• Dated 30^th July, 2025

CESTAT Chandigarh Held That Technicality Cannot Override Credit Entitlement.

Brief Facts:

The Appellant, was subjected to an audit for the period beginning from April 2015 to June 2017, during which the department observed that the branch office at Chandigarh had availed Cenvat Credit on capital goods based on bills of entry issued in the name of the head office at Bangalore. A show cause notice was issued alleging ineligible credit on the ground that the required documents under Rule 9(1)(f) of the Cenvat Credit Rules were not produced. The appellant submitted a detailed reply with supporting documents, including bills of entry, invoices, Chartered Accountant certificate, and ST-3 returns, confirming that credit was not availed by the head office at Bangalore. The original adjudicating authority accepted the submissions and dropped the demand. However, the Commissioner (Appeals) reversed the decision and confirmed the demand. Aggrieved by this, the appellant approached the Hon'ble CESTAT at Chandigarh.

Assesses Contention:

The Appellant contended that the impugned order was unsustainable, as it failed to appreciate both the factual correctness and legal position. The credit in question was rightly availed on capital goods used exclusively in the Chandigarh branch, while the bills of entry were in the name of the head office, the actual receipt, use, and accounting of the capital goods were at the branch. The appellant emphasized that substantive conditions for credit were met, and mere facts such as the name mismatch on documents could not be a ground to deny the benefit. Reliance was placed on CBEC Circular No. 179/13/96-CE dated 29.02.1996, and several precedents, including CJ DARCL Logistics, Adfert Technologies, and Bharat Sanchar Nigam Ltd., to support the claim that credit cannot be denied on technicalities when substantive compliance is established.

Department's Contention:

The department argued that the appellant failed to comply with Rule 9 of the Cenvat Credit Rules, 2004, by not producing valid documents at the time of audit. They reiterated the view taken by the Commissioner (Appeals) that the bills of entry were not in the name of the branch, and hence the appellant was not entitled to the credit. The department maintained that the procedural non-compliance rendered the credit ineligible.

Decision:

The Tribunal set aside the impugned order and ruled in favour of the Appellant. The Hon'ble Tribunal held that the capital goods were actually used at the Chandigarh branch, and documents such as bills of entry, CA certificate, and ST-3 returns conclusively established that the head office had not availed credit. It referred to the CBEC Circular of 1996, which clarified that credit cannot be denied merely because the bill of entry is in the name of the head office. The Tribunal observed that substantial benefit cannot be denied on procedural infirmities, especially when substantive conditions were fulfilled. Accordingly, the CESTAT restored the original order that had dropped the demand.

BTA's Remark:

This judgment reinforces the principle that procedural defects cannot override substantive entitlement under the Cenvat Credit framework. The Tribunal rightly emphasized that credit should not be denied when capital goods are genuinely received, accounted for, and used for taxable output services, merely because the head office's name appeared on import documents. The ruling not only aligns with long-standing CBEC Circulars but also protects the economic substance over form, ensuring that businesses are not penalized for minor documentation technicalities. It sets a crucial precedent for multi-location service providers and highlights the need for consistency in departmental interpretation.

Case Reference: NANDO'S KARNATAKA RESTAURANTS PVT. LTD Vs COMMISSIONER OF CENTRAL EXCISE, GOODS & SERVICE TAX (2025) 32 Centax 236 (Tri.-Chan)

Author: Pritam Ghosh

Edited by: Shaily Gupta