The substantial benefit of CENVAT credit should not be denied for procedural defects of minor nature. On the other part, the assessees should also make an honest attempt to follow the procedures laid down under relevant Rules.

The appellants providing telephone services throughout India took CENVAT credit on certain equipments installed at other secondary switching areas (SSAs) registered separately with service tax authorities. Since the equipments were not used in the premises of the appellants, CENVAT credit was disallowed.

However, the appellants argued that the services were rendered throughout India from any SSA using capital goods installed anywhere in the country. Since the issue was technology based and facts were to be determined, the matter was remanded back by the Tribunal. On examination, the Tribunal observed that in case the proposition of the appellants is accepted, all the SSAs using equipment installed at any other SSA would be eligible for CENVAT credit. Further, DGM (Projects), Salem had placed the order for these capital goods and had handed over the duty paying documents to BSNL, Salem and CENVAT credit was availed only once by BSNL, Salem and the capital goods were used in the premises of BSNL. It was contested by the appellants that there was no condition of installing the capital goods in the premises of service provider unlike in the case of capital goods used in the manufacture of excisable goods as per Rule 2(a)(A) of the CENVAT Credit Rules, 2004. The only condition to be satisfied was that the capital goods should be used for providing output services and accordingly, the appellants were eligible for the CENVAT credit. The department’s contention was that the equipments had to be used by the registered entity and if it is used elsewhere, the department cannot verify the use of the capital goods and correctness of the CENVAT credit availment. Hence, the appellants should have taken registration as input service distributor and should have followed the proper procedures.

Held:

The present case was of not following appropriate procedures and not a case of misutilisation of ineligible CENVAT credit. No CENVAT credit was distributed since the entire CENVAT credit was availed by only one office and the same could have been verified by the department. The premises, where equipments were installed, belonged to BSNL and also the capital goods were used for providing output services.

Therefore, substantial benefit of CENVAT credit was not to be denied for procedural defects of minor nature. However, the procedures laid down under the Rules should not be circumvented quoting different decisions of the Tribunal and BSNL was directed to make an earnest attempt to follow such procedures.