Obligation Under CENVAT Credit Rules, 2004, Cannot Be Transferred To Recipient Of Credit: CESTAT

The Bench of C J Mathew (Technical) has observed that, “the mechanism provided in rule 7 of CENVAT Credit Rules, 2004, governing the distribution of such credit, deems the credit so distributed to be eligible credit for the purpose of utilization. A harmonious reading of rule 3 and 4 of CENVAT Credit Rules, 2004 and the conditions prescribed in rule 7 alone would determine the extent of validity of the credit so distributed within the scheme of CENVAT Credit Rules, 2004.”

In this case, the assessee is registered as 'input service distributor (ISD)' and had taken the disputed credit for being passed on, under the authority of rule 7 of CENVAT Credit Rules, 2004, to several undertakings of theirs among which the assessee herein was one.

The assessee faced recovery proceedings under rule 14 of CENVAT Credit Rules, 2004, along with interest, for having utilized credit that did not comply to input service' under section 2(l) of CENVAT Rules. The original authority confirmed the demand.

Aggrieved by the original authority, the assessee filed an Appeal before Commissioner of GST & Customs (Appeals), Goa, who upheld the order of original authority. The assessee challenged the order passed by the Commissioner of GST & Customs (Appeals), Goa before the Tribunal.

The assessee contended that the demand cannot survive as they had utilized their accumulated credit from input service distributor to discharge duties of central excise on goods. The incorrectness in availment, if any, could not be fastened on them as, as per rule 3 of CENVAT Credit Rules, 2004, they had not taken credit.

Whereas the Department contended that the proceedings had been initiated under rule 14 of CENVAT Credit Rules, 2004 owing to incorrect utilization of credit and that 'input service distributor system is merely a transit which does not cast any obligation that the distributor alone was to be tested for conformity with 'input service' in rule 2(l) of CENVAT Credit Rules, 2004. Also, the credit has to be accounted for only by the manufacturing unit or service providing unit which a 'distributor' is not.

The bench observed that there is no dispute regarding the recovery that it was not fastened on the 'input service distributor though the recovery was sought to be justified with lack of eligibility under rule 3 of CENVAT Credit Rules, 2004 insofar as the receipt of assigned credit was concerned

The Tribunal pointed out that the jurisdiction to dispute credit taken by 'input service distributor (ISD)' under CENVAT Credit Rules, 2004 does not lie with the respondent-Commissioner.

The Tribunal stated that, “The assessee herein has merely utilized the credit and, to the extent that rule 3(4) of CENVAT Credit Rules, 2004 has not been shown to have been breached, is not concerned with the source of the credit. The obligation under rule 3(1) of CENVAT Credit Rules, 2004 cannot be transferred to the recipient of credit under rule 7 of CENVAT Credit Rules, 2004.”

In view of the above, the bench allowed the appeal.

Counsel for Appellant/ Assessee: Jitu Motwani

Counsel for Respondent/ Department: PK Acharya

Case Title: Hindustan Coca-Cola Beverages Pvt Ltd V. The Commissioner of CGST & Customs

Case Number: Excise Appeal No. 85225 of 2020

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