CESTAT New Delhi Rejects CENVAT Credit Denial For Invoice Defects, Allows Jayaswal NECO Appeal

On 2 June, the New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that authorities cannot deny CENVAT credit merely on the basis of procedural defects in invoices when the recipient has actually received and used the services in its business operations.

President Justice Dilip Gupta and Technical Member Hemambika R. Priya allowed the appeal filed by Jayaswal NECO Industries Ltd. and set aside the denial of CENVAT credit of Rs. 53.94 lakh. The Tribunal also dismissed the Department's appeal against the grant of credit of Rs. 67.50 lakh. The Bench held:

“As all the substantive conditions prescribed under rule 4 of the 2004 Credit Rules stood fulfilled, CENVAT credit for procedural lapses cannot be denied to the appellant.”

The dispute arose from a show cause notice alleging wrongful availment of CENVAT credit on various input services. The adjudicating authority disallowed credit of Rs. 20.49 lakh relating to marine cargo insurance services, works contract services used for repair and maintenance of plant and machinery, and manpower supply services.

On marine cargo insurance services, the Tribunal found that the Commissioner misappreciated the record and failed to properly consider the documents and explanations furnished by Jayaswal NECO Industries Ltd. It held that the company was entitled to the credit on such services.

On works contract services, the Tribunal observed that the company used the services for repair and maintenance of existing plant and machinery and not for construction of any building or civil structure. It held that repair and maintenance activity did not fall within the exclusion under Rule 2(l) of the CENVAT Credit Rules, 2004, making the denial of credit unsustainable.

On manpower supply services, the Tribunal held that the company used the services for repair and maintenance work during factory shutdowns and that these services had a direct nexus with manufacturing activity, thereby qualifying as eligible input services under the CENVAT Credit Rules.

Rejecting the Department's challenge to credit of Rs. 67.50 lakh, the Tribunal noted that no dispute existed regarding receipt and use of services. It held that once the substantive conditions for availing credit stood satisfied, authorities could not deny credit merely on the ground of invoice deficiencies or procedural lapses.

Accordingly, the CESTAT allowed the appeal filed by Jayaswal NECO Industries Ltd., set aside the disallowance of CENVAT credit, and dismissed the Department's appeal.

Appearance for the Appellant: Ms. Sukriti Das and Shri Shivam Bansal, Advocates

Appearance for the Respondent: Shri Bhagwat Dayal, Authorised Representative