Whether assessee will be allowed to distribute Cenvat credit when they are registered as ISD?

PJ/CASE LAW/2015-16/3004

Case:PUNJAB NATIONAL BANK Versus COMMISSIONER OF CENTRAL EXCISE, MEERUT-I

Citation: 2014 (34) S.T.R. 278 (Tri. - Del.)

Brief Facts:The appellant are the Zonal Audit Office at Meerut of the Punjab National Bank. The appellant applied and obtained service tax registration for providing banking and financial services on 30-10-2004. However, the Appellant audited the records of different branches of PNB within their jurisdiction. Each branch was also having separate service tax registration. With effect from 7-6-2005, the concept of ‘input service distributor’ (ISD) was introduced by amendments for Service Tax Rules, 1994 and Cenvat Credit Rules, 2004. Under this scheme when the head office of a company providing taxable service is located at a particular place and taxable services are provided by branches located at different places, the head office could avail the Cenvat credit on the basis of invoices issued in its name and, thereafter, distribute the credit to various branches, by issuing ISD invoices. As per the Rules framed in this regard, an input service distributor was required to obtain registration ISD. However, in this case, during the period from January 2008 to March 2009, the appellant though having service tax registration, were not registered as input service distributor, but they took Cenvat credit of Rs. 1,24,232/- on the basis of invoices of various service providers issued in the name of Zonal office and distributed the same to various branches by issuing the invoices. The Department issued a show cause notice to the appellant for recovery of this credit on the ground that when the appellant were not registered as input service distributor, they could not have taken the credit and distributed the same by issuing invoices to their branches. Subsequently, the Assistant Commissioner confirmed the Cenvat credit demand and imposed of equal amount. On appeal being filed by the appellant, this order of the Assistant Commissioner was upheld by the Commissioner (Appeals). Hence this appeal has been filed before this Tribunal.

Appellant’s Contention:Learned Counsel for the appellant, pleaded that the appellant had service tax registration in respect of banking services since 31-10-2004, that since the appellant Zonal Audit Office located at Meerut, were not directly providing service and were responsible for audit of the branches in their jurisdiction, they were under impression that their service tax registration is only for distributing credit, that the provisions for input service distributor were introduced in June 2005 but the Appellant started availing credit and distributing the same as ISD from October 2007, that merely because the Appellant did not obtain service tax registration specifically as input service distributor, the Cenvat credit availed by them for distribution to branches cannot be denied and that in view of this, the impugned order upholding the Cenvat credit and penalty is not sustainable.

Respondent’s Contention: Learned Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner (Appeals) and cited the judgments of the Tribunal in the cases of Khaitan Electricals v. C.C.E., Kolkata-VI reported in 2011 (21)S.T.R.184 (Tri.-Kolkata), Hindustan Coca Cola Beverages Pvt. Ltd. v. C.C.E., Meerut-II reported in 2011 (266)E.L.T.347 (Tri.-Del.) = 2011 (22)S.T.R.473 (Tri.) and Acro Paints Ltd. v. C.C.E., Jaipur reported in 2009 (15)S.T.R.147 and Lotte India Corporation Ltd. v. C.C.E., Pondicherry reported in 2010 (19)S.T.R.870 (Tri.-Chennai).

Reasoning of Judgement:There is no dispute that the appellant are the Zonal Audit Head office of Punjab National Bank and though they are registered in respect of banking services since October 2004, they were actually responsible only for audit of the records of the Branches of PNB within their jurisdiction and it is the branches which were providing banking services and were individually registered for service tax payment. There is no dispute that the Appellant as Zonal Audit Office were not providing banking/financial services. The point of dispute is as to whether in this factual background, the appellant as Zonal Audit Office of PNB could take Cenvat credit on the basis of invoices issued in their name and distribute the same to the branches as input service distributor. In this case, there is no dispute that the services in question had been received and are covered by the definition of ‘Input service’ and if the appellant had obtained separate registration as ‘input service distributor’, there would have been no objection to availing Cenvat credit on the basis of invoices in the name of Zonal Audit Office and distributing the same to the branches of PNB. 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. The judgments cited by the ld. D.R are not applicable to the facts of this case. Therefore, the Tribunal decided that the Appellant could take the Cenvat credit and distribute the same by issuing invoices to their branches. The impugned order is, therefore, not sustainable. The same is set aside. The appeal is allowed.

Decision:Appeal Allowed

Comment:The case is related to distribution of credit by head office to its branch offices under Input service distribution scheme. In the present case, appellant has availed and distributed the credit to its branch office without taking the separate registration of Input service distributor. The Tribunal held that although appellant has not taken a separate registration for input service distributor but they were practically working as ISD. The appellant were not providing the banking/financial services, but they were registered as provider of banking service since 2004 therefore they should be treated as registered as ISD. Hence assessee appeal allowed.

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PJ/CASE LAW/2015-16/3004

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