CESTAT Allows CENVAT Credit on GTA Services Distributed Without ISD Registration

Luminous Power Technologies Pvt Ltd Vs Commissioner of Central Goods & Service Tax (CESTAT Chandigarh)

The appeal before CESTAT Chandigarh challenged the order dated 28.03.2018 passed by the Commissioner of GST, Chandigarh, denying CENVAT credit of Rs. 77,25,604 availed on service tax paid on Goods Transport Agency (GTA) services under Rule 14 of the CENVAT Credit Rules, 2004. The credit was denied on the ground that the appellant’s Head Office, which distributed the credit to manufacturing units, was not registered as an Input Service Distributor (ISD).

The appellant submitted that the Head Office paid service tax under the reverse charge mechanism on behalf of all manufacturing units through a consolidated challan and thereafter distributed the credit to the respective units. The appellant availed the credit based on e-payment receipts received from the Head Office. It was argued that under Rule 2(m) of the CENVAT Credit Rules, an Input Service Distributor is an office of the manufacturer or producer receiving invoices for input services and issuing bills or challans for distribution of credit. The appellant further submitted that, with effect from 01.04.2005, the recipient of the service was required to be registered under the Act and, from 02.01.2006, centralized registration was extended to service recipients. Accordingly, the Head Office had obtained centralized registration for payment of service tax under the reverse charge mechanism. It was contended that the appellant was entitled to CENVAT credit under Rules 3 and 4(7) of the CENVAT Credit Rules and that Rule 9(1)(e) specifically recognizes a challan as a valid document for availing credit.

The appellant also argued that registration of the Head Office as an ISD was only a procedural requirement and that substantial benefit could not be denied for such procedural irregularity. On limitation, it was submitted that the show cause notice dated 21.03.2016, covering the period from April 2011 to May 2014, had been issued on the basis of an audit report dated 12.12.2012 after a considerable delay, and therefore the extended period of limitation was not invocable.

The Revenue supported the findings of the impugned order.

The Tribunal observed that the dispute was confined to whether CENVAT credit on GTA services could be denied merely because the appellant’s Head Office, which was centrally registered to receive services and pay service tax under the reverse charge mechanism, was not registered as an ISD while distributing the credit to manufacturing units. The Tribunal noted that the appellant relied upon the judgment of the Gujarat High Court in Commissioner of Central Excise vs. Dashion Ltd., which had been accepted by the Department.

Referring to the Gujarat High Court’s judgment, the Tribunal noted that the High Court had held that neither the Rules of 2005 governing registration of Input Service Distributors nor the CENVAT Credit Rules, 2004 automatically disentitled an Input Service Distributor from availing or distributing CENVAT credit merely because registration had not been obtained. The High Court had also held that the requirement of registration was curable where complete records were maintained, the irregularity was procedural, and the Revenue could verify the correctness of the records. The High Court had further observed that mere wrongful availment of credit without evidence of wilful misstatement, suppression, fraud, collusion or intent to evade payment of duty was insufficient to justify penalty.

Holding that the present case was squarely covered by the Gujarat High Court’s decision, the Tribunal concluded that the appellant had correctly availed CENVAT credit on GTA services distributed by its Head Office despite the Head Office not being registered as an ISD. Accordingly, the Tribunal allowed the appeal.

Cases Discussed

• Iffco Tokio Insurance Services Ltd. vs. Commissioner of ST, Delhi-IV, CGST, Gurugram (CESTAT Chandigarh), 2025 (1) TMI 429- CESTAT Chandigarh
• Faurecia Automotive Seating India Pvt. Ltd. vs. Commissioner of Central Excise, Delhi-III (CESTAT Chandigarh), 2025-TIOL-100-CESTAT-CHD
• DSM Sinochem Pharmaceuticals India Pvt. Ltd. vs. C.C.E., Chandigarh (CESTAT Chandigarh), 2025-TIOL-100-CESTAT-CHD
• Sunder International vs. Commissioner of CGST & Central Excise, Mumbai (CESTAT Mumbai), 2024 (10) TMI 892-CESTAT Mumbai
• JSW Steel Limited vs. Commissioner of CGST & Central Excise Salem Commissionerate (CESTAT Chennai), 2024 (8) TMI 654- CESTAT Chennai
• Bharat Sanchar Ltd. vs. The Commissioner of Central Excise and Service Tax, Chandigarh-1 (CESTAT Chandigarh), 2024 (1) TMI 583-CETAT Chandigarh
• Unifrax India Ltd vs. C.C.E. & S.T.- Bhavnagar (CESTAT Ahmedabad), 2023 (10) TMI 955- CESTAT Ahmedabad
• Spice Digital Ltd. vs. Commissioner of Central Excise, Chandigarh (CESTAT Chandigarh), 2023 (5) TMI 196- CESTAT Chandigarh
• 3M India Limited vs. Commissioner of Central Excise (LTU), Bangalore (CESTAT Bangalore), 2023-TIOL-1173-CESTAT-BANG
• IDMC Ltd (CESTAT Ahmedabad), 2022-TIOL-887-CESTAT-AHM
• Unite Phosphorus Ltd. vs. C.C.E. & S.T. – Surat -II (CESTAT Ahmedabad), 2022-TIOL-1083-CESTAT-AHM
• The Commissioner of Central Excise Service Tax and Customs Bengaluru-II vs. Hinduja Global Solutions Ltd. (Karnataka High Court), 2022 (61) G.S.T.L. 417 (Kar.)
• Commissioner of Central Excise vs. M/s. Pricol Ltd. (Madras High Court), 2021 (48) G.S.T.L. 235 (Mad.)
• Philips Electronics (India) Limited vs. C.C.E & S.T.-Vadodara-I (vice versa) (CESTAT Ahmedabad), 2019-TIOL-2730-CESTAT-AHM
• Greenwich Meridian Logistics India Pvt Ltd (CESTAT Mumbai), 2017-TIOL-1438-CESTAT-MUMBAI
• Cargill India Pvt. Ltd. vs. Commissioner of Central Excise, Customs and Service Tax (CESTAT Bangalore), 2016 (45) S.T.R. 124 (Tri.-Bang.)
• Commissioner of Central Excise vs. Dashion Ltd. (Gujarat High Court), 2016 (41) S.T.R. 884 (Guj.)
• Commissioner of Central Excise, Goa, vs. Essel Pro-pack Ltd. (Bombay High Court), 2015 (5) TMI 529 – Bombay High Court
• Commissioner of Central Excise, Goa, vs. Essel Pro-pack Ltd. (CESTAT Mumbai), 2007 (9) TMI 43- CESTAT, MUMBAI
• Commissioner of C. Ex., Allahabad vs. A.P.S.M. Study Centre (CESTAT Delhi), 2011 (24) S.T.R. 717 (Tri.-Del.)
• Suvikram Plastex (P) Ltd. vs. Commissioner of C.Ex., Bangalore-III (CESTAT Bangalore), 2008 (225) E.L.T. 282 (Tri.-Bang.)

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

The appellants, M/s Luminous Power Technologies Pvt Ltd, assail the order dated 28.03.2018 passed by Commissioner of GST, Chandigarh, denying the credit of Rs.77, 25, 604/- availed on service tax paid on GTA Services, under Rule 14 of CENVAT Credit Rules, 2004, for the reason that their Head Office, who distributed the credit was not registered as an ISD.

2. Ms. Krati Singh, learned Counsel for the appellants submits that the appellants availed the GTA credit and informed the Head Office, who deposits the service tax on behalf of all the manufacturing units across the country through a consolidated challan and distribute the credit to individual units; the appellants availed the credit on the basis of e-payments receipts received from Head Office; Revenue seeks to deny the credit on the basis that the Head Office is not registered as an ISD. Learned Counsel submits that in terms of Rule 2(m) of CENVAT Credit Rules, ISD means an office, manufacturer or producer of final products, which receives invoices under the Service Tax Rules, for the purchase of input services and issues a bill/ challan for distributing the credit.

3. Learned Counsel further submits that w.e.f. 01.04.2005, the person who receives service, read with Rule 2(1)(d), is required to be registered under the Act; with effect from 02.01.2006, Scheme of Centralized Registration was extended to tax payers, who are service recipients; the appellant has accordingly got registered centrally for payment of service tax on RCM basis; therefore, as held in Greenwich Meridian Logistics India Pvt Ltd – 2017-TIOL-1438-CESTAT-MUMBAI and IDMC Ltd – 2022-TIOL-887-CESTAT-AHM, credit cannot be denied. She further submits that the appellant is eligible for credit in terms of Rule 3, Rule 4(7) of CENVAT Credit Rules. Rule 9 (1) (e) describes Challan as an admissible document for availing credit as held in the following cases:

• Faurecia Automotive Seating India Pvt. Ltd. vs. Commissioner of Central Excise, Delhi-III 2025-TIOL-100-CESTAT-CHD
• Cargill India Pvt. Ltd. vs. Commissioner of Central Excise, Customs and Service Tax 2016 (45) S.T.R. 124 (Tri.-Bang.)
• DSM Sinochem Pharmaceuticals India Pvt. Ltd. vs. C.C.E., Chandigarh 2025-TIOL-100-CESTAT-CHD
• Commissioner of Central Excise, Goa, vs. Essel Pro-pack Ltd. 2007 (9) TMI 43- CESTAT, MUMBAI affirmed in 2015 (5) TMI 529 – Bombay High Court.

4. Learned Counsel further submits that requirement of registration by Head Office as an ISD is only a procedural requirement; substantial benefit cannot be denied as held in the following cases:

• Unifrax India Ltd vs. C.C.E. & S.T.- Bhavnagar 2023 (10) TMI 955- CESTAT Ahmedabad
• Iffco Tokio Insurance Services Ltd. vs. Commissioner of ST, Delhi-IV, CGST, Gurugram 2025 (1) TMI 429- CESTAT Chandigarh
• Bharat Sanchar Ltd. vs. The Commissioner of Central Excise and Service Tax, Chandigarh-1 2024 (1) TMI 583-CETAT Chandigarh.
• Spice Digital Ltd. vs. Commissioner of Central Excise, Chandigarh 2023 (5) TMI 196- CESTAT Chandigarh
• 3M India Limited vs. Commissioner of Central Excise (LTU), Bangalore 2023-TIOL-1173-CESTAT-BANG
• Unite Phosphorus Ltd. vs. C.C.E. & S.T. – Surat -II 2022-TIOL-1083-CESTAT-AHM
• Philips Electronics (India) Limited vs. C.C.E & S.T.-Vadodara- I (vice versa) 2019-TIOL-2730-CESTAT-AHM
• The Commissioner of Central Excise Service Tax and Customs Bengaluru-ll vs. Hinduja Global Solutions Ltd. 2022 (61) G.S.T.L. 417 (Kar.)
• Commissioner of Central Excise vs. M/s. Pricol Ltd. 2021 (48) G.S.T.L. 235 (Mad.)
• Commissioner of Central Excise vs. Dashion Ltd. 2016 (41) S.T.R. 884 (Guj.)

5. Learned Counsel lastly submits that the show cause notice, on the basis of audit report dated 12.12.2012, was issued on 21.03.2016 covering the period April 2011 to May 2014; the show cause notice was also issued after a long gap since the audit report. In the following cases, it was held that extended period cannot be invoked under such circumstances:

• Suvikram Plastex (P) Ltd. vs. Commissioner of C.Ex., Bangalore-III 2008 (225) E.L.T. 282 (Tri.-Bang.)
• Commissioner of C. Ex., Allahabad vs. A.P.S.M. Study Centre 2011 (24) S.T.R. 717 (Tri.-Del.)
• JSW Steel Limited vs. Commissioner of CGST & Central Excise Salem Commissionerate 2024 (8) TMI 654- CESTAT Chennai
• Sunder International vs. Commissioner of CGST & Central Excise, Mumbai 2024 (10) TMI 892-CESTAT Mumbai.

6. Learned Authorized Representative for the Revenue reiterates the findings of the impugned order.

7. Heard both sides and perused the records of the case. The issue involved is in a brief compass. The Head Office of the appellant is centrally registered to receive service and to pay service tax under RCM on GTA Services; the Head Office accordingly paid the service tax in respect of all the branches and distributed the credit to the respective branches; Revenue seeks to deny the CENVAT credit on the ground that the Head Office of the appellant is not registered as an ISD. We find that learned Counsel for the appellants relies on the decision of Hon’ble High Court of Gujarat in the case of Dashion Ltd (supra); and that the Department has accepted the judgment. We find that Hon’ble High Court of Gujarat held as follows:

8. The first objection of the Department therefore that the credit from one unit was utilized for the purpose of duty liability of other unit without pro rata distribution by the input service distributor therefore would not survive in view of no previous restriction of this nature flowing from Rule 7 of the Rules of 2004. In fact, the Tribunal has seen entire situation as a Revenue neutral, since as pointed out by the assessee, it had availed only 20% of the credit for payment of service tax and the balance was paid in cash.

9. The second objection of the Revenue as noted was with respect of non-registration of the unit as input service distributor. It is true that the Government had framed Rules of 2005 for registration of input service distributors, who would have to make application to the jurisdictional Superintendent of Central Excise in terms of Rule 3 thereof. Sub-rule (2) of Rule 3 further required any provider of taxable service whose aggregate value of taxable service exceeds certain limit to make an application for registration within the time prescribed. However, there is nothing in the said Rules of 2005 or in the Rules of 2004 which would automatically and without any additional reasons disentitle an input service distributor from availing Cenvat credit unless and until such registration was applied and granted. It was in this background that the Tribunal viewed the requirement as curable. Particularly when it was found that full records were maintained and the irregularity, if at all, was procedural and when it was further found that the records were available for the Revenue to verify the correctness, the Tribunal, in our opinion, rightly did not disentitle the assessee from the entire Cenvat credit availed for payment of duty. Question No. 1 therefore shall have to be answered in favour of the respondent and against the assessee.

10. Coming to the question of penalty, right from the show cause notice stage till the final disposal of the show cause notice proceedings, we find little evidence to support the allegations of willful misstatement, suppression, fraud or collusion on the part of the assessee. In fact, perusal of the show cause notice would show that the entire basis of the Revenue was wrongfully availment of the credit. Mere wrongfully availment without element of mens rea and that too for the purpose of evading payment of duty would not be sufficient to impose penalty. The adjudicating authority, without any basis or evidence, merely mechanically recorded that the assessee had, by reason of willful misstatement, suppression of fact or in contravention of the provisions of the Rules, evaded payment of central excise duty. He was not even sure whether this was a case of willful misstatement or suppression of fact or contravention of provisions of the Rules.

11. We are of the considered opinion that the impugned case before us is squarely covered by the above judgment; therefore, we hold that the appellants have correctly availed the CENVAT credit on GTA services, distributed by their Head Office even though their Head Office is not registered as an ISD. Accordingly, the appeal is allowed.

(Order pronounced in the open court on 30/04/2025)