2023 (2) TMI 660 - AT - Central Excise

Disallowance of Cenvat credit as was distributed by the appellant s Input Service Credit Distributor (ISD) - input services or not - extended period of limitation - HELD THAT - There is no denial to the fact that M/s. IAIL, Bhiwadi was engaged in manufacture of aluminium doors and windows and their APP Division, Delhi was engaged in fixing, installation etc. of manufactured aluminium doors and windows at the premises of their customers. There is also no denial to the fact that for these purposes the appellants were admittedly procuring composite order from their customers i.e. the cost of goods and post delivery services in respect of the manufactured goods. Admittedly, both the premises were registered with Central Excise for their individual activities i.e. for manufacturing activity by Bhiwadi unit and for Commercial Industrial Construction Services activity by APP Division - there is no categorical denial to the fact that APP Divison was ISD which used to issue invoices for distribution of Cenvat credit by adopting the turnover ratio instead of actual basis of availment of service. The adjudicating authority below has not observed the judicial protocol while denying credit on the ground that the services are not eligible Input Services. Once the services in question have already been settled to be the eligible input services, the Cenvat credit thereof cannot be denied to the assessee. There remains no necessity to invoke Rule 9(6) of Cenvat Credit Rules, 2004. Hence, the adjudicating authority has wrongly held the impugned services to be ineligible input services while disallowing the Cenvat credit of the service tax paid on the said services. Distribution of proportionate Cenvat credit - HELD THAT - There appears no restriction in Rule 7 of Cenvat Credit Rules, 2004 for distributing even the whole credit by ISD to any one of the units. However, in the present case the entire credit has been distributed based on the turnover ratio formula. It is observed that post order of remand by this Tribunal, the appellant provided additional documents in the form of balance sheets and invoices. The balance sheets contain the details of total turnover of the company, turnover from service providing unit and hence, the ratio of turnovers intimated were quite verifiable but the order under challenge is absolutely silent about verifying those details from the documents provided. The adjudicating authority despite admitting that the service providing unit only fixes the anodized aluminium doors and windows with extruded build up aluminium section which are being manufactured by the appellant s Bhiwadi unit, has still failed to appreciate that the services in question could not be exclusively used by the service providing unit only. No specific document has been discussed by the adjudicating authority which shows that the appellant has taken credit of any service received in service providing unit or of any service exclusively used in service providing unit. Disallowing the Cenvat credit is therefore held to be without any logical and legal basis. Extended period of limitation - HELD THAT - The extended period is invocable only when suppression, fraud, etc. with an intent to evade payment of duty is established. The initial burden to prove that both these ingredients exist lies upon the department. Except the act of reversal of excess credit subsequent to audit of the appellant, there is no other evidence produced by the department to prove a positive act on the part of the appellant to have an intention to evade the duty. Nothing has been brought on record to falsify the plea of bona fide belief with the appellant about their entitlement to take the entire credit whatever being transferred by their ISD - all requisite documents despite having been filed, there cannot be an intent to evade payment of duty and thus the extended period is therefore held not in-vocable. The penal provisions also do not sustain. The adjudicating authority below has failed to appreciate the catena of decisions not only of this Tribunal but also of their own department with respect to the impugned services and even with the decisions passed by departmental authorities in favour of the present appellant themselves permitting them to avail Cenvat credit distributed by their ISD. The order under challenge is therefore hereby set aside. Appeal allowed.

Issues Involved:
1. Denial of Cenvat credit distributed by the appellant's Input Service Credit Distributor (ISD).
2. Allegation of wrongful availing of Cenvat credit.
3. Distribution of Cenvat credit in violation of Rule 7 of Cenvat Credit Rules, 2004.
4. Eligibility of various services as input services.
5. Invocation of the extended period of limitation for show cause notices.
6. Imposition of penalties.

Detailed Analysis:

1. Denial of Cenvat Credit Distributed by ISD:
The appeal challenges the Order-in-Original disallowing Cenvat credit distributed by the appellant's ISD. The department observed that the appellant took Cenvat credit based on invoices raised by the ISD, which was engaged in activities like fixing doors and windows manufactured by the appellant. The department alleged that the ISD distributed the entire input service credit to the Bhiwadi unit, leading to the issuance of show cause notices proposing disallowance of Rs. 53,85,845/- and Rs. 23,73,986/- for different periods.

2. Allegation of Wrongful Availing of Cenvat Credit:
The department alleged that the appellant wrongly availed Cenvat credit based on irregular input service distribution invoices. The services in question included Erection, Commissioning & Installation Service, Advertisement Services, Cargo Handling Services, Clearing & Forwarding Services, among others. The appellant argued that these services were eligible input services used in or in relation to the manufacture of their final product or business activities.

3. Distribution of Cenvat Credit in Violation of Rule 7:
The department contended that the ISD distributed the credit in violation of Rule 7 of Cenvat Credit Rules, 2004, which requires distribution based on the turnover ratio of the units. The appellant argued that the credit was distributed based on the turnover ratio and that the services were used in both manufacturing and service-providing units.

4. Eligibility of Various Services as Input Services:
The appellant cited several decisions where similar services were held to be eligible input services. The Tribunal noted that the services in question, such as Commission Agent Service, Advertising Agency Service, Courier Agency Service, and others, have been held as eligible input services in various judicial decisions. Therefore, the adjudicating authority's denial of Cenvat credit on these services was found to be without basis.

5. Invocation of the Extended Period of Limitation:
The show cause notice dated 27.08.2009 invoked the extended period of limitation. The appellant argued that they reversed the excess credit taken prior to the issuance of the show cause notice, indicating no mala fide intent to evade duty. The Tribunal held that the extended period is invocable only when suppression, fraud, etc., with an intent to evade payment of duty is established. The department failed to provide evidence of such intent, and the plea of bona fide belief by the appellant was not falsified.

6. Imposition of Penalties:
The Tribunal found that the penal provisions do not sustain as the extended period of limitation was not invocable. The adjudicating authority failed to consider judicial precedents supporting the appellant's entitlement to Cenvat credit. The order under challenge was set aside, and the appeal was allowed.

Conclusion:
The Tribunal set aside the order disallowing Cenvat credit and allowed the appeal, holding that the services in question were eligible input services and that the distribution of credit by the ISD was in compliance with the relevant rules. The extended period of limitation was not applicable, and the imposition of penalties was unjustified. The Tribunal emphasized the importance of adhering to judicial precedents and the bona fide belief of the appellant.

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