2017 (3) TMI 1438 - AT - Central Excise

CENVAT credit - benefit of N/N. 50/2003-CE - appellant paid duty for its one unit, and for other 4 units availed area based exemption. In respect of the some common input services, which are common to all the five manufacturing units, appellant took Cenvat credit of the service tax paid - Held that - There is no dispute that the six services in question, for which Cenvat credit has been taken by ISD and distributed entirely to non duty paying unit Udaipur are specified in Rule 6(5) - in terms of Rule 6(5) of CeCR, the full Cenvat credit will be available to the assessee, if such services were used in a manufacturing unit making both, the exempted as well as dutiable goods. In the present case, the full Cenvat credit has been availed by the ISD who is required to distribute the same to various units as per Rule 7of CCR. The Rule 7 only enforces the condition that credit of service tax attributed to services used in units exclusively engaged in the manufacture of exempted goods or providing exempted services shall not be distributed - there is nothing on record to suggest that any of the services have been used only in the units manufacturing exempted goods. In fact, the nature of services tells us that these are used at the level of corporate of the manufacturing units of the assessee. Under the circumstances, restricting the distribution of Cenvat credit in terms of Rule 7 is not justifiable. The restrictions are there only in distribution of credit in respect of services which are exclusively used in relation to manufacturing of exempted goods. Credit allowed - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
- Availability of Cenvat credit for common input services used by multiple manufacturing units.
- Distribution of Cenvat credit by Input Service Distributor (ISD) to dutiable and exempted units.
- Interpretation of Rule 6(5) and Rule 7 of the Cenvat Credit Rules, 2004.
- Impact of the amendment to Rule 7 in Notification No. 5/2014-CE (NT) dated 24.02.2014 on the case covering the period prior to Jan 2010.

Analysis:

The judgment involves the issue of availability of Cenvat credit for common input services utilized by multiple manufacturing units of the appellant. The appellant, a manufacturer of electric energy meters, had one dutiable unit and four units availing area-based exemption. The dispute arose when the Revenue sought to deny Cenvat credit taken by the dutiable unit based on the services used by all units. The appellant argued that since the services were not exclusively for exempted goods, full Cenvat credit should be available. The Tribunal agreed, citing Rule 6(5) of the Cenvat Credit Rules, allowing credit for services used in both dutiable and exempted goods/services. The appellant's reliance on relevant case laws further supported their claim.

Regarding the distribution of Cenvat credit by the Input Service Distributor (ISD), the Tribunal analyzed Rule 7 of the Cenvat Credit Rules. The ISD had distributed the credit to the dutiable unit, which then utilized it for excise duty payment. The Tribunal noted that Rule 7 did not restrict distributing credit to units exclusively engaged in exempted goods manufacturing. As the services were used at the corporate level, restricting credit distribution based on Rule 7 was deemed unjustifiable. The Tribunal emphasized that Rule 7 only limited credit distribution for services exclusively related to exempted goods manufacturing.

The judgment delves into the interpretation of Rule 6(5) of the Cenvat Credit Rules, emphasizing that full credit should be available if services are used in manufacturing both exempted and dutiable goods. The Tribunal highlighted that none of the services were exclusively used in units producing exempted goods, supporting the appellant's claim for full Cenvat credit availability.

Lastly, the judgment addresses the impact of the amendment to Rule 7 in Notification No. 5/2014-CE (NT) dated 24.02.2014. The Tribunal clarified that the amendment, substituting "used by one or more units" for "used in a unit," did not affect the present case covering the period before Jan 2010. The decision in the case of Elder Pharmaceuticals Limited was cited to support the appellant's position. Ultimately, the Tribunal set aside the impugned orders, allowing the appeals in favor of the appellant.

In conclusion, the judgment provides a detailed analysis of the issues related to Cenvat credit availability, distribution by ISD, rule interpretations, and the impact of relevant amendments, culminating in a favorable decision for the appellant.