2016 (12) TMI 529 - AT - Central Excise

CENVAT credit - input services - security service - general insurance service - consultancy engineering services - input services received at EOU unit - whether the the input services viz. security service, general insurance service, consultancy engineering services received at their Silvasa EOU unit, having no nexus with manufacturing activity at the said unit, therefore, not eligible to CENVAT Credit being fall outside the scope of definition of input service prescribed at Rule 2(l) of CENVAT Credit Rules 2004, is justified? Held that - Undisputedly, the Appellants on the basis of invoices issued under Rule 4A of Service Tax Rules, 1994 by their head office registered as an input service distributor, availed CENVAT Credit at their manufacturing unit. It is also not in dispute that the entire credit relates to the input services viz. security service, general insurance service, consultancy engineering services received and utilized at their other unit. It is the contention of the Appellant that as per the existing provisions during the relevant period, there was no necessity that the input services be received and utilized in the factory of the manufacturer where CENVAT Credit was availed. The Appellants have heavily placed reliance on the judgment of Hon ble Karnataka High Court in the case of ECOF Industries Pvt. Ltd. 2011 (2) TMI 1130 - KARNATAKA HIGH COURT . In the said case, the Hon ble High Court was confronted with the question whether the invoices issued by the head office in respect of the services received at one unit, in favor of other unit, would be eligible to CENVAT Credit. Their Lordships, after interpretation of scope of input service and input service distributor held that The law mandates that the manufacturer who wants to avail the benefit of this service tax if he has more than one unit he should also get registered himself as a service provider and then, he would be able to collect all the input service tax paid in all its units and accumulate them at its head office and distribute the said credit to its various units. Merely because the input service tax is paid at a particular unit and the benefit is sought to be availed at another unit, the same is not prohibited under law. I find that the present circumstances are more or less similar to the facts of the ECOF Industries Pvt. Ltd s case. In these circumstances, I do not see any reason not to follow the aforesaid judgment of Hon ble Karnataka High Court in ECOF Industries Pvt. Ltd s case - CENVAT credit allowed - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues Involved:
1. Eligibility of CENVAT Credit for input services received at a different unit
2. Interpretation of Rule 7 of CENVAT Credit Rules, 2004
3. Nexus requirement for availing CENVAT Credit
4. Bar on limitation for demand notice issuance

Analysis:

Eligibility of CENVAT Credit for input services received at a different unit:
The appeal questioned the denial of CENVAT Credit by the Commissioner of Central Excise, Customs and Service Tax for input services received at a different unit. The Appellant argued that availing credit based on invoices from their head office, registered as an input service distributor, did not require service utilization at the manufacturing unit. They cited the judgment of the Hon'ble Karnataka High Court in a similar case to support their contention. The Tribunal noted that the Appellants complied with conditions before availing the credit and emphasized that the law did not prohibit utilizing credit at a different unit. The Tribunal upheld the Appellant's argument, following the precedent set by the Karnataka High Court.

Interpretation of Rule 7 of CENVAT Credit Rules, 2004:
The Tribunal analyzed Rule 7 of the CENVAT Credit Rules, 2004, which governs the distribution of credit by an input service distributor. Rule 7 imposes limitations on credit distribution, emphasizing that the credit should not exceed the service tax paid and should not be used in units engaged in exempted activities. The Tribunal highlighted that these were the only restrictions under Rule 7 and that the manufacturer, acting as an input service distributor, was entitled to distribute credit as per the law. The judgment clarified that paying input service tax at one unit and availing benefits at another unit was not prohibited, provided the manufacturer registered as an input service distributor.

Nexus requirement for availing CENVAT Credit:
The Revenue contended that there should be a nexus between the input services and the manufacturing activity for CENVAT Credit eligibility. They argued that the input services availed at the EOU unit lacked a nexus with the manufacturing activity at the Appellant's unit. However, the Tribunal found that the law did not mandate service utilization only at the manufacturing unit for availing credit, especially when distributed by an input service distributor. The Tribunal's decision highlighted that the manufacturer could distribute credit to various units, as long as the conditions under Rule 7 were met.

Bar on limitation for demand notice issuance:
The Appellant raised the issue of limitation, asserting that the demand notice issued in 2011 for credit availed in 2008 was barred by limitation. They argued that they had informed the Department about availing the credit in the relevant monthly return, with no suppression of facts. The Tribunal did not find the demand notice valid due to the limitation period, further supporting the Appellant's position.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief as per the law. The judgment emphasized the entitlement of manufacturers to distribute credit among units, following the provisions of the law and relevant judicial precedents.