2011 (4) TMI 1461 - HC - Service Tax

CENVAT credit - distribution of Service tax credit made in one unit and availed of in another unit - Held that - the assessee was dealing with the very same product - the assessee is entitled to distribute the cenvat credit on the input services on its manufacturing unit or other units providing the output services - appeal dismissed - decided against Revenue.

Summary

Issues:
Interpretation of Cenvat Credit Rules regarding distribution of Service tax credit between different units.

Analysis:
The appeal before the Karnataka High Court stemmed from a dispute regarding the distribution of Service tax credit between different units of the same assessee. The Tribunal had ruled that there were no restrictions in the Cenvat Credit Rules limiting the distribution of Service tax credit between units. The assessee, a manufacturer of excisable goods, had availed Service tax credit based on invoices from their Head Office in Chennai for their unit in Malur. The revenue contended that the credit should be limited to the unit where the services were used. The Commissioner of Central Excise had allowed the revenue's appeal, but the Tribunal disagreed, citing Rule 7 and a clarificatory circular. The Tribunal found that the only restrictions were that the credit should not exceed the Service tax paid and should not be for services used in exempted goods or services.

The High Court noted that the Chennai unit's Service tax pertained to advertising the product "Sabena Dish wash Bar," which was manufactured by a different unit in Cuttack, not Malur. Rule 7 of the Cenvat Credit Rules governs the distribution of credit by an input service distributor, setting out two conditions: the credit should not exceed the Service tax paid, and it should not be for exempted goods or services. The Court emphasized that the assessee could distribute the credit on input services to any manufacturing unit or other units providing output services. The Appellate Authority's view that credit should only be taken where the product is manufactured was deemed incorrect as per Rule 7.

Ultimately, the High Court upheld the Tribunal's decision, finding no substantial question of law in the appeal. The Court dismissed the appeal, affirming the Tribunal's ruling on the distribution of Service tax credit between units.