The Customs, Excise, Services Tax Appellate Tribunal (CESTAT) held that the issue of ISD invoices issued prior to registration CENVAT credit cannot be denied.

Appellant, Mafatlal Industries Limited is a manufacturer of Cotton Yarn, Fabrics, etc. The appellant has availed exemption Notification 29/04- CE and Notification No. 30/04-CE. The accounts of the appellant for the period were audited and various objections were raised by the audit party.

One of the objections raised is that the appellant had not maintained separate accounts as per Rule 6 of Cenvat Credit Rules and despite the fact, the appellant had availed Cenvat credit of Input service used for both exempted and dutiable clearances. Pursuant to audit, a Number correspondence was exchanged between the department and the appellant leading to the issuance of letters and addressed to the appellant calling upon to work out proportionate credit under Rule 6(3A) of Cenvat Credit Rules, 2004 and to pay the same.

OIO passed by the Commissioner of Central Excise confirmed the demand of Cenvat Credit and an equivalent amount of penalties was imposed under Rule 15 of Cenvat Credit Rules read with Section 11AC of Central Excise Act, 1944. It was also confirmed the recovery of interest under section 11AB/AA of Central Excise Act.

The appellant contended that various courts and judgments have also accepted that if the proportionate Cenvat credit attributed to exempted goods is reversed along with payment of interest then there is no case of delay i.e. duly compliance of Rule 6. Accordingly, the demand for Cenvat Credit @10/5% will not sustain.

The tribunal consisting of Judicial Member Ramesh Nair and a Technical member Raju while considering the findings of Karnataka High Court held that the issue of ISD invoices issued prior to registration and held that for this reason Cenvat credit cannot be denied.

The appellant contended that various courts and judgments have also accepted that if the proportionate Cenvat credit attributed to exempted goods is reversed along with payment of interest then there is no case of delay i.e. duly compliance of Rule 6. Accordingly, the demand for Cenvat Credit @10/5% will not sustain.

The tribunal consisting of Judicial Member Ramesh Nair and a Technical member Raju while considering the findings of Karnataka High Court held that the issue of ISD invoices issued prior to registration and held that for this reason Cenvat credit cannot be denied.

“it has been settled that even for ISD invoices issued for the distribution of input service credit prior to the registration, the same cannot be denied. Accordingly, the demand for Rs. 39,60,634/- is set-aside,” the tribunal said.