Denial of Cenvat Credit and Recovery u/R 14 against Input Service Distributor is without Authority of Law: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT ) Mumbai, last week set aside an order passed by the Commissioner of GST, Mumbai to deny and recover Cenvat Credit under rule 14 of th Cenvat Credit Rules, 2004.

The Appellant, Kansai Nerolac Paints Ltd. Was denied the aforementioned activity through a show cause notice which was upheld by the Commissioner (Appeals). They convinced the bench that they have not availed the credit whereas they have distributed the input service credit to their respective manufacturing unit who, in turn, availed the credit. If at all credit has to be denied, it can be denied at the end of such manufacturing unit which has availed the Cenvat credit.

Judicial Member Mr. Ramesh Nair while allowing the appeal, noted that the demand was raised from the input service distributor who has distributed the service credit to their respective factory on the ground that the input service viz. air travel agent service, is not admissible as the service related to business activity shall exclude on the definition of input service with effect from 1.4.2011. “I find that Rule 14 applies to the person who avails credit wrongly which is recoverable. In the present case, the appellant has not availed the credit whereas they have distributed the input service credit to their respective manufacturing unit who, in turn, availed the credit. If at all credit has to be denied, it can be denied at the end of such manufacturing unit which has availed the cenvat credit. Input service distributor does not fall under Rule 14 of the Cenvat Credit Rules as they neither avail the cenvat credit nor utilize the same for payment of any service tax/excise duty. Therefore, the denial of cenvat credit and recovery thereof under Rule 14 against the input service distributor is without authority of law.”