2016 (12) TMI 783 - AT - Central Excise

Denial of CENVAT credit - no stated rationale for distribution of the credit to the appellant-assessee and that the input services cannot be said to have been used for directly or indirectly in the manufacture of output - credit availed on invoices dated prior to 10th September 2004 was also not eligible - whether the denial of credit on the ground that with a number of units and all having derived the benefit of services procured by headquarters, it was the responsibility of the input service distributor to articulate the rationale for assigning the said amount to the assessee and, in its absence, it was appropriate to deny the availment for not having been put to use in the manufacture of output, is justified? Held that - We find from the records that head office of appellant-company is registered as input service distributor and is entitled to distribute the credit of services availed for supporting the manufacture of output goods by the constituent units. The impugned order has objected to the distribution for failure to justify the proportion allocated to the Tarapur unit. There was no such allegation leveled in the show cause notice and the adjudicating authority appears to have travelled beyond the notice in holding that the dues are liable to recovery. Also, reliance placed on the decision of the case of Castrol India Ltd v. Commissioner of Central Excise, Vapi 2013 (9) TMI 709 - CESTAT AHMEDABAD , where it has not been alleged in the show cause notice nor there is finding that the credit distributed against the documents is more than the amount of service tax paid and in any case, this can be verified only at the end of ISD. It is also not the case of the department that credit has been received by the assessee in respect of services/goods which are totally exempted. Under these circumstances, on this ground alone, probably the matter can be decided but the learned advocate is fair enough to argue the case on merits and also agree to reverse the credits which are patently inadmissible. The reasoning adopted by the adjudicating authority in the impugned order does not stand the test of legality. For that reason, we set aside the impugned order and allow the appeals - decided in favor of appellant-assessee.

Summary

Issues:
Challenge against disallowance of CENVAT credit by Commissioner of Central Excise, Thane - II for not being received and utilized, confirmed tax liability, interest, and penalties. Appeal against impugned order by M/s. Lupin Ltd, Tarapur and individuals. Interpretation of CENVAT Credit Rules, 2004 and section 11AC of Central Excise Act, 1944. Justification for distribution of credit to appellant's unit. Allegations of non-fulfillment of conditions for credit distribution. Legal validity of penalties imposed.

Analysis:

The case involves M/s. Lupin Ltd, Tarapur challenging the disallowance of CENVAT credit by the Commissioner of Central Excise, Thane - II. The impugned order disallowed credit of &8377; 69,83,550/- for not being received and utilized by the appellant, confirming tax liability, interest, and penalties under relevant sections. The Commissioner held that the credit distribution lacked rationale and input services were not used directly or indirectly in output manufacture. The responsibility to justify credit assignment was emphasized, especially for invoices predating September 10, 2004.

The appellant argued that as an 'input service distributor,' credit distribution was permissible under Rule 7 of CENVAT Credit Rules, 2004 pre-April 1, 2012. They contested the invocation of section 11AC without proper notice reference and questioned the penalties imposed. The Authorized Representative countered, stating that the input services were not relevant to output production.

The Tribunal examined the case, noting that the head office was registered as an 'input service distributor' entitled to credit distribution. The objection to the proportion allocated to the Tarapur unit lacked basis in the show cause notice, indicating procedural irregularities in the adjudication.

Referring to legal precedents like Castrol India Ltd and Doshion Ltd, the Tribunal emphasized Rule 7 of CENVAT Credit Rules, 2004, highlighting the conditions for credit distribution. The Tribunal found merit in the appellant's arguments, emphasizing the absence of allegations on non-fulfillment of conditions in the show cause notice, rendering the denial of service tax invalid. The Tribunal also cited Praj Industries Ltd and a High Court ruling, reiterating the limited restrictions on credit distribution under Rule 7.

Ultimately, the Tribunal set aside the impugned order, allowing the appeals based on the legal analysis and precedents cited, emphasizing the legality of credit distribution and lack of legal infirmity in the appellants' actions.

Conclusion:
The judgment favored M/s. Lupin Ltd, Tarapur and the individuals appealing against the disallowance of CENVAT credit, tax liability, interest, and penalties. The Tribunal's decision rested on the legal validity of credit distribution under Rule 7 of CENVAT Credit Rules, 2004, emphasizing compliance with conditions and procedural regularities. The ruling highlighted the importance of proper notice, adherence to legal provisions, and limited restrictions on credit distribution, ultimately allowing the appeals.