The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai bench has quashed the recovery of Central Value Added Tax (CENVAT) credit from ACC Limited, an Input Service Distributor (ISD).
The judgment states that Rule 14 of the CENVAT Credit Rules, 2004 which allows for the recovery of credit, can only be applied against the Manufacturer/Service Provider or the person who availed the allegedly inadmissible credit and not against the Input Service Distributor (ISD).
The case revolved around the Appellant, M/s. ACC Limited, a prominent cement and clinker manufacturer which had its Thane Office registered as an ISD during the Service Tax regime.
The appellant company operated multiple manufacturing units across India and primarily engaged in cement and clinker manufacturing. These manufacturing units either sold cement directly to customers or through its sister concern, M/s. Bulk Cement Corporation of India Limited (BCCL), in which M/s. ACC Limited held over 94% of shares, with the remaining shares owned by the Government of India, Ministry of Industries.
M/s. BCCL, situated in Karnataka, received bulk cement and was responsible for packing and supplying it to customers based on the appellant’s instructions. The appellant reimbursed Excise Duty and other expenses incurred by M/s. BCCL.
An Excise Audit was conducted, during which auditors objected to certain credits amounting to Rs.39,48,047/- availed by the appellant. The appellant accepted part of the objections and reversed credits worth Rs.20,28,904/-, along with interest. However, they were subsequently served with a show-cause cum demand notice demanding the entire amount with interest and penalties. The Adjudicating Authority passed a Common Order confirming the demand, imposing interest and equal penalties.
The appellant filed an appeal before the Commissioner (Appeals), but the same was rejected. Aggrieved by the same, the appellant filed three separate appeals before the CESTAT, challenging the confirmation of demand for the recovery of CENVAT Credit from ISD, along with interest and penalties, for three different financial years.
The appellant, represented by Mr. Jitu Motwani and Ms. Anshu Shah, cited various legal precedents and the Circular issued by the Central Board of Indirect Taxes and Customs (CBIC) dated 10.03.2014, emphasising that Rule 14 of the CENVAT Credit Rules, 2004 can only be applied against the “person” who availed the credit. ISDs, as distributors of input service credit to their respective manufacturing units, should not be held liable for credits allegedly inadmissible for the manufacturing units, even in cases where credits were not admissible.
The appellant also stated that the Commissioner’s finding that CENVAT Credit for advertisement services was inadmissible due to advertisements being painted on wagons or bulkers owned by BCCL was unfounded.
It was also contended that credits for physical stock verification, technical testing, analysis, consultation services and tour operator services should not be denied as BCCL was an integral part of the appellant company, with nearly 95% of the shares owned by the latter and operated under its control and supervision. The appellant emphasised the legitimacy of their credits.
The appellant stressed that duty and interest had been paid before the issuance of the show cause notice, except for the disputed portion of the demand. Imposing penalties under these circumstances was impermissible under the provisions of the Finance Act.
The respondent revenue, Commissioner of GST & Central Excise, Appeals – Thane, represented by Mr. Xavier R. Mascarenhas, supported the reasoning and rationale of the order issued by the Commissioner (Appeals).
The revenue argued that in light of previous CESTAT decisions, specifically SKF India Ltd. vs. CCE, Pune-I, and Clariant Chemicals (I) Ltd. Vs. CCE, Raigad, the issuance of the show cause notice to ISDs was justified. The respondent also defended the Commissioner’s findings on the inadmissibility of certain credits, emphasising that they were well-founded.
The single bench of Dr. Suvendu Kumar Pati (Judicial Member) affirmed that Rule 14 of the CENVAT Credit Rules, 2004 can only be applied against the manufacturer, service provider or the entity that availed the allegedly inadmissible credit.
The bench concluded that the entire demand raised against the appellant was not sustainable in law. Moreover, the bench noted that the disputed credits in question were admissible.
In result, the bench allowed the appeals and set aside the order passed by the Commissioner of GST & Central Excise (Appeals-Thane), Mumbai granting consequential relief, if any clarifying that Rule 14 of the CENVAT Credit Rules, 2004 cannot be invoked against ISDs.
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