2026-VIL-1791-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - CENVAT Credit on input services received at service stations covered by centralised service tax registration and taken in the factory CENVAT account - Appellant provided taxable repair and maintenance services from service stations under a centralised registration at the factory address - Revenue denied the credit in three SCNs on the grounds that the services were not used in relation to manufacture, were not received in the factory and ought to have been distributed through an Input Service Distributor - Whether the credit could be taken in the factory CENVAT account and utilised for payment of excise duty when the factory was not registered as an Input Service Distributor - HELD - The services did not qualify under the manufacturer limb of Rule 2(l), and centralised registration being a procedural matter cannot cure this. However, the first limb of Rule 2(l) tests whether the service is used by a provider of output service for providing an output service, and this limb was never examined by the authorities below - The services were received and used at premises from which taxable output services were rendered, so the Appellant discharged the burden under Rule 9. Centralised registration under Rule 4(2) of the Service Tax Rules brings all declared premises of one assessee under a single registration, and the service stations are premises of the registered provider and not separate providers - The condition that services be received in the factory is irrelevant, as Rule 3 attaches no such condition, and Rule 3(4) permits utilisation of credit for payment of any duty of excise without one to one correlation - The ISD mechanism presupposes distribution from one office to another, whereas here the invoices were received, accounted and paid at the centrally registered premises, so nothing was left to distribute. Rule 7, till 31.03.2016, was only enabling, and the absence of registration as ISD is at best a curable procedural lapse. The amendment making distribution compulsory from 01.04.2016 binds an Input Service Distributor and does not deem a registrant who distributed nothing to be one. Rule 7 was not invoked in the SCNs, and the Revenue cannot sustain the demand on a ground not laid in the notice. The OIO also confirmed a larger sum under Section 11A(4) than the sum proposed under Section 11A(1) in one SCN - The credit was admissible to the Appellant as a provider of output service, the demands are set aside and the appeals are allowed - CENVAT Credit - Credit on services received at marketing and branch offices claimed as input services of the manufacturer - Whether the demand on this credit is sustainable when the plea of place of removal was left unanswered - HELD - The component was decided only on the plea actually made, as the first limb of Rule 2(l) was never invoked for it. Section 4(3)(c)(iii) includes within place of removal a depot or any other place from where excisable goods are to be sold after clearance from the factory, and the second limb of Rule 2(l) covers services used in relation to clearance upto the place of removal, including advertisement, sales promotion and storage. The assertion that goods are sold from these offices was neither examined nor controverted. Ispat Industries does not help the Revenue, since these offices are premises of the manufacturer, and a contention specifically raised and left unanswered by both authorities cannot be brushed aside. The SCNs also did not segregate this component or allege anything specific about use of the services at these offices - The demand on credit relating to marketing and branch offices is not sustainable and is set aside - Recovery of ISD credit distributed wholly to the factory - Input Service Distributor distributed its entire credit for a period to the factory - SCN alleged that this offended Rule 7(d) as the credit ought to have been distributed pro rata on turnover with the spare parts packing unit - The Appellant reversed a portion on a turnover basis worked out by a Chartered Accountant to meet the audit objection - Whether the ISD credit distributed wholly to the factory is recoverable from it - HELD - Clause (d) of Rule 7 applied only to credit of a service used in more than one unit, whereas clause (c) required credit of a service used wholly in one unit to be distributed only to that unit. The SCN assumed without enquiry that the services were common to both units, while the Appellant's consistent case was that they pertained to motorcycle manufacture at the factory. The Chartered Accountant's apportionment is not evidence of usage, and the foundational fact for clause (d) was never established. Eligibility of the services and quantum of credit were not in dispute, and the distribution was never questioned at the end of the ISD. Before 01.04.2016 Rule 7 used the expression may distribute, there was no compulsion to distribute proportionately among all units and credit distributed wholly to one unit could not be denied. The FAA answered an argument never made, namely that the amendment of 01.04.2014 was retrospective - The recovery of the ISD credit is not sustainable on merits and is also barred by limitation - Extended period of limitation for recovery of ISD credit, credit of other units and credit of service stations - The SCN invoked Section 11A(4) on the grounds that the facts would not have surfaced but for the audit and that the Appellant reversed the credit only after the audit - Whether the extended period was rightly invoked - HELD - Suppression means deliberate withholding of information with intent to evade duty, mere non disclosure does not suffice, the burden of proving mala fides lies on the Revenue, and non disclosure can be alleged only if there was a requirement to disclose. The ER-1 returns disclosed the credit taken each month and did not call for invoice wise particulars, the audit objections were raised from the Appellant's own records, and failure of officers to scrutinise returns cannot be converted into suppression. A matter coming to light in audit does not by itself establish suppression - The Department had every fact before it and itself proceeded under the normal period in the two later SCNs on the identical issue. The exercise was revenue neutral as the other units were entitled to the credit and took it, and the Rule 7 question was genuinely arguable, which excludes wilful contravention - The extended period was not invocable, the demands on ISD credit and credit of other units are barred by limitation, and the service station demand is barred beyond the normal period - Interest and Penalty - Sustainability of interest and penalty under Rule 15(1) and Rule 15(2) read with Section 11AC where the demands fail on merits and limitation - Penalty under Rule 15(2) was imposed even on the amount already reversed and intimated before the SCN, and the penalty under Rule 15(1) read with Section 11AC(1)(a) was three times the statutory ceiling - Whether interest and penalties are sustainable - HELD - No interest is payable on the credit of the service stations as it was rightly taken, and interest demanded in a notice barred by limitation cannot survive. The alternative plea that interest is not payable in a revenue neutral situation was left open. The penalty under Rule 15(2) was premised on fraud, suppression or wilful misstatement with intent to evade duty, and that premise having failed the penalty cannot stand. Clause (a) of Section 11AC(1) caps the penalty under Rule 15(1) at ten per cent of the duty determined or a fixed sum, whichever is higher, so a penalty far above this ceiling was imposed without authority of law and was affirmed by the FAA without comment - Interest and penalties are not sustainable and are set aside
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