CESTAT Chennai Clears M/s Tulsyan NEC Ltd. in Input Service Tax Credit Dispute

Tribunal Sets Aside Penalty; Emphasizes Substance Over Procedural Technicalities in CENVAT Credit Distribution

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chennai bench has ruled in favor of M/s Tulsyan NEC Ltd., reversing a prior adjudication that denied input service tax credit distributed by the company's Input Service Distributor (ISD). The tribunal emphasized that procedural lapses, like incorrect addressing of invoices, should not invalidate legitimate credit claims when substantive evidence supports genuine receipt and lawful distribution of credit.

The dispute revolved around the denial of CENVAT credit amounting to Rs. 78,17,595 availed by Tulsyan's Ambattur unit. The denial was based on grounds such as invoices being addressed to the company's Gummidipoondi unit instead of the ISD, and ISD invoices lacking details of original service providers. The adjudicating authority also imposed penalties on the ISD for issuing invoices incorrectly.

However, the tribunal, led by Mr. P. Dinesha, Member (Judicial), and Mr. Vasa Seshagiri Rao, Member (Technical), found that the ISD mechanism's central aim is to facilitate the distribution of credit across different units of a company, irrespective of minor procedural defects. The tribunal noted that the documentary evidence demonstrated the genuine receipt of services and lawful distribution of credit.

The tribunal also addressed the issue of extended limitation invoked by the department, ruling that the extended period cannot be applied without clear evidence of fraud or suppression of facts. The decision, citing past judgments, reinforced that the burden of proving mala fide intentions rests with the department, which failed to do so in this case.

The tribunal's judgment is poised to have wide implications on how procedural errors are viewed in the distribution of input service tax credits, stressing the need for focusing on substantive compliance rather than technicalities. The ruling underscores the importance of documentary evidence in establishing the genuineness of transactions and lawful credit distribution.

The appellate tribunal's decision sets aside penalties imposed on the ISD and allows the appeals with consequential benefits, thus favoring M/s Tulsyan NEC Ltd. in this long-standing tax credit dispute.

Bottom Line:

Denial of Input Service Tax Credit distributed by Input Service Distributor (ISD) cannot be based on minor technical defects in invoices such as incorrect addressing to a different unit, absence of non-essential particulars, or procedural issues when substantive evidence supports genuine receipt and lawful distribution of credit.

Statutory provision(s): CENVAT Credit Rules, 2004 Rules 2(m) and 7, Service Tax Rules, 1994 Rule 4A, Central Excise Act, 1944 Section 11A

M/s. Tulsyan NEC Ltd. v. Commissioner of GST and Central Excise, (CESTAT)(Chennai)(Regional Bench) : Law Finder Doc Id # 2808372