Reconstitution of Supplier Entity from Pvt. Ltd. to LLP does not Affect Validity of Contractual Relationship or Invoices: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) held that the reconstitution of a supplier entity from a private limited company to a limited liability partnership ( LLP ) does not terminate or disrupt an existing contractual relationship, and invoices issued post-restructuring remain valid for claiming CENVAT credit.

Nitco Limited, the appellant, is a manufacturing company that availed CENVAT credit on 'minimum production demand fees' charged by Saisha Trading LLP for the supply of coal gas. The agreement for this supply had originally been executed with Saisha Trade Pvt. Ltd. in September 2014.

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The appellant claimed credit on tax paid for the said service, classifying it under the declared service category as per Section 66E of the Finance Act, 1994. The Revenue denied the credit on two grounds: first, that the charges were not for an input service directly linked to manufacturing, and second, that the invoice was issued by a different legal entity (LLP instead of the original Pvt. Ltd. company), making the transaction ineligible for credit.

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The adjudicating authority accepted the Department’s stand and disallowed the credit. The Commissioner (Appeals) upheld the denial and also imposed a penalty of Rs. 3,43,490 under Section 11AC of the Central Excise Act, 1944. Aggrieved by the decision, the appellant approached the Tribunal.

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The appellant’s counsel argued that the substance of the transaction had not changed—the LLP was merely a continuation of the Pvt. Ltd. entity, and the agreement remained in force. It was further argued that tax was duly paid, the service was availed as per contract, and the denial of credit was legally and factually flawed. They also argued that the Commissioner (Appeals) failed to consider the grounds raised in their appeal and did not allow them to explain the reconstitution issue.

The single-member bench comprising Judicial Member Ajay Sharma examined the continuity of the contractual relationship and held that the reconstitution of the supplier from a private limited company to an LLP did not result in a new or independent agreement.

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The tribunal observed that the contract remained valid and enforceable, and that the appellant was not given a fair opportunity to rebut the Department’s assumption that the contractual terms had lapsed. It also observed that the Commissioner (Appeals) failed to consider the core arguments and misapplied factual findings.

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The tribunal set aside the impugned appellate order and remanded the matter back to the Commissioner (Appeals) for fresh adjudication. The tribunal directed that the appeal be reconsidered based on the original grounds of challenge, and after giving the appellant a proper hearing. The appeal was allowed by way of remand.

To Read the full text of the Order CLICK HERE

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