The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that premature availment or transfer of Cenvat credit is a procedural lapse when the credit is otherwise admissible and no revenue loss is caused to the Department. The Tribunal found that Ford India Pvt Ltd. was otherwise entitled to the Cenvat credit in question and the dispute was primarily about the timing of availment and transfer of credit.
The CESTAT observed that where substantive entitlement exists, early availment of credit by itself cannot be a ground for denying the benefit. The Tribunal noted that the transferred credit was reversed by the Chennai unit well before the show cause notice and was not retained or utilized in a manner causing loss to revenue.
The Bench held that when the assessee would ultimately be entitled to the same credit and the Revenue has not suffered any actual loss, denial of credit is not justified. Accordingly, the Tribunal quashed the order confirming the demand of over Rs. 3 crores, granting consequential relief to the assessee.
Briefly, the dispute arose after the Revenue alleged that M/s. Ford India Private Limited’s Sanand manufacturing unit had availed Cenvat credit on certain imported capital goods before those goods were actually received at the factory. The Sanand unit, which was still under construction at the relevant time, had transferred the disputed credit to its Chennai unit under Rule 12A of the Cenvat Credit Rules applicable to Large Taxpayer Units.
The Department contended that credit relating to four Bills of Entry was wrongly availed and transferred, and that the Sanand unit had also improperly taken 100% credit on certain capital goods in the same financial year. Consequently, a demand of Rs. 3.03 crores was confirmed against the assessee.
The Division Bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) noted that it was undisputed that the Sanand unit was under construction during the relevant period and that the Chennai unit had reversed the transferred credit much before the issuance of the show cause notice. It further observed that after the reversal, neither the Chennai unit nor the Sanand unit retained or utilized the disputed credit.
The Bench found that the Sanand unit was otherwise eligible to avail the credit once production commenced and that the dispute essentially concerned the timing of availment rather than eligibility itself. The Tribunal emphasized that where admissibility of credit is not in dispute, mere premature availment of credit should be treated as a procedural irregularity.
The Bench relied upon earlier CESTAT decisions holding that substantive benefits cannot be denied merely for procedural lapses when the underlying conditions for entitlement stand satisfied. On the allegation that 100% credit was taken in the first year instead of the permissible 50%, the Tribunal noted that where the assessee ultimately becomes entitled to the credit and the excess credit is not utilized before the permissible period, no prejudice is caused to the Revenue.
