Whether service tax credit distributed by head office deniable on the ground that no ISD registration taken?

PJ/Case law/2014-15/2257

Case:-DEMOSHA CHEMICALS PVT. LTD. v/s COMMISSIONER OF C. EX. & S.T., DAMAN

Citation:- 2014(34) S.T.R. 758 (Tri. – Ahmd.)

Brief facts:- The facts from the records transpires that the appellant had availed the service tax credit for the period from September, 2006 to July, 2011 of an amount of Rs. 40,83,617/- on the basis of document i.e. invoices/ challans, raised by various service providers viz. issued in the name of their Registered/ Head office situated in Mumbai; their head office had not issued any invoice or bill in the name of the appellant and also their head office was not registered as “Input Service Distributor” category. The department entertained a view that since the invoices or bills are not in the name of appellant they are not valid documents to avail Cenvat credit under sub-rule (1) of Rule 9 of CCR, 2004 read with Rule 4A (1) of Service Tax Rules, 1994, therefore, the credit availed by them on the basis of those bills/documents are not admissible. Consequently, a show cause notice was issued to the appellant proposing to disallow/ demand the credit availed by them along with interest, imposition of penalty was also proposed. After following due process of law, adjudicating authority confirmed the demand of Cenvat credit amounting to Rs. 40,83,617/- under Rule 14 of Cenvat Credit Rules, 2004 read with section 11A(1) of Central Excise Act, 1944 along with interest. The adjudicating authority also imposed equal penalty under rule 15 of CCR, 2004 read with section 11AC of the Central Excise Act, 1944.

Appellant preferred an appeal before the first appellate authority. The first appellate authority after following due process of law rejected the appeal. Hence, the present appeal.

Appellant’s contentions:-Ld. Counsel submits that the entire findings of the first appellate authority is only on the point that appellant’s head office being not a input service distributor for distributing Cenvat credit and the invoices having been raised in the name of head office and appellant having more than one factories, could not have availed the Cenvat credit of service tax at one unit. He would then draw attention to the findings recorded by the adjudicating authority as well as the first appellate authority. It is his submission that the issue involved in this case is now decided by this bench in the following cases:

(i) Doshion Limited v. Commissioner Of Central Excise, Ahmedabad- 2013(288) E.L.T. 291 (Tri. – Ahmd.)
(ii) Modern Petrofils v. Commissioner Of Central Excise, Vadodara- 2010 (20) S.T.R. 627 (Tri.- Ahmd.)
(iii) Commissioner Of Customs & Central Excise, Vapi v. DNH Spinners – 2009(244) E.L.T. 65(Tri.) = 2009(16) S.T.R. 418(Tri. –Ahmd.)
(iv) Bloom Decor Ltd. v. Commissioner Of Central Excise, Ahmedabad – 2012 (28) S.T.R. 182(Tri. –Ahmd.)

Respondent’s contentions:-Ld. Departmental representative would submit that the appellant could not have availed Cenvat credit of the entire amount of service tax paid at one unit is objectionable and should have been distributed by their head office after taking registration of the premises as input service distributor.

Reasoning of judgment:-Undisputed facts are appellant is having two units. The invoices which are raised for the services rendered were in the name of the head office and their head office was not registered as input service distributor.

On perusal of the records, it transpires that the Cenvat credit which has been availed for the appellant of the service tax paid based on invoices/ challans was in respect of the services provided by the Banks, Insurance companies, transporters, MTNL and others for telephone, CHAs, Couriers, repairing & maintenance services. The invoices were issued on the name of the registered/ head office situated at Mumbai. It transpires from the records that there is no dispute as to the fact that the services were rendered in this case. The dispute as correctly pointed out by the ld. Counsel is only on the ground that the head office of the appellant having not being registered as input service distributor, the entire tax paid by service provider could not be availed as Cenvat credit by the appellant, as there were two units. In the entire records, they did not find any such allegation nor there is any findings to indicate that the appellant herein had availed more than the eligible Cenvat credit of the service tax paid in both the units. The Cenvat credit availed by the appellant is exactly the amount which has been charged as service tax by the service provider. They find strong force to the contentions raised by the ld. Counsel that the judgment/ order of this bench in the case of Doshion Limited (supra) (para 5) and Modern Petrofils (supra) (para 4) are directly on the point wherein the bench has held as under:

Doshion Limited v. Commissioner of Central Excise, Ahmedabad – 2013(288) E.L.T. 291(Tri.- Ahmd.):-

“5. We have considered the submissions made by both sides. We find considerable force in the arguments advanced by the learned counsel. The registered office and Vatva office both are located in the same place and appellant has simply utilised the credit at Vatva instead of distributing it to various units. As submitted by the learned counsel, during the relevant period, there was no restriction for utilisation of such credit without 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 in cash. In fact, proper distribution would have enable them to utilize full credit. It would show that the exercise is totally revenue neutral and no loss has been caused to the revenue (in fact revenue has gained). In the absence of any legal requirement to avail credit based on the services received during the relevant time and in the light of the decision cited by the learned counsel, the procedural irregularity has to be ignored and the demand confirmed has to be set aside on this ground. In the result, demand for Cenvat credit of Rs. 1,07,07,142/- with interest and penalty equal to the same imposed under section 11AC of Central Excise Act, 1944 are set aside.”

Modern Petrofils v. Commissioner of Central Excise, Vadodara- 2010(20) S.T.R. 627(Tri. – Ahmd.):

4. I have considered the submissions made by both the sides. I find that Commissioner has rightly followed the decision of this tribunal in the case of DNH Spinners. Even though the appellants have multiple divisions, in the absence of any dispute about the receipt of the services in question by the factory to whom credit has been passed on, the ratio of the cited decision is applicable. In fact Commissioner proceeded to say that the appellants should have followed the procedure of issue of invoices by the head office as an input service distributor but observed that as far as the present appeal is concerned, the proceedings are limited by the ground taken in the show cause notice and upheld in the OIO which was that appellants had taken credit wrongly since invoice was not in their name but in the name of their head office. Because of this ground, the whole case becomes one of the invoice not being in the name of the factory. In view of the fact that the invoice was in the name of the head office and there was no dispute raised in the show cause notice as to the admissibility of input service credit to the factory on the ground that the input service was not relatable to the factory, the omission becomes a total curable defect and is a condonable one. Under these circumstances, the conclusion reached by the Commissioner to drop the demand cannot be found fault with. The Commissioner also taken a view that merely because the appellants did not disclose to the department that they have availed credit on the basis of documents not prescribed under rule 9(2) of Cenvat Credit Rules, 2004, it can be said that there was suppression of fact, wilful misstatement, etc. he has relied upon the decision of the Hon’ble Supreme Court in the case of M/s L & T Ltd. [2007(211) E.L.T. 513 (S.C.)]. In view of the fact that there is no allegation of non-receipt of input service or the allegation of service not relatable to the factory and also in view of the fact that invoice was in the name of head office of the same factory and not in the name of someone else, the decision of the commissioner that extended period is not invokable also has to be upheld. Since I have taken a view that appellants are eligible for the credit and suppression of facts and extended period are not invokable, the question of penalty does not arise. Accordingly the penalty imposed is also set aside. In view of the above discussion, appeal filed by the revenue is rejected and appeal filed by the party is allowed.”

In view of foregoing, since there was no provisions for distribution of the Cenvat credit availed by the head office as ISD proportionately to various units (the provision is brought in the statute from 17-5-2012), they are convinced that the ratio of the decisions as cited herein above as the issue is in favour of the assessee. Accordingly, they set aside the impugned order and allow the appeal with the consequently relief, if any.

Decision:-Appeal is allowed.

Comment:-The analogy of the case is that the credit of service tax distributed to other units was held to be proper even if the service tax invoices were in the name of head office and head office was not registered as “input service distributor” because the provisions regarding distribution of credit by “input service distributor” were brought in the statue from 17.05.2012. As the present appeal covered the prior period and the issue was also backed by a number of case laws delivered for the prior period wherein it was concluded that service tax credit would be admissible as far as the receipt of services and their use is not doubted. Accordingly, the service tax credit distributed was held to be proper and the appeal was allowed.

Prepared By-Monika Tak

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PJ/Case law/2014-15/2257

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