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2019 (2) TMI 25 - AT - Service TaxTransfer of CENVAT Credit in an unauthorized manner - Input Service Distributor - Rule 3(4) of the CENVAT Credit Rules 2004 - Credit availed on the strength of improper documents - imposition of penalties. Held that - The manner in which the Credit can be distributed among different units is prescribed under Rule 7 of CCR, 2004. During the relevant period, Rule 7 ibid stated that the Input Service Distributor may distribute the Credit to its manufacturing units or units providing output service subject to two conditions stated therein. The two conditions are (i) The Credit distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon; and (ii) Credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing exempted services shall not be distributed - The Department has no case that these conditions have not been satisfied. The whole case is based on the allegation that the Credit which was distributed by M/s. Pricol Ltd., ISD, was re-transferred to it and later distributed to the other units. Rule 7 ibid was later amended vide Notification No. 18/2012 CE (NT) dated 17.03.3012 wherein a restriction for proportionate distribution was introduced - True, there may not be any specific provision to facilitate such return of non-required credit which has been transferred in the first place by the Input Service Distributor, but it has to be kept in mind that there would be situations when an Input Service Distributor may transfer Credit amounts inadvertently or in excess of what was intended, to a constituent unit. In such situations, the only recourse would be by way of return/reversal of such Credit back to the Input Service Distributor, which in turn can be facilitated only by the recipient unit reversing the unintended Credit and issuing a document confirming the facts of the same - There is no prohibition in law for such reversal of Credit to the Input Service Distributor. Thus, it is evident that M/s. Pricol Ltd., Plant-I has only returned/reversed the exact quantum of Credit that was transferred to it in the first place by the M/s. Pricol Ltd., ISD. Such return/reversal has not enlarged the quantum of Credit that has been availed nor has there been any financial injury caused to the exchequer. This is then only a revenue neutral situation - the demand or penalties cannot sustain - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Unauthorized transfer of CENVAT Credit by M/s. Pricol Ltd., Plant-I. 2. Wrongful availment and distribution of CENVAT Credit by M/s. Pricol Ltd., ISD. 3. Imposition of penalties on M/s. Pricol Ltd., Plant-I and M/s. Pricol Ltd., ISD. 4. Validity of the Show Cause Notice invoking the extended period of limitation. Detailed Analysis: 1. Unauthorized Transfer of CENVAT Credit by M/s. Pricol Ltd., Plant-I: The case revolves around M/s. Pricol Ltd., Plant-I transferring CENVAT Credit of ?3,32,14,672/- to M/s. Pricol Ltd., ISD, which was alleged to be unauthorized under Rule 3(4) of the CENVAT Credit Rules (CCR), 2004. The department viewed this transfer as improper since M/s. Pricol Ltd., Plant-I, being a manufacturer, was not authorized to distribute credit, a role designated to the Input Service Distributor (ISD). The tribunal found that M/s. Pricol Ltd., Plant-I had reversed the credit initially transferred to them by the ISD, thereby restoring the status quo. This reversal was considered as non-availment of credit, based on precedents like Chandrapur Magnet Wires Pvt. Ltd. Vs. C.C.E. and others. 2. Wrongful Availment and Distribution of CENVAT Credit by M/s. Pricol Ltd., ISD: M/s. Pricol Ltd., ISD availed credit based on an invoice from M/s. Pricol Ltd., Plant-I and distributed it to various units. The department alleged that this was done on improper documents. However, the tribunal noted that during the relevant period, there were no restrictions on the quantum of credit that could be distributed by an ISD. The tribunal emphasized that the reversal of credit by M/s. Pricol Ltd., Plant-I and subsequent re-credit by the ISD was a procedural act to correct an inadvertent transfer, which did not violate any substantial legal provisions. 3. Imposition of Penalties on M/s. Pricol Ltd., Plant-I and M/s. Pricol Ltd., ISD: The Original Authority had imposed penalties on both entities for the alleged wrongful actions. The tribunal, however, found that the entire exercise was revenue-neutral, with no financial injury caused to the exchequer. The reversal and re-credit of the CENVAT Credit were seen as procedural corrections rather than substantive violations, and thus, the penalties were deemed unsustainable. 4. Validity of the Show Cause Notice Invoking the Extended Period of Limitation: The department issued a Show Cause Notice invoking the extended period of limitation, alleging suppression of facts. The tribunal found that all transactions were recorded in the appellants' accounts and returns, negating any basis for suppression. The reliance on the decision in Doshion Ltd. Vs. C.C.E., Ahmedabad, upheld by the Hon’ble High Court of Gujarat, supported the tribunal's view that the extended period was not justifiable. Conclusion: The tribunal concluded that the demand and penalties imposed by the Original Authority could not be sustained. The reversal of credit by M/s. Pricol Ltd., Plant-I and the re-credit by M/s. Pricol Ltd., ISD were procedural actions to correct an inadvertent transfer, resulting in a revenue-neutral situation. The tribunal set aside the impugned order and allowed the appeals with consequential reliefs as per law.
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