2013 (11) TMI 509 - AT - Service Tax

Stay application - Distribution of cenvat credit of service tax - input service distributor (ISD) - Held that - Even if a service has been procured in connection with the manufacture of the goods to be produced by the appellant in future and even if it so happens that ultimately the goods are not manufactured, yet the service would be an input service used in or in relation to the manufacturing activity of the appellant and therefore, credit cannot be denied on the ground that the ultimate product in respect of which the service was availed did not get manufactured. Similarly, the Hon ble High Court of Karnataka in the ECOF Industries Pvt. Ltd. case (2011 (4) TMI 560 - KARNATAKA HIGH COURT) held that distribution of credit can be done subject to satisfaction of two conditions, namely, (i) Credit distributed does not exceed the amount of service tax paid and (ii) the credit of service exclusively used for exempted goods or exempt service is not distributed. From the records of the case, it is seen that there is no allegation against the appellant that they have violated any of these two conditions - Stay granted.

Summary

Issues:
Appeal against order-in-appeal denying credit for testing and analyzing services availed for a product yet to be manufactured. Interpretation of Rule 2(l) of Cenvat Credit Rules, 2004. Distribution of credit by head office to unit at a different location. Prima facie case for grant of stay.

Analysis:
The appeal before the Appellate Tribunal CESTAT MUMBAI concerned the denial of credit by the Commissioner of Customs & Central Excise (Appeals) to M/s. Wockhardt Ltd., a pharmaceutical manufacturer, for testing and analyzing services undertaken abroad for a product yet to be manufactured. The appellant contended that such services are part of their manufacturing activity and qualify as eligible input services under Rule 2(l) of the Cenvat Credit Rules, 2004. Reference was made to the Cadila Healthcare Ltd. case, where it was held that services procured for future goods, even if not ultimately manufactured, are eligible for credit. The appellant also argued that the distribution of credit from the head office to the Daman unit was permissible under Rule 7 of the Cenvat Credit Rules, 2004, citing the decision in the CCE, Bangalore Vs. ECOF Industries Pvt. Ltd. case.

The Revenue, represented by the Ld. Additional Commissioner, reiterated the findings of the lower appellate authority, which had rejected the appellant's appeal. However, upon careful consideration of the submissions from both sides, the Tribunal referred to the legal precedents set in the Cadila Healthcare Ltd. case and the ECOF Industries Pvt. Ltd. case. It was noted that the services availed by the appellant qualified as input services, even if the final product was not manufactured, and that the distribution of credit was permissible as long as certain conditions were met, none of which were found to be violated by the appellant.

Consequently, the Tribunal found that the appellant had established a prima facie case in their favor for the grant of a stay. As a result, the Tribunal granted an unconditional waiver from the pre-deposit of dues adjudged against the appellant and stayed the recovery of the same during the pendency of the appeal. The judgment highlighted the importance of interpreting the Cenvat Credit Rules in a manner that allows for the legitimate availment of credit for input services related to manufacturing activities, even if the final product is not realized.