Distribution of Cenvat credit by Zonal office to branches cannot be denied merely because it did not obtain Service tax registration

Distribution of Cenvat credit by Zonal office to branches cannot be denied merely because it did not obtain Service tax registration specifically as ISD when for all practical purposes, it was functioning as ISD

Punjab National Bank (the Appellant or PNB) is the Zonal Audit Office at Meerut of the Punjab National Bank. The Appellant applied and obtained Service tax registration for providing  banking   and financial services on October 30, 2004. Further, the Appellant conducted audit of the records of different branches of PNB within their jurisdiction. Each branch was also having separate Service tax registration. During the period from January 2008 to March 2009, the Appellant though having Service tax registration under Banking and financial services, was not registered as Input Service Distributor (ISD), but they took Cenvat credit on input services on the basis of invoices of various service providers issued in the name of Zonal office and distributed the same to various  branches by issuing the invoices.

The Department initiated proceedings for recovery of this Cenvat credit on the ground that when the Appellant was not registered as ISD, they could not have taken the credit and distributed the same by issuing invoices to their branches.

The   Appellant contended that the provisions for ISD were introduced in June 2005 but the Appellant started availing Cenvat credit and distributing the same as ISD from October 2007 and that merely because the Appellant did not obtain Service tax registration specifically as ISD, the Cenvat credit availed  by  them  for distribution to branches cannot be denied.

It was held by the Hon’ble CESTAT, Delhi that there is no dispute that the services in question had been received and are covered by the definition of ‘Input service’ and if the Appellant had obtained separate registration as ISD, there would have been no objection to availing Cenvat credit on the basis of invoices in the name of Zonal Audit Office and distributing the same to the branches of PNB. In the peculiar facts and circumstances of the case, when the Appellant, though not providing the banking and financial services, were registered as provider of banking service since 2004, they should be treated as registered as ISD also, as they were for all practical purposes, functioning as ISD and the availment of Service tax credit and its distribution to various branches by issue of invoices were being reflected in the ST-3 returns being filed by them, which is what a registered ISD would have done. Hence, the credit cannot be denied to the Appellant.

 (Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)