2017 (5) TMI 599 - AT - Central Excise

CENVAT credit - distribution of Input Service Tax credit which was attributable to Services used in a Unit exclusively engaged in manufacture of exempted goods - N/N. 50/2003-CE dated 10/06/2003 - Held that - Clause (b) of Rule 7 of the CCR, 2004 that existed during material time provided that such Cenvat credit of Service Tax paid was not admissible to be distributed which was exclusively used in unit engaged in the manufacture of exempted goods - The said SCN nowhere established that the Cenvat credit which was proposed to be recovered was used in a unit exclusively engaged in manufacture of exempted goods. It is admitted that the Services such as Advertisement Service & Sales Promotion Services, were utilized in Corporate Office, Kaushambi, Ghaziabad - credit allowed - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Distribution of Cenvat Credit by Input Service Distributors (ISD).
2. Applicability of Rule 7 of the Cenvat Credit Rules, 2004.
3. Recovery of inadmissible Cenvat Credit.
4. Use of Clause (d) of Rule 7 for confirmation of demand.
5. Limitation period for issuing Show Cause Notices.

Detailed Analysis:

1. Distribution of Cenvat Credit by Input Service Distributors (ISD):
The appellants, M/s Dabur India Limited, were registered as Input Service Distributors (ISD) and were availing Cenvat Credit of Service Tax paid on various Input Services, including Advertisement and Sales Promotion Services. The Revenue alleged that the credit of Service Tax attributable to services used in units exclusively engaged in the manufacture of exempted goods was distributed to units manufacturing dutiable goods, which was not permissible under Clause (b) of Rule 7 of the Cenvat Credit Rules, 2004.

2. Applicability of Rule 7 of the Cenvat Credit Rules, 2004:
The appellants contended that under Clause (b) of Rule 7, only the credit attributable to services used in a unit exclusively engaged in the manufacture of exempted goods cannot be distributed. The Show Cause Notice did not establish that the Service Tax, which was proposed to be recovered, was attributable to services exclusively used in those units. The Revenue's methodology for apportioning admissible and inadmissible credit based on turnover was not supported by any provision of law.

3. Recovery of Inadmissible Cenvat Credit:
The Show Cause Notice alleged that M/s Dabur India Limited availed and distributed Cenvat credit amounting to ?40,14,65,356/- on input services of advertisement and sales promotion during April 2006 to March 2010. Out of this, ?28,49,22,977/- was attributable to exempted products and traded goods and was distributed to duty-paying manufacturing units. The appellant contested this, arguing that the services were commonly used across the organization and the apportionment was arbitrary.

4. Use of Clause (d) of Rule 7 for Confirmation of Demand:
The Original Authority relied on Clause (d) of Rule 7 of the Cenvat Credit Rules, 2004, which was introduced on 01/07/2012, to confirm the demand. The appellants argued that this provision did not exist during the material period of the Show Cause Notice. The Tribunal found that the Original Authority incorrectly applied Clause (d) retroactively and set aside the impugned orders.

5. Limitation Period for Issuing Show Cause Notices:
The appellants also argued that the Show Cause Notices were time-barred and that the second Show Cause Notice was a repetition of the first. The Tribunal did not address the limitation issue directly but kept it open for future consideration.

Conclusion:
The Tribunal set aside both impugned Order-in-Originals, agreeing with the appellants that the Show Cause Notices did not establish that the Cenvat credit was used exclusively in units manufacturing exempted goods. The reliance on Clause (d) of Rule 7 for confirming the demand was found to be incorrect as it was not applicable during the material period. The appeals were allowed, and the appellants were entitled to consequential relief as per law.

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