Relief to Berger Paints: CESTAT quashes ₹6.12 Crore Demand for Alleged Misallocation, Confirms Proportionate Distribution Citing CA Certificate [Read Order]

The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) set aside a demand of Rs. 6.12 crore for alleged irregularities in the distribution of CENVAT credit citing that the Input Service Distributor ( ISD ) had proportionately distributed the credit across its units as per statutory requirements and relied on Chartered Accountant’s certificate.

Berger Paints India Ltd., the appellant, manufactures paints with units at Sikandrabad, Surajpur, and Jammu. The appellant’s Head Office in New Delhi registered as an ISD, distributed CENVAT credit to its manufacturing units, including the Sikandrabad unit, which was the subject of dispute.

The Audit General of Uttar Pradesh (AGUP) audit for 2006 - 2008 raised objections that credits meant for other units, including the Jammu unit, which operated under an exemption, were distributed exclusively to the Sikandrabad unit. Seven Show Cause Notices (SCNs) were issued for 2006 - 2015 alleging violations of Rule 7 of the CENVAT Credit Rules and concluded a total demand of Rs. 3,94,56,724 and penalties.

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On appeal, the appellant’s counsel argued that its ISD followed the rules in distributing credit. The counsel argued that proportional distribution was not mandated under Rule 7 before amendments in 2012 and 2014. After the amendments, credits were distributed proportionately across units as shown by reconciliation records and a Chartered Accountant’s certification.

The department’s counsel argued that the appellant failed to provide sufficient evidence to support its claim and that credits attributable to services used at the Jammu unit were incorrectly distributed to the Sikandrabad unit. It argued that the appellant, as the recipient unit, had the burden of proving the admissibility of the credits.

The tribunal, comprising members P.K. Choudhary (Judicial) and Sanjiv Srivastava (Technical), found procedural lapses in the adjudication process, such as ordering all records to be submitted within a week. The tribunal observed that credit distribution issues should be addressed at the ISD level, not at the recipient unit, referencing rulings in Godfrey Philips India Ltd. and Gulf Oil Corporation Ltd.

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The tribunal observed that no evidence supported the claim of wrongful credit distribution after April 2012. The tribunal explained that extended demand periods require proof of intent to evade taxes which was not in this case. The tribunal set aside demand, and penalties and allowed the appeal.

To Read the full text of the Order CLICK HERE

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