Bank of India Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, in Bank of India Vs Commissioner of GST & Central Excise, Chennai North, set aside a demand of ₹32,83,486 relating to alleged irregular availment and utilisation of CENVAT credit. The dispute arose from an audit covering June 2005 to March 2009, during which the Department alleged that the bank had wrongly availed credit of ₹21,98,266 on input services received through its zonal office, which was not registered as an Input Service Distributor (ISD). The Department further alleged that the bank provided both taxable and exempted services without maintaining separate accounts under Rule 6 of the CENVAT Credit Rules, 2004, resulting in excess utilisation of credit amounting to ₹10,85,220. The adjudicating authority confirmed the demand with penalties, and the appellate authority upheld the order.
The bank contended that its Chennai zonal office and main branch operated from the same premises, with financial transactions handled by the main branch. It submitted that the input services were supported by valid invoices and that their eligibility for CENVAT credit was not disputed. Relying on CCE v. Dashion Ltd., CCE Jaipur v. National Engineering Industries Ltd., and CCE, Coimbatore v. Pricol Ltd., the bank argued that non-registration as an ISD was a procedural irregularity that could not justify denial of otherwise admissible credit. Regarding the alleged exempted services, the bank maintained that it had not availed exemption under Notification No. 13/2004-ST dated 10 September 2004 and had paid service tax on commission received from the Government for collection of duties and taxes.
The Tribunal, through Judicial Member Ajayan T.V., held that substantive CENVAT credit could not be denied merely because the zonal office lacked ISD registration. It observed that neither payment of service tax nor the eligibility of the input services was disputed, while the bank’s possession of supporting invoices remained uncontroverted. Following the Madras High Court’s decision in CCE v. Pricol Ltd., which referred to the Gujarat High Court’s ruling in CCE v. Dashion Ltd., the Tribunal concluded that procedural non-compliance could not defeat a substantive entitlement. On the second issue, the Tribunal found that the show cause notice contained no evidence establishing that the bank had availed the exemption under Notification No. 13/2004-ST or identifying other exempted services. It further held that excluding interest on loans from taxable value under Section 67 of the Finance Act, 1994, could not automatically establish the provision of exempted services under Rule 2(e) of the CENVAT Credit Rules.
The Tribunal also rejected the invocation of the extended limitation period, observing that the Department had not established any deliberate act or intention to evade tax by the public sector bank. It held that the demand based on Rule 6 restrictions was unsustainable because the foundational allegation of providing exempted services remained unsubstantiated. Consequently, the Tribunal found no basis for recovering the disputed credit or imposing interest and penalties. By Final Order No. 40276/2026 dated 20 February 2026, in Service Tax Appeal No. 41444 of 2016, the CESTAT Chennai allowed Bank of India’s appeal, set aside the impugned order and granted consequential relief, if any, in accordance with law.
Cases Discussed
- CCE v. Dashion Ltd., 2016 (41) STR 884 (Gujarat High Court)
- CCE Jaipur v. National Engineering Industries Ltd., 2016 (42) STR 945 (Rajasthan High Court)
- CCE, Coimbatore v. Pricol Ltd., 2021 (48) GSTL 234 (Madras High Court), CMA No. 2616/2017, dated 27 January 2021
- Kosamattam Finance (P) Ltd., 2022 (65) GSTL 74 (CESTAT Bangalore)
- Kattukaran Leasing and Investments Ltd., 2010 (19) STR 499 (CESTAT Bangalore)
- Thermax Ltd., 2007 (8) STR 487 (CESTAT Mumbai)
- Dorma India Ltd., 2023 (8) TMI 1691 (CESTAT Chennai)
FULL TEXT OF THE CESTAT CHENNAI ORDER
Bank of India, the appellant herein has taken exception to the Order in Appeal No.207/2016 (STA – I) dated 23.03.2016 (the impugned order), whereby the Appellate Authority has upheld the Order in Original No.141/2011 dated 12.12.2011.
2. Brief facts are that the appellant, a public sector bank, is registered as a provider of Banking and Other Financial Services (BOFS). During the course of audit, it was noticed that the appellant had availed Cenvat credit of Rs.21,98,266/- on input services during the period from June 2005 to March 2009 which were transferred from their zonal office, which was not registered as Input Service Distributor (ISD) in terms of Service Tax (Registration of Special Category of Persons) Rules 2005. It was also ascertained that the appellant was availing exemption under Notification No.13/2004-ST dated 10.09.2004 in respect of service provided to Government in relation to collection of duties and taxes. The appellant was found to be availing Cenvat credit in respect of common input services like Telephone, Audit Fees etc which are used for providing both taxable and exempted services. However, the appellant has not maintained separate accounts for receipt, consumption and inventory of input services meant for use in dutiable output service / exempted output services in terms of Rule 6 (2) of Cenvat credit Rules 2004. In as much as the appellant was providing both exempted and taxable service, the Department was of the view that the appellant ought to have restricted the availment of Cenvat credit to the extent of 20% of the taxable amount upto March 2008 and from April 2008 they ought to have followed the procedure prescribed under the amended Rule 6(3) of the Cenvat Credit Rules, 2004. Instead they were found to have utilised Cenvat credit wrongly in excess to the tune of Rs.10,85,220/- for the period from 2006-07 to 2007-08. From April 2008, the appellant had not utilized the cenvat credit as per the prescribed formula for the period 2008-09.
3. Hence a Show Cause Notice dated 17.03.2010 was issued and after due process of law, the Ld. Adjudicating Authority passed the Order in Original confirming the demand of the amount of Rs.32,83,486/- being the wrong availment of cenvat credit, appropriate Rs.6,96,775/- paid by the appellant towards the demand, imposing penalty under Section 77 and 78 of the Act. Aggrieved, the appellant preferred an appeal before the Appellate Authority, who has confirmed the demand vide the impugned order. Hence this appeal.
4. Shri N. Viswanathan, Ld. Advocate appearing on behalf of the appellant submitted that the zonal office and the appellant name branch are located in the same premises and the zonal office had only administrative power and all the financial transactions were effected by the appellant. It was also urged that the entire input service of which credit was taken, was taken only by them along with the zonal office or by the zonal office at Chennai and did not relate to any of the other branches of the bank falling within the jurisdiction of the zonal office. It was also submitted that they had in their reply averred that they were in possession of the invoices raised by the respective service providers duly indicating their branch address and which had all the requisite details for availing cenvat credit in conformity with the provisions of the Cenvat Credit Rules. It was therefore submitted that there was no dispute as regards the substantial credit to which they were otherwise legally entitled save for the allegation that the zonal office is not registered as an ISD service provider. Ld. Counsel argued that the question is no more res integra having being settled by the Gujarat and Rajasthan High Courts holding that the said failure will not dis-entitle the appellant from availing the benefit of the credit and hence mere technicalities cannot come in the way. Reliance was placed on the decisions in CCE v Dashion Ltd, 2016 (41) STR 884 (Guj) and CCE Jaipur v. National Engineering Industries Ltd, 2016 (42) STR 945 (Raj) in this regard.
5. The Ld. Counsel further contended that the appellant has not availed the exemption vide Notification No.13/2004 service tax but have paid service tax on commission received from the Government thereby evidencing the non availment of the service tax exemption. It was also argued that therefore the question of restricting utilisation of cenvat credit / reversing Cenvat credit does not arise. Ld. Counsel further contended that extended period cannot be invoked and penalty also is not imposable given the fact that the appellant is a Govt. entity. It was also urged that the issues involves legal interpretation and the appellant being a Public Sector Bank the confirmation of demand for the larger period and imposition of penalty was incorrect.
6. Ms. Anandalakshmi Ganeshram, Ld. Authorised Representative, reiterated the findings of the Appellate Authority in the impugned order and placed reliance on the following case laws and circular. 1) M/s. Kosamattam Finance (P) Ltd. (2022 (65) GSTL 74 (Tri. Bang) 2) Kattukaran Leasing and Investments Ltd. (2010 (19) STR 499 (Tri. Bang) 3) Thermax Ltd. (2007 (8) STR 487 (Tri. Mum) 4) Circular No.80/10/2004-ST dated 17.09.2004 5) Dorma India Ltd. (2023 (8) TMI 1691 Tri. Chennai
7. Heard both sides, perused the appeal records and the case laws and circular submitted.
8. The issue that arise for determination is whether the amount of credit sought to be denied as ineligible cenvat credit on the ground that their zonal office has not registered as input service distributor and the wrongly availed credit sought to be recovered on the allegation that the appellant was rendering both exempted and taxable services and had not confined the credit to the permissible percentage and not followed the procedure prescribed under Rule 6(3), is tenable.
9. Admittedly the zonal office was not registered as an input service distributor. However, while the cenvat credit availed on the input services are sought to be denied on this ground, equally it is pertinent to note that there is no dispute regarding the payment of the service tax in respect of which the credit has been availed nor is the eligibility of such services as input services being disputed. In such circumstances, when it also remains an uncontroverted fact that both the zonal office and the appellant main branch are located in the same building, and administratively when the entire financial requirements of the said zonal office, was being borne by the appellant main branch with the zonal office stated to be having no separate financial transactions or books of accounts, in accordance with the well settled position in law that substantial benefit cannot be denied for technical or venial breaches, this Tribunal is of the firm opinion that the substantial benefit of cenvat credit cannot be denied for the procedural infraction of non-registration of the zonal office as ISD, all the more when the appellant was not taken up on its claim in its reply that they were in possession of the invoices raised by the respective service providers duly indicating their branch address and which had all the requisite details for availing cenvat credit in conformity with the provisions of the Cenvat Credit Rules, and the said claim remained uncontroverted.
10. It is further noticed that the Jurisdictional High Court of Madras, has while deciding C.M.A. No. 2616 of 2017, decided on 27-1- 2021 in the case of CCE, Coimbatore v Pricol Ltd, 2021 (48) GSTL 234 (Mad) held as under: “2. The appeal was admitted on 6-10-2017, on the following substantial questions of law :- “(1) Whether the Tribunal is correct in allowing the Cenvat credit availed and distributed by the respondent prior to getting registered as an Input Service Distributor under the Act; (2) Whether the Tribunal is correct in setting aside the imposition of penalty under erstwhile Rule 15(4) of the Cenvat Credit Rules, 2004, on the facts and circumstances of the case? and (3) Whether Tribunal is correct in allowing the Cenvat credit on CHA services when the same is availed after the goods has been cleared from the place of removal?”
3. So far as the first and second substantial questions of law are concerned, the issue has already been decided in the case of Commissioner of Central Excise v. Dashion Ltd. [2016 (41) S.T.R. 884 (Guj.)] wherein, the Court held as follows :- “7. 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.”
4. The above decision has been accepted by the Central Board of Excise and Customs, vide Circular dated 16-2- 2018. Therefore, the above questions have to be decided against the Revenue and accordingly, decided so.”
11. In light of the aforesaid decision of the Jurisdictional High Court, as well as the decisions relied upon by the appellant in the case of CCE v Dashion Ltd, 2016 (41) STR 884 (Guj) and that of CCE Jaipur v. National Engineering Industries Ltd, 2016 (42) STR 945 (Raj) also, the findings in the impugned order upholding the denial of cenvat credit on the ground of non-registration of the zonal office as ISD and for having passed on the credit, is wholly unsustainable.
12. As regards the wrongly availed credit sought to be recovered on the allegation that the appellant was rendering both exempted and taxable services, it is seen from the SCN that while there is an allegation that the Appellant was availing the exemption under Notification No.13/2004-ST dated 10.09.2004, it is seen that the notice of bereft of the details or any evidence in this regard. Further the SCN also does not state what is the exempted services that the appellant provides. Whereas the appellant in its reply dated 20-08-2010 has stoutly denied the said allegation and has produced evidence showing their communication to the Assistant Commissioner, Service Tax, Chennai regarding their non-availment of the service tax exemption notification vide a letter dated 18.08.2009. In the face of the evidence adduced, it was upto the Department to controvert the same which is not forthcoming either in the orders of the appellate authority or the order of the adjudicating authority which admittedly notes that the reply dated 20-08- 2010 has been filed. It is also seen that in the impugned order the Appellate Authority has held that the second limb of the definition of exempted services is attracted since the value pertained to interest earned on loans that did not form part of the taxable value of services as per Section 67 of the Act, which itself is a finding beyond the show cause notice as the SCN does not reflect such an allegation. Even otherwise, the said finding is misconceived as the exempted services under Rule 2(e) which has been extracted in the impugned order pertains to services on which no service tax is leviable under Section 66 of the Finance Act. The exemption of a service from the charge of service tax under Section 66 of the Finance Act 1994, even though the rate of tax levied is specified as the stipulated percentage of the value of such taxable service, is inherently and materially distinct from the exclusion of an element from the gross amount charged by the service provider for such service under Section 67 that provides for valuation of taxable services; an aspect which clearly has escaped the notice of the Ld. Appellate Authority. In any event, as observed supra, the SCN apart from the allegation of availment of the notification 13/2004-ST ibid does not specify any other exempted services that the appellant is alleged to have provided. Given the above, as well as the fact that the allegation in the SCN regarding availment of the exemption itself has remained unsubstantiated, the question of invoking provisions of Rule 6 of the Cenvat Credit Rules, 2004 to demand the alleged wrongly availed credit amount is wholly unsustainable and the findings in the impugned order on this aspect also is untenable.
13. This Tribunal is also of the opinion that given the fact circumstances, in as much as there is no evidence of any deliberate or positive act with an intent to evade payment of duty on the part of the Appellant, a public sector bank, no malafide is attributable to the Appellant and hence, the invoking of extended period is also unsustainable. The case laws relied upon by the Ld. A.R. are distinguishable as the facts and circumstances as well as the allegations therein are materially different from that of the present case. Detailing such distinctions would needlessly make this order voluminous but it is to be stated that these decisions would not in any manner persuade this Tribunal to conclude contrary to the findings stated above.
14. In light of the aforesaid discussions, this Tribunal is of the considered view that the demands are unsustainable. Resultantly there does not arise any question of payment of interest or imposition of penalties. It is therefore held that the impugned order is liable to be set aside. Ordered accordingly. The Appeal is allowed with consequential relief(s) in law, if any. (Order dictated and pronounced on 20.02.2026)
