Case Law Details
Maini Precision Products Ltd Vs Commissioner of Central Tax (CESTAT Bangalore)
In the present case, the learned Commissioner has confirmed the demand of CENVAT credit on the grounds that the appellant has failed to distribute the credit to its various units regarding common input service. The defence of the appellant that after the implementation of GST with effect from 01.07.2017, the appellants have taken single registration for all the 9 units working in the State of Karnataka in terms of Section 25 of the CGST Act, 2017. Further, I find that the unutilized credit from ER-1 Returns and ST-3 Returns were transferred to Form GST TRAN-1 in terms of Section 140 of the CGST Act 2017 read with Rule 117 of CGST Rules 2017 and the same was further taken to Electronic Credit Ledger. Further, I find that the net effect of not distributing the credit to various units and availed by the ISD will be NIL after coming into force of GST because the Department has not disputed its admissibility and eligibility. Further, I find that this issue of revenue neutrality has been considered by the various Courts and it has been held that non-distribution of credit is condonable as procedural lapse, especially in situation which is revenue neutral. Further, I find that in the case of Doshion Ltd. v. CCE, Ahmedabad (supra) wherein it has been held that procedural irregularity in the case of ISD distribution is a revenue neutral situation and there is no loss to the Revenue. Similarly, in the case of Commr. of C.T., Pune-I, Commissionerate v. Oerlikon Balzers Coating India P. Ltd (supra), it has been held by the Hon’ble High court of Bombay that the entire exercise in the case of non-distribution of credit by an ISD would be revenue neutral, as the distribution of CENVAT credit to the various units would result in lesser service tax being paid by cash on their taxable activity, as they would have utilized the CENVAT credit available for distribution for such payments. Further, Tribunal in the case of Hindustan Zinc v. Commissioner of CGST (supra) quashed the proceedings initiated by the Department on account of non-distribution of proportionate credit by an ISD on the ground that the said transaction is revenue neutral. Further, I find that for the period prior to 01.04.2016 i.e. for the period April 2014 to March 2016, the appellants were not liable to distribute CENVAT credit pertaining to common input services used in more than one unit of the appellants’ company on pro-rata basis as Rule 7 of CENVAT Credit Rules, 2004 was amended vide Notification No.13/2016 dated 01.03.2016 wherein the phrase “may distribute” was substituted with “shall distribute” with effect from 01.04.2016, but both the authorities have not considered the amendment effected from 01.04.2016 and wrongly confirmed the demand for the period prior to 01.04.2016. Further, I find that in the case of Commr. of C.T., Pune-I, Commissionerate v. Oerlikon Balzers (supra), it has been held that for the period prior to 01.04.2016, the assessee was entitled to avail and utilize the CENVAT credit pertaining to common input services at one unit without distribution of the same on pro-rata basis to the relevant units consuming the said input service. The Hon’ble High Court also noted that Rule 7 of CCR, 2004 merely gave an option to the assessee to distribute input service credit as evidenced by the word “may distribute”. The decision of the Hon’ble High Court was followed by the Tribunal in the case of Hindustan Zinc v. Commissioner of CGST (supra) wherein the Tribunal held that proportionate distribution of credit was not mandatory prior to amendment with effect from 01.04.2016 in Rule 7 of CENVAT Credit Rule, 2004 and quashed the proceedings on the ground of revenue neutrality. Further, I also find that once the Department has not disputed the eligibility or entitlement of credit then the failure of the appellant to distribute the same and transition to GST after coming into force of GST is only a procedural lapse and it will not affect the substantive right of the appellant because the failure to comply with the provisions of ISD are at best may be termed as procedural irregularity and it has been consistently held by various Courts that substantive right cannot be denied merely on procedural irregularity. Similarly, the extended period of limitation invoked by the Department is not sustainable in the present case because the appellant has not concealed any information from the Department and all the documents were provided by the appellant to the Audit Party and on the basis of Audit Report, the SCN was issued. Further the entire demand in the present case results into revenue neutral because even if the appellant had distributed the credit, it would have been available for utilization by appellant post GST regime in terms of Section 25 of the CGST Act, 2017.
Further, I find that pre-requisite of revenue neutrality is that there is no extra benefit to the assessee and no loss is caused to the Revenue and these two pre-requisites are fulfilled in the present case because even if the disputed credit was distributed to the units at a pro-rata basis, net effect of such transaction would have been NIL and in the present case, the SCN was issued to the appellant after the introduction of GST that at which point the issue has become revenue neutral because the appellant has taken one registration.
In view of my discussion above and by following the ratios of various decisions relied upon by the appellant cited supra, I am of the considered view that the impugned order is not sustainable in law because in the present case, the entire situation is revenue neutral and therefore the demand is not sustainable and I set aside the same by allowing the appeal of the appellant.
FULL TEXT OF THE CESTAT JUDGEMENT
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