticee have rendered them lia .....

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11AC of Central Excise Act, 1944, which is the maximum, I refrain from imposing penalty under Sub-rule (3) of Rule 15 of CCR, 2004. 3.3 The assessee carried the matter in appeal before the Tribunal. The Tribunal by the impugned judgment reversed the order of the adjudicating authority and allowed the appeal. The Tribunal noted the contention of the assessee that the assessee had maintained all the registers in the excel sheets and that the Department could have easily verified the correctness of .....

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allocating proportionately to various units. The omission to take registration as an Input Service Distributor can at best be considered as procedural irregularity and in view of the decisions cited, has to be considered sympathetically. Further, it is also noticed that appellant has not got any extra benefit by doing this. In fact from the statement of Shri Chandresh C.Shah, as explained that above cenvat credit available to them, 20% of service tax payable only was paid and balance was paid i .....

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the result, demand for cenvat credit of ₹ 1,07,07,132/- with interest and penalty equal to the same imposed under Section 11Ac of the Central Excise Act, 1944 are setaside. 4. It is undisputed that the Rules of 2004 provide for a scheme for distribution of credit by input service distributor. Term input service distributor has been defined in in Rule 2(m) of the Rules of 2004 as to mean an office of the manufacturer or producer of final products or provider of output service, which receiv .....

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t of service tax paid on the input service to its manufacturing units or units providing output service, subject to the two conditions, viz.:- (a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; (b) credit of service tax attributable to service [used by one or more units] exclusively engaged in manufacture of exempted goods or providing of exempted service shall not be distributed; 5.1 It was only later on that additional co .....

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nit without pro rata distribution by the input service distributor therefore would not survive in view of no previous restriction of this nature flowing from Rule 7 of the Rules of 2004. In fact, the Tribunal has seen entire situation as a Revenue neutral, since as pointed out by the assessee, it had availed only 20% of the credit for payment of service tax and the balance was paid in cash. 7. The second objection of the Revenue as noted was with respect of non-registration of the unit as input .....

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in the Rules of 2004 which would automatically and without any additional reasons dis-entitle 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 corr .....

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t of the assessee. In fact, perusal of the show cause notice would show that the entire basis of the Revenue was wrongfully availment of the credit. 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. The adjudicating authority, without any basis or evidence, merely mechanically recorded that the assessee had, by reason of willful misstatement, suppression of fact or in contravention of the provi .....

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