2014 (2) TMI 297 - AT - Service Tax

CENVAT Credit - Input service distributor (ISD) - distribution of service tax credit to the Job worker - Contravention of Rules 2(m) and 7 of CENVAT Credit Rules, 2004 (CCR, 2004) - Invocation of extended period of limitation - Held that - the question of distribution of credit by M/s. Merck Specialties ltd. to the job-workers does not satisfy the condition that the credit is distributed to its manufacturing units. It is a settled position of law that job-workers who actually undertake the manufacturing process is the manufacturer of goods and not the supplier of raw materials. It is the appellants who are the manufacturers and not M/s. Merck Specialties Ltd. who has merely supplied the raw materials to be the appellants for the manufacture of the goods. It is also not in dispute that it is the appellants who are discharging the excise duty liability though on the price declared by M/s. Merck Specialties Ltd. The value on which excise duty liability is discharged is not determinative of the liability to pay excise duty or who the manufacturer - The fact that the appellants are independent job-workers and the transactions were on a principal-to-principal basis was not disclosed to the department. Thus, there is a deliberate mis-declaration on the part of M/s. Merck Specialties Ltd. in stating that the units to which they have distributed the credit are their own manufacturing units whereas the facts were otherwise. Similarly, in the declaration made to Dy. Commissioner, Belapur I Division, the appellants did not intimate that they were availing credit in terms of Rule 7 of CCR, 2004. In views of the deliberate mis-statement of facts on the part of the appellants, the invocation of extended period of time is clearly justified. Therefore, the demands are sustainable. Once the invocation of extended period of time is held to be correct in law, mandatory penalty under Section11AC is an automatic consequence. Therefore, the appellants are liable to penalties under Section 11AC of the Central Excise Act, 1944 - once there is a mis-statement of facts or suppression of facts, mandatory penalty is imposable - Following decision of Union of India vs. Dharmendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT - Decided against the assessee.

Summary

Issues Involved:
1. Eligibility of CENVAT credit availed by the appellants.
2. Interpretation of "input service distributor" under CCR, 2004.
3. Applicability of extended period of limitation.
4. Imposition of penalties under Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

1. Eligibility of CENVAT Credit Availed by the Appellants:
The appellants, M/s. Sunbell Alloys Co. of India Ltd. and M/s. Machsons Pvt. Ltd., availed CENVAT credit of service tax paid against invoices issued by M/s. Merck Specialties Ltd. The primary charge was that M/s. Merck Specialties Ltd., which did not have a manufacturing unit, distributed the credit to job-workers who were not entitled to such credit under Rules 2(m) and 7 of CENVAT Credit Rules, 2004 (CCR, 2004). The services in question included car hire charges, outward transportation, clearing and forwarding charges, manpower recruitment agency services, maintenance and repair services, Custom house agent's services, and event management services, which were not used directly or indirectly by the appellants in the manufacture of final products. The adjudicating authority held that the appellants were ineligible for the CENVAT credit distributed by M/s. Merck Specialties Ltd., leading to the disallowance and recovery of the credit along with interest and penalties.

2. Interpretation of "Input Service Distributor" Under CCR, 2004:
The Tribunal examined the definitions and provisions under CCR, 2004, specifically focusing on Rule 2(l), Rule 2(m), and Rule 7. The definition of "input service" includes services used directly or indirectly in the manufacture of final products. The term "input service distributor" refers to an office of the manufacturer or provider of final products or output services, which distributes the credit of service tax paid on input services to its manufacturing units. The Tribunal concluded that M/s. Merck Specialties Ltd. could not be considered an "input service distributor" for the appellants, as the appellants were independent legal entities and not units of M/s. Merck Specialties Ltd. The services on which credit was taken were unrelated to the manufacturing operations of the appellants, and thus, the distribution of credit did not comply with the provisions of CCR, 2004.

3. Applicability of Extended Period of Limitation:
The Tribunal addressed the issue of extended period of limitation invoked by the adjudicating authority. It was found that M/s. Merck Specialties Ltd. had mis-declared the appellants as their manufacturing units in communications with the jurisdictional authorities, concealing the fact that the appellants were independent job-workers. This deliberate mis-statement justified the invocation of the extended period for recovery of ineligible credit. The Tribunal upheld the invocation of the extended period, finding the demands sustainable.

4. Imposition of Penalties Under Section 11AC of the Central Excise Act, 1944:
Given the established mis-statement and suppression of facts, the Tribunal held that mandatory penalties under Section 11AC of the Central Excise Act, 1944, were applicable. The Tribunal referenced the Supreme Court's decision in Union of India vs. Dharmendra Textile Processors, which mandates penalties in cases of mis-statement or suppression of facts. Consequently, the penalties imposed on the appellants were deemed justified.

Conclusion:
The Tribunal dismissed the appeals, affirming the ineligibility of the CENVAT credit availed by the appellants, the correctness of the extended period of limitation invoked, and the imposition of penalties under Section 11AC of the Central Excise Act, 1944. The judgment emphasized strict adherence to the definitions and provisions under CCR, 2004, and upheld the legal principles regarding input service distribution and manufacturer liability.