CENVAT Credit Distributed Through ISD Cannot Be Denied for Procedural Lapses; Extended Limitation Not Invocable: CESTAT Chennai
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), has held that CENVAT credit distributed by an Input Service Distributor (ISD) cannot be denied merely on procedural grounds where the receipt and utilization of services are genuine and duly supported by documents. The Tribunal also ruled that extended limitation cannot be invoked when there is no allegation or evidence of fraud, suppression, or intent to evade tax.
The appeal arose from proceedings initiated against Tulsyan NEC Ltd., whose Ambattur manufacturing unit had availed CENVAT credit during the financial years 2009–10 and 2010–11 based on invoices distributed by its ISD located at Nungambakkam, Chennai. A Show Cause Notice issued in March 2015 alleged that several invoices were addressed to the company’s Gummidipoondi unit rather than the ISD, that ISD invoices lacked details of original service providers, and that some credits were availed based on internal ledger entries under Capital Work-in-Progress (CWIP) rather than on proper invoices.
The Commissioner accepted the Department’s view and disallowed credit aggregating to ₹78,17,595, demanding proportionate interest and imposing penalties under Rule 15 of the CENVAT Credit Rules and Section 11AC of the Central Excise Act. A penalty of ₹39,08,797 was imposed on the Ambattur unit and ₹10 lakh on the ISD.
On appeal, Tulsyan NEC argued that all services were genuinely received, payments were made through banking channels, and credit was distributed by the ISD in accordance with Rule 7 of the CENVAT Credit Rules as applicable during the relevant period. It was submitted that the law at that time did not restrict distribution of credit only to the unit to which the original invoice was addressed. Further, the absence of supplier details in certain ISD invoices was explained by producing debit notes, annexures, challans, and audit records, clearly showing the nature of services received and tax paid.
The Tribunal accepted these submissions and observed that the Department did not dispute receipt of services, their use in manufacturing activities, or the tax payment. The bench emphasized that procedural discrepancies—such as invoices being addressed to a different unit or absence of certain particulars—cannot form the basis for denying substantive benefits under the CENVAT credit scheme. In this regard, the Tribunal relied on earlier decisions including Mahindra & Mahindra Ltd. v. CCE (2015), which held that procedural irregularities cannot nullify otherwise valid credits where the underlying services have been received and utilized.
Addressing the Department’s objection that ISD invoices did not contain particulars of the original service providers, the Tribunal held that supporting documents such as debit notes and enclosures were sufficient to satisfy the requirement of “substantial compliance.” Likewise, credits based on CWIP entries were justified by Tulsyan NEC through documentation demonstrating that these represented GTA services discharged under reverse charge via TR-6 challans.
A significant aspect of the decision involved limitation. The Tribunal noted that the Show Cause Notice dated March 2015 sought to recover credits availed as far back as 2010–11, invoking the extended period on the ground of suppression. Rejecting this, the bench held that the assessee had regularly filed monthly ER-1 returns, maintained detailed credit records, and participated in audits. In the absence of any evidence of wilful misstatement or intent to evade, invocation of extended limitation was unwarranted.
The Tribunal relied on the Supreme Court’s ruling in Uniworth Textiles Ltd. v. CCE (2013), which clarified that mere non-payment or procedural lapses do not constitute suppression for the purpose of extended limitation. Applying this principle, the bench held the entire demand as time-barred. Consequently, CESTAT set aside the entire demand, including interest and all penalties imposed on both the Ambattur unit and the ISD, granting complete relief to the assessee.
Appearance
Counsel For Appellant: G. Natarajan, Advocate
Counsel For Respondent: O.M. Reena, Authorised Representative
Cause Title: M/s. Tulsyan NEC Ltd. Versus Commissioner of GST and Central Excise
Case No: Excise Appeal No. 41527 of 2016
Coram: P. Dinesha (Judicial Member), Vasa Seshagiri Rao (Technical Member)
