2017 (2) TMI 1459 - AT - Central Excise

Utilisation of CENVAT Credit - allegation that Cenvat credit earned on manufacturing activity for payment of Service Tax liability - SCN did not cite any rule - HELD THAT - There is no requirement for a person to keep separate Cenvat credit accounts for manufacturing and service activities. Rule 3(1) of the Cenvat Credit Rules provides that a person can avail credit in respect of the manufacturing activity as well as in respect of the activities of providing services. This is a common pool and no different pool for manufacturing and service related activities. Rule 3(4) of the Cenvat Credit Rules prescribes that such credit can be used for payment of excise duty or for Service Tax on any output services - there is no such condition that the Cenvat credit earned under Rule 3(1) of the Cenvat Credit Rules can be used for X purposes and not for Y purposes. Other allegation is that the appellants are registered separately as manufacturer and service provider - HELD THAT - There are two distinct different activities. Credit earned by one entity cannot be used by another entity. It is observed that both Central Excise registration and Service Tax registration are taken by same legal entity, therefore, despite two different registrations, a single Cenvat credit account can be maintained. The demand do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Utilization of Cenvat credit for payment of Service Tax on installation and commissioning services.
2. Whether separate Cenvat credit accounts are required for manufacturing and service activities.

Analysis:

Issue 1: Utilization of Cenvat credit for payment of Service Tax on installation and commissioning services
The case involved the appellants, who are manufacturers also providing installation and commissioning services. It was discovered during an audit that they had used Cenvat credit earned on manufacturing activities to pay Service Tax on installation and commissioning services. The lower authorities confirmed the demand, alleging incorrect utilization of the credit. However, the Tribunal examined Rule 3(1) and Rule 3(4) of the Cenvat Credit Rules, 2004. It was found that there is no requirement to maintain separate Cenvat credit accounts for manufacturing and service activities. The rules allow a person to avail credit for both manufacturing and service activities from a common pool. Rule 3(4) permits the use of such credit for payment of excise duty or Service Tax on output services without specifying restrictions on the purpose of credit utilization. Therefore, the Tribunal held that the appellants were entitled to use the Cenvat credit for payment of Service Tax on the services provided.

Issue 2: Requirement of separate Cenvat credit accounts for manufacturing and service activities
Another contention raised was regarding the separate registration of the appellants as a manufacturer and a service provider, leading to two distinct activities. The argument was that credit earned by one entity could not be utilized by another entity. However, it was noted that despite having separate registrations for Central Excise and Service Tax, both were held by the same legal entity. Thus, the Tribunal concluded that a single Cenvat credit account could be maintained for both manufacturing and service-related activities. As a result, the demand for payment of Service Tax was deemed unsustainable, and the appeal was allowed in favor of the appellants.

This judgment clarifies the permissible use of Cenvat credit for the payment of Service Tax on various activities and emphasizes the common pool nature of credit under the Cenvat Credit Rules, 2004. It also highlights the significance of maintaining separate legal entity registrations for different activities while allowing the consolidation of Cenvat credit accounts for ease of compliance.