2014 (8) TMI 450 - AT - Service Tax

CENVAT Credit - Registration input service distributor (ISD) from 4-10-2008 - distribution of the credit of Service Tax paid on common input service such as Consultancy services, advocate services, house keeping, security etc., to their various units in proportion to the turnover of the unit during February, 2008 to October, 2008 - Held that - Input service distribution is a facility granted to a manufacturer/service provider who operates from a number of premises. There is no restriction under the Cenvat Credit Rules, 2004, with regard to the period for availing Cenvat credit of Service Tax paid. In other words, a manufacturer/input service provider can avail Cenvat credit of the Service Tax paid irrespective of any time limitation. The only condition to be satisfied is that they should have paid the Service Tax prior to availing the credit. So long as this condition is satisfied, there is no time-limit prescribed in the Rule within which the Cenvat credit has to be taken. If that be so, there is no reason why in the case of input service distributor alone, a restriction should be placed with respect to availment of Cenvat credit i.e. input service distributor is permitted to distribute only taxes paid on or after registration. Such a restriction is totally unwarranted and is not provided for in the law - Decided in favour of assessee.

Summary

Issues:
- Interpretation of Rule 4A of the Service Tax Rules, 1994 regarding input service distribution
- Whether there is a restriction in the Cenvat Credit Rules, 2004 on distributing credit only for taxes paid after registration as an input service distributor

Analysis:

Issue 1: Interpretation of Rule 4A of the Service Tax Rules, 1994 regarding input service distribution
The case involved the appellant, a manufacturing company with multiple units, registered as an input service distributor. The appellant distributed Service Tax credit on common input services to various units based on turnover. The dispute arose when the Department contended that credit could only be distributed for taxes paid after the registration date. The appellant argued that Rule 4A does not specify any restriction on the date of tax payment for credit distribution. The learned Consultant emphasized that the Rule allows credit distribution without a time limitation as long as the tax was paid before availing the credit. The Tribunal agreed with the appellant, stating that there is no time limit prescribed in the Rule for availing Cenvat credit, and imposing a restriction for input service distributors would be unwarranted. The lower Appellate Authority's decision was deemed contrary to the law, leading to the appeal's allowance and setting aside of the previous order.

Issue 2: Whether there is a restriction in the Cenvat Credit Rules, 2004 on distributing credit only for taxes paid after registration as an input service distributor
During the proceedings, the learned A.R. reiterated the lower authorities' findings but conceded that there is no specific restriction in the Cenvat Credit Rules, 2004, limiting credit distribution to taxes paid post-registration. The Tribunal concurred with this observation, emphasizing that the absence of such a restriction in the law implies that input service distributors should not be confined to distributing credits for taxes paid after registration. As a result, the impugned order was set aside, and the appeal was allowed, providing consequential relief. The Tribunal's decision clarified that the law does not support imposing a restriction on input service distributors regarding the timing of tax payments for credit distribution.

In conclusion, the Tribunal's judgment clarified the interpretation of Rule 4A of the Service Tax Rules, 1994 and the absence of restrictions in the Cenvat Credit Rules, 2004, ensuring that input service distributors can distribute credits without being limited to taxes paid post-registration.