2018 (12) TMI 1300 - HC - Central Excise

Input tax distribution - intellectual property rights and I.T. software services were to he used by all the units of the respondent and not restricted only to the Pune unit - It is the case of the Revenue that the respondent-assessee should have distributed the tax credit to the various units situated across the country and should not have availed CENVAT credit only at Pune - Held that - Both provisions give an option to the assessee concerned whether to distribute input services tax available to it amongst its other manufacturing units which are providing output services. This is evident from the use of word may distribute the CENVAT credit is found in Rule 7 both prior and also post 2012. Thus, from the reading of the Rules, the option was available to the assessee whether to distribute the CENVAT credit or not - on plain reading of Rule 7 as existing both pre and post amendment 2012 covering period involved in these proceedings, the respondent - assessee was entitled to utilize the CENVAT credit available at its Pune unit. The Tribunal, on facts found that the entire exercise would be revenue neutral. This is so as the distribution of Cenvat Credit to the various units would result lesser service tax being paid by cash on their activity of coating as they would have utilized the cenvat credit available for distribution - the question of law as proposed does not give rise to any substantial question of law as the entire exercise would be revenue neutral - appeal dismissed.

Summary

Issues:
- Challenge to order under Section 35G of the Central Excise Act, 1944
- Interpretation of Rule 7 of the CENVAT Credit Rules, 2004
- Distribution of CENVAT credit among units
- Revenue neutrality in utilization of credit

Analysis:
1. The appeal challenged an order by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) under Section 35G of the Central Excise Act, 1944. The main question of law raised was whether CESTAT was correct in setting aside the order-in-original and extending the benefit of revenue neutrality without considering the impact of fraud or contravention of the provisions of the Finance Act on the availability of revenue neutrality.

2. The case involved an assessee with units in multiple locations engaged in various services, including IT services, intellectual property rights services, and coating services. The dispute centered around the distribution of CENVAT credit among the units, particularly regarding the utilization of credit at the Pune unit to pay service tax on coating services.

3. The Revenue contended that the CENVAT credit should have been distributed among all units, not solely utilized at the Pune unit. The demand was based on the argument that intellectual property rights and IT software services were not restricted to the Pune unit, necessitating distribution as per Rule 7 of the CENVAT Credit Rules, 2004.

4. The Tribunal's decision emphasized revenue neutrality, stating that even if the credit had been distributed to other units, the outcome would have been the same. The Tribunal highlighted that service tax had been paid on the rendered services, and the dispute revolved around credit utilization rather than tax payment.

5. The interpretation of Rule 7 of the CENVAT Credit Rules was crucial in this case. The pre and post-2012 versions of Rule 7 allowed the assessee the discretion to distribute the CENVAT credit among units. The Tribunal found that the exercise would be revenue neutral regardless of the distribution, making the question of law proposed by the Revenue irrelevant.

6. Ultimately, the Court dismissed the appeal, noting that the entire exercise would be revenue neutral, rendering the question of law moot. The decision underscored the importance of understanding the provisions of the CENVAT Credit Rules and ensuring compliance with distribution requirements for CENVAT credit among units providing output services.