2023 (3) TMI 634 - AT - Central Excise

Denial of CENVAT Credit - Input Service distribution - input services has been distributed only to Parryware situated at Ranipet, though there were other three manufacturing units at Perundurai in Tamilnadu, Alwar in Rajasthan and Dewas in Madhya Pradesh - non-maintenance of separate records - common input services proportionate to trading activity - HELD THAT - One of the contentions raised by the Department is that the input service credit availed under the category of business auxiliary services which is accounted in nature of reimbursement of freight charges, manager salary, etc., is not eligible for credit. The category of service is not disputed. During the relevant period the definition of input services had a wide ambit as it included the words activity relating to business . For this reason the view taken by the Commissioner (Appeals) that the credit on the impugned services is eligible is legal and proper. Credit has been distributed only to single unit by the Head Office - HELD THAT - Even if the services are availed at the Head Office the same is available for credit since it is not necessary that the input services should be consumed in the factory itself. Another ground raised by the Department is that the credit has been distributed to one unit only. Prior to the amendment in 2012, Rule 7 did not provide any manner of distribution of input service credit. An assessee had an option to decide the distribution of the credit. Reversal of Credit relating to Trading Activity - HELD THAT - The Commissioner (Appeals) has directed to reverse the credit which is attributable to trading activity. Though Rule 6 (3A) was introduced with effect from 01.04.2008, the Commissioner (Appeals) has correctly noted that the respondent is not eligible for the credit availed on common input services used for trading activity. Prior to 01.04.2008 the law did not provide a method for calculation of reversing the credit attributable to trading activity - when the formula has been put in effect as per the Rule 6(3A) from 01.04.2008, adoption of the said formula to resolve situation where the credit has been availed on trading activity does not require interference. The Commissioner (Appeals) has given direction to the respondents to furnish before the Department work sheets of the proportionate credit relating to trading activity within a period of one month from the date of order. It is also directed to furnish Chartered Accountant Certificate to support the veracity of the figures. Department appeal is dismissed.

Summary

Issues involved:
The issues involved in the judgment are:
1. Denial of CENVAT Credit for specific reasons.
2. Eligibility of CENVAT Credit in relation to trading activity.
3. Distribution of input service credit to a single unit by the Head Office.

Issue 1: Denial of CENVAT Credit
The respondent, engaged in manufacturing ceramic articles, availed CENVAT Credit of service tax paid by their Head Office and distributed it as an input service distributor. The Department issued Show Cause Notices proposing to deny credit for specific reasons, including distribution only to one unit, nature of impugned services, and trading activity. The original authority allowed part of the credit but confirmed a demand for a specific period. The Commissioner (Appeals) allowed credit on all services irrespective of consumption place but directed reversal of credit proportionate to trading activity. The Department appealed against this order, arguing that trading cannot be considered a service or manufacturing activity. The Department contended that applying Rule 6(3A) to reverse credit for trading activity was erroneous due to the disputed period.

Issue 2: Eligibility of CENVAT Credit in relation to trading activity
The Department argued that the appellant is not eligible to avail credit in relation to trading activity. The Commissioner (Appeals) directed the appellant to reverse credit attributable to trading activity and submit necessary documents within a specified timeframe. The Department contended that prior to the amendment in 2012, there was no specific requirement for credit distribution, and relied on relevant case law to support this argument. The appellant complied with the order and reversed the credit related to trading activity, thus not availing any such credit.

Issue 3: Distribution of input service credit to a single unit
The Department raised concerns about the distribution of input service credit only to one manufacturing unit by the Head Office, stating it was not in accordance with the law. The appellant argued that services need not be consumed within the factory itself, and prior to the 2012 amendment, there was flexibility in credit distribution. The Tribunal cited case law to support the view that there were no restrictions on credit distribution before the amendment. The Commissioner's direction to reverse credit for trading activity was deemed appropriate, considering the lack of a specific method for such reversal before the introduction of Rule 6(3A) in 2008. The Tribunal upheld the Commissioner's decision, finding the appeal devoid of merits and dismissing the Department's appeal.

*(Pronounced in the open court on 13.03.2023)*