CENVAT credit denied without considering ISD invoices: CESTAT directs re-adjudication

Zcl Chemicals Limited Vs C.C.E-Bharuch (CESTAT Ahmedabad)

Introduction: In a recent decision by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Ahmedabad, ZCL Chemicals Limited secured a favorable outcome in a dispute concerning the denial of CENVAT credit. The case, titled ZCL Chemicals Limited vs. C.C.E-Bharuch, revolved around two main contentions: the discrepancy in the address on input service invoices and the alleged lack of nexus between the input services and the manufacturing of the final product.

Background:

• Address Discrepancy on Invoices: The appellant, ZCL Chemicals Limited, faced a challenge wherein the Mumbai address on the input service invoices differed from the factory address where the credit was claimed. The appellant argued that the credit was availed based on Input Service Distributor (ISD) invoices, and the discrepancy in the addresses was irrelevant.
• Nexus Between Input Services and Manufacturing: The second contention involved the claim that there was no connection between the input services in question and the manufacturing process of the final product. ZCL Chemicals Limited countered this argument by presenting a compilation of judgments from various cases, asserting that the Tribunal had consistently recognized the nexus between the input services and the manufacturing of the final product.

Appellant’s Arguments:

• Address Discrepancy: ZCL Chemicals Limited, represented by Shri Vinay Kansara, argued that the allegation of an incorrect address was baseless. The appellant asserted that the credit was availed on ISD invoices, which clearly displayed the factory’s name and address. It was emphasized that the department had erroneously considered the credit based on invoices received at their Mumbai head office.
• Nexus Between Input Services and Manufacturing: The appellant further contended that the issue of nexus was well-established in previous judgments, where the Tribunal consistently allowed CENVAT credit for similar input services. The presented compilation included cases such as Doshion Ltd, TVS Motor Company Ltd, Maruti Suzuki India Ltd, and others, reinforcing the argument that a clear nexus existed between the input services and the manufacturing process.
• Limitation on Demand: ZCL Chemicals Limited also challenged the demand raised by invoking the extended period, arguing that there was no suppression of facts. The appellant contended that all details related to the availed CENVAT credit were available to the department through audit reports, and therefore, the demand was not sustainable on grounds of limitation.

CESTAT Ahmedabad’s Decision:

After careful consideration of both parties’ submissions, CESTAT Ahmedabad found in favor of ZCL Chemicals Limited. The tribunal observed that the adjudicating authority had failed to consider the ISD invoices, which clearly indicated that the appellant had taken the credit based on invoices displaying the factory’s name and address. Consequently, the tribunal held that the appellant was prima facie eligible for the credit.

Moreover, CESTAT Ahmedabad recognized the appellant’s argument regarding the nexus between input services and manufacturing, citing previous judgments that consistently allowed CENVAT credit for similar cases. The tribunal emphasized that the entire matter needed to be reconsidered by the adjudicating authority, taking into account these observations.

Conclusion:

The ruling in the ZCL Chemicals Limited vs. C.C.E-Bharuch case serves as a precedent for the importance of considering ISD invoices and established precedents when adjudicating CENVAT credit disputes. The decision reaffirms the principle that a clear nexus between input services and the manufacturing process is crucial for the eligibility of CENVAT credit. This victory for ZCL Chemicals Limited highlights the need for meticulous examination of all relevant documents and legal precedents in similar cases, ensuring a fair and accurate resolution of disputes in the realm of indirect taxation.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The issue involved in the present case is that whether the cenvat credit availed by the appellant can be denied on the following grounds: –

1 On the input service invoice the Mumbai address is mentioned whereas the credit was taken by the appellant in their factory address which is different from the Mumbai address.

2. There is no nexus between the input services in question and manufacturing of the final product.

2. Shri Vinay Kansara, Learned Advocate appearing on behalf of the Appellant submits that as regard the dispute about the address on the invoice the allegation is absolutely incorrect for the reason that the appellant have taken the credit on ISD    invoice whereas the department has considered the credit on the invoice received by their head office at Mumbai which obviously bear the name of Mumbai office, Since the credit was taken on the ISD invoice the entire basis for denial of credit is incorrect.

2.1 As regard the allegation that there is no nexus between the input services and manufacturing of the final product he submits that this issue is no longer res- integra as in respect of all the input services in question, the Tribunal in one or more judgments allowed the cenvat credit holding that there is anexus between the input services and manufacturing of the final product. He has given the service wise judgment compilation which is as under:-

• Doshion Ltd – 2013 (288) ELT 291 (Tri. Ahmd)
• CCE vs. Dashion Ltd – 2016 (41) STR 884 (Guj.)
• TVS Motor Company Ltd – 2011-TIOL-455-CESTAT-MAD
• Ecof Industries Pvt Ltd – 2010 (17) STR 515 (T)
• RMZ Infotech Pvt Ltd – 2022 (64) GSTL 599 (Tri. Bang)
• CCE vs. Apar Industries Ltd – 2010 (20) STR 624 (Tri. Ahmd)
• CCE vs. Apar Industries Ltd – 2011 (23) STR J194 (Guj.)
• Maruti Suzuki India Ltd – 2017 (47) STR 273 (Tri. Chan)
• Adani Port & Special Economic Zone Ltd – 2016 (42) STR 1010 (Tri. Ahmd)
• Rallis India Ltd – CESTAT Order No. A/11592/2023 dated 21.07.2023
• CCE vs. Wipro Ltd – 2018 (10) GSTL 172 (Mad.)
• Sri Rama Vilas Services Ltd – 2017 (3) GSTL 24 (Mad.)
• LG Polymers India Pvt Ltd – 2017 (5) GSTL 89 (Tri. Hyd)
• Ahlcon Parenterals (I) Ltd – 2022 (65) GSTL 360 (Tri. Del)
• Balkrishna Industries Ltd – 2022 (65) GSTL 247 (Tri. Del)
• Bombay Market Art Silk Co.- Op (Shops & Warehouse) Society Ltd – 2022 (65) GSTL 86 (Tri. Ahmd)
• Pushpendra Kumar Jain – 2020 (37) GSTL 327 (Tri. Ahmd)
• Mercedes Benz Research & Dev. India P. Ltd – 2017 (49) STR 227 (Tri, Bang)
• RMZ Infotech Pvt Ltd – 2022 (64) GSTL 599 (Tri. Bang)

2.2    He also invited our attention to ISD Invoices and reconciliation of all the services and credit there on.

2.3 He further submits that the demand was raised by invoking extended period which is not legal; and correct for the reason that the appellant has not suppressed any fact from the department. The entire detail of availment of Cenvat Credit in question was in the knowledge of the department. The present dispute has arisen out of the appellant audit report. Therefore, there is no suppression of fact with intent to evade of payment of duty. Accordingly, the demand is not sustainable on the ground of limitation also.

3. Shri Ajay Kumar Samota, Learned Superintendent (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.

4. We have carefully considered the submission made by both sides and perused the records. We find that the Adjudicating Authority has denied the credit on the ground that the input service invoices bear the name of appellant’s Mumbai office. In this regard on going through the ISD invoices and the submission made by the learned counsel we find that the entire allegation in the Show cause notice is incorrect in as much as the appellant claimed that the cenvat credit was taken on ISD invoice. It appears that the Adjudicating Authority has not considered the ISD invoices, if it is found that the appellant has taken the credit not on the basis of invoices issued to their Mumbai office but on the ISD invoice which are obviously bearing the name and address of the appellant factory, the appellant is premia facie eligible for credit.

4.1 As regard the nexus of input service in question with the manufacturing activity of the appellant, we find that on the basis of various judgments cited by the appellant above the credit cannot be denied on the ground of nexus as the similar issue has been considered in various judgments and the credit was allowed. The appellant also made out the strong case on limitation in the facts of the present case. We are therefore of the view that the entire matter needs to be reconsidered by the Adjudicating Authority keeping in mind our above observation.

5. Accordingly, we set aside the impugned order and allow the appeal by way of remand to the Adjudicating Authority.

(Pronounced in the open court on 03.11.2023 )