2014 (10) TMI 806 - AT - Central Excise

Cenvat credit - non distribution of credit by the Input service distribution in proportion to the turnover of advertisement and sales promotion service - Held that - during the period of dispute i.e. during the period prior to 01/07/2002, there was no provision that the credit distributed by the corporate office/head office of a company as Input Service Distributor to its manufacturing units or units providing Output Service should be in-proportion to their turnover. If such a provision had been there, to the extent the sales promotion and advertisement services were used by the units exclusively engaged in the manufacture of exempted final products, the Cenvat credit would not have been distributed. There is substance in the contention of the appellant that condition (b) is applicable in respect of service which is used in a unit exclusively engaged in manufacture of exempted final product or providing of exempted services and this provision would not be applicable to services like advertisement or publicity services which are used outside the manufacturing unit and which cannot be said to be the service used in a manufacturing unit. - stay granted. Recovery of credit from ISD - Held that - When much amount of service tax Cenvat credit has been distributed by the corporate office among its manufacturing units and since separate proceedings have been initiated against the manufacturing units for recovery of the credit, there is no justification for recovering the credit amount from the Input Service Distributor. Moreover, the corporate office of the appellant company as Input Service Distributor is neither a manufacturer nor an output service provider and, hence, the provisions of Rule 14 would not be applicable. In fact when the head office or corporate office of a company, is registered as Input Service Distributor (ISD) and it is alleged that credit has been wrongly taken and passed on by the ISD, the proceedings are initiated against the manufacturing units/output service providers which have taken the Cenvat credit on the basis of ISD invoices issued by the head office/corporate office as ISD. Therefore, in this case initiation of the proceedings for recovery of Cenvat credit alleged to have been wrongly passed on, against the corporate office (Input Service Distributor) and imposition of penalty on them were not called for. prima facie view that the provisions of Rule 26 (2) are not attracted to this case and, hence, the requirement of pre-deposit of penalty is also waived - stay granted.

Issues Involved:
1. Distribution of Cenvat credit by Input Service Distributor (ISD) to manufacturing units.
2. Recovery of Cenvat credit from both ISD and manufacturing units.
3. Applicability of Rule 6(1) and Rule 7 of the Cenvat Credit Rules, 2004.
4. Invocation of extended limitation period under proviso to Section 11A(1) of the Central Excise Act, 1944.
5. Imposition of penalties under Rule 15(2), Rule 15(3) of the Cenvat Credit Rules, 2004, and Rule 26(2) of the Central Excise Rules, 2002.

Issue-wise Analysis:

1. Distribution of Cenvat Credit by ISD:
The corporate office of the appellant, registered as an Input Service Distributor (ISD), distributed Cenvat credit for advertisement and sales promotion services among its various manufacturing units, including units engaged in the manufacture of dutiable final products. The department objected, stating that the appellant was not entitled to avail Cenvat credit for services used by units manufacturing exempted goods. The tribunal found that during the disputed period, Rule 7 of the Cenvat Credit Rules, 2004, did not mandate proportional distribution of credit based on turnover. The conditions specified in Rule 7(a), (b), and (c) were satisfied, and there was no violation of these conditions.

2. Recovery of Cenvat Credit from ISD and Manufacturing Units:
The tribunal held that recovering the same quantum of Cenvat credit from both the ISD and the manufacturing units amounted to duplication. Since the corporate office, as ISD, is neither a manufacturer nor an output service provider, Rule 14 of the Cenvat Credit Rules, 2004, was not applicable. Therefore, proceedings against the ISD for recovery of the alleged wrongly taken credit were not justified.

3. Applicability of Rule 6(1) and Rule 7:
The tribunal noted that Rule 6(1) of the Cenvat Credit Rules, 2004, prohibits credit on inputs used in the manufacture of exempted goods. However, the appellant argued that advertisement and sales promotion services, although covered under 'input service,' are not used in manufacturing final products. The tribunal acknowledged that this argument required in-depth consideration, but prima facie, the distribution of credit was not contrary to Rule 7 as it stood during the disputed period.

4. Invocation of Extended Limitation Period:
The tribunal agreed with the appellant's contention that the extended limitation period of five years was not applicable. The longer limitation period under proviso to Section 11A(1) of the Central Excise Act, 1944, could not be invoked as there was no willful misstatement or suppression of facts. The amounts paid by the Sahibabad, Alwar, and Pithampura units represented duty demands within the normal limitation period.

5. Imposition of Penalties:
The tribunal found no justification for imposing penalties on the ISD under Rule 15(2) of the Cenvat Credit Rules, 2004, as the proceedings against the ISD were not warranted. Additionally, the penalty of Rs. 1,00,00,000 imposed on the corporate office under Rule 26(2) of the Central Excise Rules, 2002, was also waived, as the provisions of Rule 26(2) were not attracted in this case.

Conclusion:
The tribunal waived the requirement of pre-deposit of Cenvat credit demand, interest, and penalties for the corporate office (ISD) and the manufacturing units at Sahibabad, Alwar, and Pithampura. The stay applications were allowed, and the appeals were accepted for hearing without the necessity of pre-deposit, ensuring that the interests of the revenue were safeguarded by the amounts already deposited by the appellant units.

← Previous Next →