2015 (10) TMI 2401 - AT - Central Excise

CENVAT Credit - credit of input services distributed by the Input Service Distributor - Jurisdiction - appellant submitted that show cause notice should have been issued to ISD located at Thane and not to them (unit availing credit). - Held that - Distinction between the location of ISD and that of a manufacturing unit itself is immaterial. Credit is finally availed and utilised by the manufacturing unit. What learned counsel is trying to say is that show cause notice should be issued to head as hand has acted as per the direction of head. In our view, as rightly pointed out by learned AR, cause of action stands with availment and utilization of credit at the manufacturing unit. Of course, ISD and manufacturing unit are integrally connected, and both of them unitedly has to resolve the issue with the department. - Decided against the assessee. Input service distributor is not providing either any service or manufacturing any goods. There is no requirement of assessment or self-assessment. Input service distributor is only receiving the invoices of service tax paid which in turn are being distributed to different manufacturing units/service providing units. ISD per se does not value, classify or decide the rate of duty relating to the services so received. Therefore there is no question of his assessing such services. All that he does is distributing the same. Role of ISD is very different than that of a registered dealer and it is because of this reason that there is a separate return in case of a registered dealer which is not so in case of ISD. In case of ISD, the normal service tax return has a column for the distribution of credit of service tax and that is sufficient to ensure that the distributed service tax is not more than that shown in the invoices. - All that input service distributor is to certify in clause (b) that they have distributed cenvat credit correctly. Based upon the heading given in the return which is a common heading for service provider as well as input service distributor, it cannot be claimed that input service distributor is making self assessment and that self assessment is required to be challenged. No rule provides for assessment/self-assessment by ISD. In view of the said position, we find that the claim of the learned counsel is required to be out rightly rejected and we accordingly do so. In case of availment of cenvat credit the primary responsibility that the credit has been correctly taken, is on the manufacturer or availer of cenvat credit as per Rule 9(5) and 9(6). Rule 9(5) very clearly provides that the burden or proof regarding admissibility of the cenvat credit shall lie upon the manufacturer or provider of output service taking such credit. In view of this position, we have no hesitation in holding that the extended period of limitation has been correctly invoked. We also note the judgment of hon ble Madras High Court in the case of F.L. Smidth Pvt. Ltd. (2014 (12) TMI 699 - MADRAS HIGH COURT). - Demand with penalty confirmed - Decided against assessee.

Issues Involved:
1. Jurisdiction of the demand notice.
2. Denial of credit without setting aside ISD's assessment.
3. Applicability of Rule 6 of the Cenvat Credit Rules to trading activities.
4. Bifurcation of credit between manufacturing and trading.
5. Retrospective effect of Rule 6(3A) of the Cenvat Credit Rules.
6. Re-computation of demand based on Rule 6(3D).
7. Applicability of Rule 6(5) of the Cenvat Credit Rules.
8. Invocation of the extended period of limitation.
9. Imposition of penalty under Rule 15 of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act.

Detailed Analysis:

1. Jurisdiction of the demand notice:
The appellant argued that the demand notice should have been issued to the Input Service Distributor (ISD) located at Thane, not to the Roha factory. The Tribunal rejected this plea, stating that the ISD and the manufacturing unit are a single legal entity and the cause of action arises with the availment and utilization of credit at the manufacturing unit. The Tribunal emphasized that the ISD is only an office of the manufacturer and does not independently assess or pay excise duty or service tax.

2. Denial of credit without setting aside ISD's assessment:
The appellant contended that credit cannot be denied unless the ISD's assessment is set aside. The Tribunal rejected this argument, explaining that the ISD does not perform an assessment but merely distributes the credit of service tax to various manufacturing units. The manufacturing unit is responsible for ensuring the correctness of the credit availed.

3. Applicability of Rule 6 of the Cenvat Credit Rules to trading activities:
The appellant argued that trading is not a service or exempted service and hence Rule 6 should not apply. The Tribunal agreed that trading is not a service or exempted service but noted that input services used in trading activities cannot be considered as input services for manufacturing. Therefore, the appellant could not take the entire amount of credit for input services used in both trading and manufacturing.

4. Bifurcation of credit between manufacturing and trading:
The appellant suggested that the bifurcation of credit should be based on value addition rather than turnover. The Tribunal rejected this, stating that turnover is a more practical and appropriate criterion for apportioning credit. The Tribunal upheld the Revenue's method of denying credit in proportion to the turnover of trading and manufacturing activities.

5. Retrospective effect of Rule 6(3A) of the Cenvat Credit Rules:
The appellant argued that Rule 6(3A) should have retrospective effect as it is procedural. The Tribunal disagreed, stating that changes affecting financial liability are substantive and cannot be applied retrospectively. The Tribunal cited previous judgments to support this view.

6. Re-computation of demand based on Rule 6(3D):
The appellant requested re-computation of demand based on Rule 6(3D) effective from 1.4.2011. The Tribunal rejected this, stating that the rule is substantive and not procedural, and thus cannot be applied retrospectively.

7. Applicability of Rule 6(5) of the Cenvat Credit Rules:
The appellant claimed entitlement to full credit for services specified in Rule 6(5). The Tribunal rejected this, noting that the services in question were used in both manufacturing and trading activities, and thus the credit could not be entirely allowed.

8. Invocation of the extended period of limitation:
The appellant argued that the demand was time-barred. The Tribunal found that the appellant had suppressed the fact of undertaking trading activities from the department, justifying the invocation of the extended period of limitation.

9. Imposition of penalty under Rule 15 of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act:
The Tribunal upheld the imposition of penalty, agreeing with the Commissioner that the appellant had suppressed material facts and wrongly availed cenvat credit. The penalty was deemed appropriate under the circumstances.

Conclusion:
The Tribunal dismissed the appeal, upholding the Revenue's demand for recovery of wrongly availed cenvat credit along with interest and penalty. The Tribunal found no merit in the appellant's arguments regarding jurisdiction, assessment by ISD, bifurcation of credit, applicability of Rule 6, retrospective effect of Rule 6(3A), or limitation period.

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