2015 (7) TMI 1154 - AT - Service Tax

Cenvat credit - Rule 2(I) of CENVAT Credit Rules 2004 - Input Service Distributor - Held that - The electricity so generated at the premises of JKWCW was transmitted to the premises of the appellant and used for manufacture of grey cement, without which the factory cannot run or operate - the conditions enumerated in Rule 7 of the said rules have been duly complied with by JKWCW in the capacity of ISD in-as-much-as the credit has been distributed against the valid documents referred to In Rule 9 and the credit distributed does not exceed the amount of service tax paid thereon - Since the final product manufactured by the appellant is not exempted from payment of duty credit distributed by JKWCW on the strength of valid documents, is available to the appellant as CENVAT credit, for payment of duty on removal of final product - Appeal allowed.

Summary

Issues:
Denial of CENVAT credit on input services received for generation of electricity by the appellant, objections raised by the Department regarding the eligibility of JKWCW as an Input Service Distributor (ISD), compliance with CENVAT Credit Rules 2004, applicability of Rule 7 for distribution of input service credit, dispute over the usage of electricity in manufacturing dutiable final product.

Analysis:
The case involved the denial of CENVAT credit on input services utilized for generating electricity by the appellant, which was transmitted by JKWCW, an ISD, for use in manufacturing. The Department objected to the credit availed by the appellant based on ISD invoices, questioning the eligibility of JKWCW as an ISD and the compliance with CENVAT rules. The Audit team issued show cause notices proposing denial of credit, which were confirmed by the Additional Commissioner and upheld by the Commissioner (Appeals), leading to the appeal before CESTAT.

The appellant argued that as a recipient of the credit distributed by ISD, it was not liable to justify the actions of the ISD and compliance could only be assessed at the ISD's end. The appellant contended that input services need not be received in the manufacturer's factory for availing CENVAT credit, emphasizing the common legal entity of the appellant and JKWCW, both units of M/s J.K. Cement Ltd. The appellant maintained that the credit distribution by JKWCW, supported by valid documents and not exceeding the service tax paid, complied with CENVAT rules, and any issues regarding credit admissibility should be addressed at the ISD's end.

On the other hand, the Department reiterated its findings against the appellant, as per the impugned order. Upon examination, the Tribunal noted that the input services for electricity generation were used at JKWCW's factory, with the electricity transmitted to the appellant for manufacturing grey cement, a dutiable final product crucial for the factory's operation. The Tribunal recognized the legal entity connection between the appellant and JKWCW, with valid ISD registration for credit distribution, in compliance with CENVAT rules. It concluded that the credit availed by the appellant based on ISD invoices for dutiable goods was legitimate, as the electricity was integral to the manufacturing process and not for exempted goods.

In light of the above analysis, the Tribunal found no merit in the impugned order and ruled in favor of the appellant, setting aside the denial of CENVAT credit. The decision highlighted the importance of compliance with CENVAT rules, the role of ISD in credit distribution, and the usage of input services in relation to dutiable final products for credit eligibility.