2017 (9) TMI 272 - AT - Central Excise

CENVAT credit - duty paying invoices - ISD invoices - Held that - Rule 7 (a) & (b) reveals that there is nothing in the rules against the distribution of such credit to the appellant s unit upto 31.03.2012 - demand upto 31.03.2012 does not sustain. The CBEC circular dated 11.07.2004 was issued after introduction of sub rule 7(d) wherein it has been clarified that the distribution for the purpose of rule 7(d) will be done in this ratio in all cases irrespective of whether such common input services were used in all or some of the units. In the light of sub rule 7(d) we are of the view that services consumed wholly in the Vizag unit can also be distributed to the appellant unit subject to observance of restriction imposed in rule 7(d) - demand is to be sustained only pertaining to the period 01.04.2012 to 30.06.2012. The demand is to be sustained only pertaining to the period 01.04.2012 to 30.06.2012 - The demand prior to 01.04.2012 is set aside and for the period after 01.07.2012 it is required to be verified whether the restriction in rule 7(c) and (d) have been satisfied - appeal allowed by way of remand.

Summary

Issues:
Distribution of Cenvat Credit by Input Service Distributor; Interpretation of Rule 7 of Cenvat Credit Rules; Applicability of Rule 7(c) and 7(d) for different periods; Legal validity of CBEC Circular; Imposition of penalty.

Analysis:

Issue 1: Distribution of Cenvat Credit by Input Service Distributor
The appellant, engaged in manufacturing Switchgear equipments, distributed Cenvat Credit based on ISD invoices issued by its Corporate Office. The Department sought to deny the credit for services used wholly in the Vizag unit. The dispute centered on the distribution of credit by the input service distributor.

Issue 2: Interpretation of Rule 7 of Cenvat Credit Rules
The Tribunal analyzed Rule 7 of the Cenvat Credit Rules for different periods. For the period up to 31.03.2012, the Tribunal noted that there were no restrictions against distributing credit to the appellant's unit for services used in the Vizag factory. The Tribunal referred to the Hon'ble Karnataka High Court decision and CBEC Circular to support this interpretation.

Issue 3: Applicability of Rule 7(c) and 7(d) for different periods
The Tribunal highlighted the introduction of Rule 7(c) from 01.04.2012, mandating that credit for services used wholly in a unit should be distributed only to that unit. For the period from 01.07.2012, Rule 7(d) was introduced, allowing pro rata distribution of credit based on turnover. The Tribunal held that services consumed wholly in the Vizag unit could be distributed to the appellant unit under Rule 7(d).

Issue 4: Legal validity of CBEC Circular
The Tribunal considered the legal validity of the CBEC Circular issued after the introduction of Rule 7(d). The Circular clarified the distribution of credit under Rule 7(d) irrespective of whether common input services were used in all or some units. The Tribunal aligned its interpretation with the Circular's guidelines.

Issue 5: Imposition of penalty
The Tribunal found no justification for imposing a penalty and set it aside. The judgment concluded that the demand was sustained only for the period from 01.04.2012 to 30.06.2012. The case was remanded to the adjudicating authority for verification and re-quantification regarding the satisfaction of restrictions in Rule 7(c) and 7(d for the period after 01.07.2012.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's interpretation of the relevant legal provisions and precedents.