2011 (10) TMI 389 - AT - Service Tax

Input Service Distributor - Head Office distributed credit - Show cause issued as services rendered were not availed by the Kanhe unit - Held That - Services were rendered at wagholi had no nexus or connection with the activities which were taking place at the Kanhe unit where the credit has been availed. . The input service distributor can distribute the Service Tax paid on input services amongst its various units only if such services are used among the units where the credit is taken. Firstly service has to qualify as input before it can be distributed (Maruti Suzuki (2009 -TMI - 34348 - SUPREME COURT)). - appellant directed to pre-deposit.

Summary

Issues:
- Distribution of input Service Tax to a unit not availing the service
- Interpretation of Cenvat Credit Rules, 2004 regarding input service tax credit

Distribution of input Service Tax to a unit not availing the service:
The case involved an appeal against an Order-in-Appeal passed by the Commissioner of Central Excise (Appeals), Pune-I. The appellant, a manufacturer of Motor Vehicle Parts, distributed input Service Tax to a unit that did not avail the services. The jurisdictional Assistant Commissioner confirmed the demand of wrongly taken CENVAT Credit along with interest and imposed a penalty. The Commissioner (Appeals) upheld the decision, leading to the appeal before the Tribunal.

Interpretation of Cenvat Credit Rules, 2004 regarding input service tax credit:
The appellant argued that there is no prohibition under the Cenvat Credit Rules for distributing input Service Tax to a unit even if the services were not availed by that unit, citing a judgment of the Hon'ble High Court of Karnataka. On the other hand, the Revenue contended that there must be a connection between the services and the manufacturing activity to avail input service tax credit, referring to judgments of the Hon'ble High Court of Gujarat and the Apex Court.

The Tribunal analyzed the definitions of "input service" under Rule 2(1) of the Cenvat Credit Rules and the precedent set by the Apex Court in Maruti Suzuki Ltd. vs. Commissioner of Central Excise. It was established that for services to qualify as input services, they must have been used directly or indirectly in or in relation to the manufacture of final products. In this case, the services availed at one unit had no nexus with the activities at the unit where the credit was taken, rendering them ineligible as input services for availing credit.

In conclusion, the Tribunal held that the appellant failed to demonstrate a case for complete waiver of the dues adjudged. The appellant was directed to pre-deposit the amount of Service Tax credit within a specified period, with the balance of dues waived upon compliance, and recovery stayed during the appeal's pendency.