Relief to Punjab Gramin Bank: CESTAT Rules Cenvat Credit Allowed Without ISD Registration If Reflected in ST-3 Returns [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Cenvat credit cannot be denied solely for lack of Input Service Distributor (ISD) registration if the distribution of credit is duly reflected in ST-3 returns.

Punjab Gramin Bank, the appellant, is a registered service provider under the categories of banking and financial services, business auxiliary services, and card-related services. During audit proceedings for the financial year 2017–18, the department alleged that the appellant wrongly availed Cenvat credit on Education Cess, Secondary and Higher Education Cess, Swachh Bharat Cess, and Krishi Kalyan Cess.

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The department issued a show cause notice proposing to disallow the credit, recover interest under Section 75 of the Finance Act, 1994, and impose penalties under Sections 77 and 78. The adjudicating authority confirmed a demand of ₹2,20,218 along with applicable interest and penalties. On appeal, the Commissioner (Appeals), CGST, Chandigarh upheld the order. Aggrieved by this, the appellant approached the CESTAT.

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The appellant’s counsel argued that the denial of credit merely for not having formal ISD registration was unsustainable in law, especially since the input services were used in the course of providing output services and the distribution of credit was clearly reflected in the ST-3 returns.

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They relied on the Tribunal's earlier ruling in Punjab National Bank v. CCE, Meerut-I, where credit was allowed in a similar context despite a lack of ISD registration. The appellant also cited a favorable appellate decision in a similar case involving its Hoshiarpur branch, where the demand was set aside.

The revenue counsel argued that the appellant’s head office was not registered as an ISD and that the documents submitted, including emails, were not valid input service documents.

The single-member bench of S.S. Garg (Judicial Member) observed that the appellant was performing ISD-like functions and that the distribution of credit through ST-3 returns aligned with the functional intent of an input service distributor. The tribunal observed that substantive benefits cannot be denied due to procedural lapses, particularly when there is no dispute regarding the receipt and use of input services.

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The tribunal partially allowed the appeal, holding that Punjab Gramin Bank was entitled to Cenvat credit of Rs. 2,05,537 on input services. The tribunal also set aside the penalties under Sections 77 and 78, concluding that there was no mala fide intent and that the issue primarily arose due to interpretational and procedural lapses.

To Read the full text of the Order CLICK HERE

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