Goods & Services Tax (GST) in IndiaCENVAT Credit Cannot Be Denied On Procedural Regularities

The Hon’ble Customs, Excise and Service Tax Appellate Tribunal, Chandigarh, (hereinafter referred to as “CESTAT”) in M/s Faurecia Automotive Seating India Pvt. Ltd. v. Commissioner of Central Excise, Delhi-III Excise Appeal No. 54097 of 2014 held that CENVAT credit which is a substantial benefit cannot be denied on procedural irregularities.

FACTS

The Faurecia Automotive Seating India Pvt. Ltd. (hereinafter referred as “Appellant”) was engaged in the manufacturing of “Automotives Seating Parts” and subject to Central Excise Duty under Tariff sub-heading 9401 9000 of the First Schedule of Central Excise Tariff Act, 1985.

The Appellant’s Gurgaon unit was registered with the Central Excise Department for the manufacturing of these parts. Additionally, it had a separate registered unit in Bangalore, which remained operational until April 2007. The company received 10 invoices from FSA France addressed to the Bangalore unit.

The Department observed that the Appellant had availed and utilised inadmissible CENVAT Credit at its Gurgaon unit for providing services related to the invoices. Since the Bangalore unit was a separately registered entity under the Department, a show cause notice was issued on 07.03.13, alleging that the Appellant had availed inadmissible CENVAT Credit at the Gurgaon unit for invoices addressed to the Bangalore unit.

The Appellant submitted its reply by providing GAR-7 challan as evidence that it had paid their service taxes and have availed CENVAT credit for the same payment and hence, there is no contravention of rules. They further challenged the invocation of extended limitation period on the ground that they have not suppressed any fact to evade payment of service tax and it is their substantial right that cannot be denied on procedural irregularities.

The learned commissioner, however, rejected their submissions and confirmed the demand. Aggrieved by this decision, the Appellant filed an appeal.

ISSUES

Whether the CENVAT credit can be availed by the Gurgaon unit of the appellant when the invoices had been inadvertently addressed to the Bangalore office.?

CONTENTIONS

The Appellant argued that the learned commissioner’s decision failed to appreciate the facts. They presented the GAR-7 as evidence to prove that the service taxes in respect of the invoices were paid by the Gurgaon unit and hence, the Gurgaon unit has availed the CENVAT credit corresponding to the invoices.

They relied on Rule 9(1)(e) of the CENVAT Credit Rules to establish the challan as a valid document to avail CENVAT credit in respect of reverse charge supplies. They also cited several case laws to support their argument that since the Gurgaon unit was liable to discharge service tax liability under reverse charge, it was eligible to receive CENVAT credit on the basis of the challan evidencing payment of duty.

They emphasized that the Bangalore unit has been inoperative since April, 2007 and contended that the incorrect address on the invoice was an inadvertent error of the service provider and cannot be a ground to deny CENVAT Credit to the Appellant.

They relied on several case laws indicating the significance of show cause notice in laying grounds for the case. Thus, the department should adhere to the content of the show cause notice to present its case. They further submitted that the period of limitation was inapplicable when the credit was duly disclosed and there was no mens rea of the Appellant to evade tax.

The counsel for the respondent submitted that the Appellant had violated Rule 3, Rule 4(1), Rule 4(7) and Rule 9 of CENVAT Credit Rules. They maintained that the department was justified in denying the denial of CENVAT credit and invoking extended period of limitation.

FINDINGS AND DECISIONS

The Hon’ble CESTAT observed that the Appellant had only one operational unit in Gurgaon. It relied on the GAR-7 challan as a valid document under Rule 9(1)(e) of the CENVAT Credit Rules and held that the Appellant had paid its service taxes in relation to the invoices by the Gurgaon unit and thus, they were righty entitled to the CENVAT Credit for these invoices.

The Tribunal by referring to the previous precents held that “We also find that in the present case, the input services could not have been used by any other unit other than the Gurgaon unit being the only manufacturing unit and more so, when they have discharged the service tax liability under reverse charge, it has been consistently held in the decisions relied upon by the appellant cited supra that CENVAT credit can be availed on the basis of challan evidencing payment of duty.”

They further held that the CENVAT credit is a substantial benefit which cannot be denied on procedural irregularities such as incorrect address on invoices.

It noted that the Appellant had been filing the Returns regularly and had not reflected any intention to evade payment of duty. Since the department failed to establish suppression of material fact or intent to evade payment of duty, the invocation to extend period of limitation was not justified.

The Tribunal concluded that impugned order was not sustainable in law and allowed appeal with consequential relief.

AMLEGALS REMARK

The Hon’ble CESTAT’s decision in M/s Faurecia Automotive Seating India Pvt. Ltd. v. Commissioner of Central Excise, Delhi-III reaffirms the principle that procedural lapses should not outweigh substantive rights, particularly in cases involving statutory benefits such as CENVAT credit. By emphasizing that procedural irregularities, such as incorrect addresses on invoices, cannot be grounds for denying substantial entitlements, the Tribunal reinforces the objective of the CENVAT Credit Rules, which is to avoid cascading taxes and facilitate smooth business operations.

This judgment is a significant precedent, particularly for taxpayers facing similar challenges where inadvertent errors may lead to disputes. It underscores the importance of analyzing facts in totality, ensuring that mere procedural lapses are not used as a basis to deny lawful claims. Additionally, the Tribunal’s observations on the inapplicability of extended limitation periods in the absence of mens rea provide much-needed clarity and safeguard for honest taxpayers against unwarranted demands.

Overall, the decision not only aligns with the principles of equity and fairness but also promotes a pragmatic approach to interpreting tax laws, thus strengthening trust between taxpayers and the authorities.

Team AMLEGALS assisted by – Mahima Periwal (Intern)