2014 (11) TMI 33 - AT - Central Excise

Distribution of credit by the Input service distributor (ISD) - distribution of proportionate credit - Held that - The combined reading of the Rule 7 and the clarificatory circular dt.23/8/2007 hereby shows that there are only two restrictions regarding the distribution of the credit. The first restriction is that the credit should not exceed the amount of Service Tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules, the restriction sought to be applied by the Department in this case in limiting the distribution of the Service Tax credit made in respect of the Malur Unit on the ground that the services were used in respect of the Cuttack Unit finds no mention in the relevant rules. As such, restricting the distribution of Service Tax credit in a manner as has been done by the impugned order by the lower appellate authority (original authority had approved of such distribution) cannot be upheld - appellant is entitled to take Cenvat credit during the impugned period as distributed by their head office - Therefore, the allegation of suppression, fraud, collusion, wilful misstatement or intent to evade payment of duty does not sustain. It is also supported by the Notification 18/12-CE dated 17.03.2012 wherein the Rule has been amended in the light of the decision of Ecof Industries (2009 (10) TMI 171 - CESTAT, BANGALORE) - Decided in favour of assessee.

Summary

Issues:
- Admissibility of service tax credit transferred from EOU unit to DTA unit
- Interpretation of Rule 7 of CENVAT Credit Rules, 2004 for credit distribution
- Bar on limitation for demand confirmation

Analysis:

Issue 1: Admissibility of Service Tax Credit
The appellant, engaged in manufacturing, faced a demand confirmation of duty along with interest and penalty for transferring service tax credit from EOU to DTA unit. The dispute arose when the service tax credit distributed by the appellant's head office was deemed inadmissible to the DTA unit as it was originally availed for the EOU unit. The appellant argued that the credit distribution was permissible under Rule 7 of the CENVAT Credit Rules, 2004, supported by legal precedents and CBEC Circulars. The appellant maintained that the situation was revenue-neutral, citing various case laws to support their contention.

Issue 2: Interpretation of Rule 7 of CENVAT Credit Rules
The core contention revolved around the interpretation of Rule 7 for the distribution of input service credit. The Tribunal analyzed Rule 7 and its amendments, particularly focusing on the conditions for credit distribution by an input service distributor. The Tribunal referred to the Ecof Industries case where it was established that the credit distribution was not restricted to any specific unit of the manufacturer or service provider. The Tribunal affirmed that the appellant was entitled to take Cenvat credit during the impugned period as distributed by their head office, emphasizing the permissible nature of credit distribution under Rule 7.

Issue 3: Bar on Limitation for Demand Confirmation
The appellant successfully argued that the demand confirmation was barred by limitation. It was highlighted that the appellant had availed Cenvat credit as per Rule 7 during the audit, which was known to the revenue authorities. The Tribunal noted that the extended period of limitation was not applicable as the appellant had a bona fide belief in availing the credit based on legal interpretations and amendments to the rules. The absence of suppression, fraud, or intent to evade payment of duty further supported the appellant's position.

In conclusion, the Tribunal set aside the impugned order, ruling in favor of the appellant on both substantive and limitation grounds, allowing the appeal with consequential relief.