2018 (3) TMI 168 - AT - Central Excise

CENVAT credit - reversal of service credit taken on management consultancy service pertaining to the unit in the location of area based exemption - Rule 7(b) of the CCR 2004 - Held that - in the appellant own case Fosroc Chemicals India Pvt. Ltd. Versus Commissioner of Central Excise, Customs And Service Tax Bangalore-LTU 2016 (1) TMI 21 - CESTAT BANGALORE , this Tribunal has considered all the submissions of the assessee which have been raised in the present appeals also by the assessee as well as by the Department and held that In terms of Rule 7(b), the service tax attributable to service used in a unit exclusively engaged in the manufacture of exempted goods is not available. The expression exclusively appearing in the said Rule relates to the unit and not to the service tax. Appeal disposed off.

Issues Involved:
1. Demand of reversal of service credit taken on management consultancy service.
2. Applicability of Rule 7(b) of the CENVAT Credit Rules, 2004.
3. Invocation of larger period of limitation.
4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act.

Detailed Analysis:

1. Demand of Reversal of Service Credit:
The primary issue in the appeal was the demand for reversal of service credit taken on management consultancy services. The appellant had distributed the service tax credit to various manufacturing units, including a unit in Rudrapur, which was availing area-based exemption under Notification No. 50/2003. The Department argued that the appellant should have reversed the portion of the CENVAT credit attributable to the exempted unit in Rudrapur, as per Rule 7(b) of the CENVAT Credit Rules, 2004.

2. Applicability of Rule 7(b) of the CENVAT Credit Rules, 2004:
The appellant contended that Rule 7(b) would only apply if the services were exclusively utilized in a unit engaged in the manufacture of exempted goods. They argued that the management consultancy services received by the Head Office were common services utilized across all units, including those paying excise duty. The appellant relied on the decision of the Hon'ble High Court of Karnataka in the case of CCE Vs. ECOF Industries Pvt Ltd., which held that an Input Service Distributor (ISD) could distribute the credit of service tax to any unit of their choice.

On the other hand, the Tribunal found that Rule 7(b) explicitly states that credit of service tax attributable to services used in a unit exclusively engaged in the manufacture of exempted goods shall not be distributed. The Tribunal clarified that the term "exclusively" relates to the unit and not the service tax. Since the Rudrapur unit was exclusively engaged in manufacturing exempted goods, the credit attributable to services used in that unit was not available to the appellant's ISD. The Tribunal upheld the order of the lower authorities disallowing the proportionate credit.

3. Invocation of Larger Period of Limitation:
The appellant argued that they had not committed any fraud, collusion, misrepresentation, or willful misstatement with an intent to evade service tax. They claimed to be under a bona fide belief that they could distribute the service tax credit to units paying excise duty. They cited several judicial decisions to support their claim that the invocation of a larger period of limitation was not tenable in cases of bona fide interpretation of law.

However, the Tribunal did not specifically address the issue of the larger period of limitation in its judgment, focusing instead on the applicability of Rule 7(b) and the distribution of credit.

4. Imposition of Penalties:
The appellant contended that penalties under Sections 76, 77, and 78 of the Finance Act were not imposable as the conditions for imposing such penalties were not present. They argued that the issue was one of legal interpretation, and there was no mala fide intention on their part.

The Tribunal examined the provisions of Rule 15 of the CENVAT Credit Rules, 2004, both before and after the amendment on 27-2-2010. It found that for the period before the amendment, the penalty under Rule 15(3) was limited to ?2,000 for wrong availment of CENVAT credit. For the period after the amendment, penalties could be imposed only if the wrong availment was due to fraud, collusion, or willful misstatement. The Tribunal concluded that the appellant had availed the credit based on documents and reflected it in statutory records, indicating no mala fide intention. Consequently, the Tribunal reduced the penalty to ?2,000 for the period before the amendment and set aside the penalty for the period after the amendment.

Conclusion:
The Tribunal dismissed the Department's appeals regarding the non-imposition of penalties and upheld the demand for reversal of service credit attributable to the exempted unit in Rudrapur. The appellant's appeal was disposed of on the same terms as the earlier appeals decided by the Tribunal on 29/10/2015, with penalties being reduced or set aside based on the period of availment and the presence of bona fide belief.

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