2015 (10) TMI 2754 - AT - Central Excise

Demand of duty - distribution of cenvat credit by the ISD - the appellant's submission is that the demand notice has been issued to Roha factory and is without jurisdiction. According to the learned counsel, the show cause notice should have been issued to ISD located at Thane and not to them - HELD THAT - 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. We, therefore, reject the plea regarding jurisdiction. CENVAT Credit - input service distribution - common input services used in trading as well as manufacturing activity - assessment of distribution of credit made at the ISD - HELD THAT - It would be seen from the definition that input service distributor is neither a service provider nor a manufacturer, but it is only an office of service provider or manufacturer. Since input service distributor neither manufactures the goods nor provides the service, there is no question of input service distributor liable to pay any excise duty or service tax. (The company will, of course, either be manufacturing the goods or providing the service from either the same location or some other location). There is therefore no question of assessment or self assessment by ISD. Rule 7 of the Cenvat Credit Rules states that input service distributor is expected to distribute the credit and ensure that the credit distributed does not exceed the amount of service tax paid as per the documents. The other condition is that the credit of service tax attributable to service used in a unit exclusively engaged in the manufacture of exempted goods or providing exempted service shall not be distributed. It will be seen from the above Rule that these are only two guidance for the ISD for distribution of the credit. There is no rule in Service Tax Law which provides assessment or self-assessment by ISD. Next submission of the learned counsel is that credit cannot be denied unless the assessment of distribution of credit made at ISD is set aside - HELD THAT - 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. Time Limitation - HELD THAT - It is an admitted position that the appellant was registered as input service distributor and the fact that the appellant was also undertaking trading activity was suppressed from department and this has been admitted by the Director of the company. Thus, there is a suppression of fact and in our view the extended period of limitation is correctly invoked. Appeal dismissed - decided against appellant.

Issues Involved:
1. Jurisdiction of issuing the show cause notice.
2. Eligibility and distribution of CENVAT credit by Input Service Distributor (ISD).
3. Applicability of Rule 6 of the CENVAT Credit Rules to trading activities.
4. Method of bifurcation of credit between manufacturing and trading activities.
5. Retrospective application of Rule 6(3A) of the CENVAT Credit Rules.
6. Time-barred nature of the demand and invocation of the extended period of limitation.

Issue-Wise Detailed Analysis:

1. Jurisdiction of Issuing the Show Cause Notice:
The appellant contended that the show cause notice should have been issued to the ISD located at Thane, not the manufacturing unit at Roha. The Tribunal rejected this argument, stating that the ISD and the manufacturing unit are the same legal entity. The credit is availed and utilized by the manufacturing unit, hence the cause of action lies with the manufacturing unit. The Tribunal emphasized that the ISD is not a separate legal entity but an office of the manufacturer, and the responsibility for correctly availing the credit lies with the manufacturing unit.

2. Eligibility and Distribution of CENVAT Credit by ISD:
The appellant argued that the credit cannot be denied unless the assessment of distribution of credit made at the ISD is set aside. The Tribunal dismissed this argument, clarifying that the ISD's role is to distribute the credit of service tax paid on input services to various manufacturing units, and there is no provision for assessment or self-assessment by the ISD. The burden of proof regarding the admissibility of the credit lies with the manufacturer or service provider availing the credit as per Rule 9(5) and 9(6) of the CENVAT Credit Rules.

3. Applicability of Rule 6 of the CENVAT Credit Rules to Trading Activities:
The appellant contended that trading is not a service or exempted service, and hence Rule 6 of the CENVAT Credit Rules should not apply. The Tribunal agreed that trading is neither a service nor an exempted service. However, it noted that the input services used in trading activities cannot be considered as input services under the CENVAT Credit Rules. Therefore, the appellant could not claim the entire amount of credit on input services used for both manufacturing and trading activities.

4. Method of Bifurcation of Credit Between Manufacturing and Trading Activities:
The appellant suggested that the bifurcation of credit should be based on value addition rather than turnover. The Tribunal rejected this argument, stating that using turnover as the basis for apportioning the credit is more practical and reasonable. The Tribunal referred to its earlier decision in the case of Mercedes Benz India (P.) Ltd., where it was held that the credit on input services should be apportioned in the same ratio as the turnover of traded and manufactured goods.

5. Retrospective Application of Rule 6(3A) of the CENVAT Credit Rules:
The appellant argued for the retrospective application of Rule 6(3A), claiming it to be procedural in nature. The Tribunal disagreed, stating that the amendments made in 2011 are substantive and cannot be applied retrospectively. The Tribunal cited the Supreme Court's decision in UOI v. Martin Lottery Agencies Ltd., which held that substantive changes in the law cannot have retrospective effect.

6. Time-Barred Nature of the Demand and Invocation of the Extended Period of Limitation:
The appellant claimed that the demand was time-barred as the show cause notice was issued beyond the one-year period. The Tribunal upheld the extended period of limitation, noting that the appellant had suppressed the fact of undertaking trading activities from the department. The Tribunal agreed with the Commissioner's findings that there was suppression of facts, justifying the invocation of the extended period of limitation and the imposition of penalties under Rule 15 of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act.

Conclusion:
The Tribunal dismissed the appeal, upholding the jurisdiction of the show cause notice, the denial of credit based on the proportion of trading activities, the use of turnover for bifurcation of credit, the non-retrospective application of Rule 6(3A), and the invocation of the extended period of limitation. The penalties imposed were also upheld.

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