2023 (6) TMI 554 - AT - Central Excise

CENVAT Credit - common input service utilized in its Die Lube Unit as per the provision of Rule 7 of Cenvat Credit Rules, 2004 - Suppression of facts or not - revenue neutrality - HELD THAT - Similar issue came up for consideration before the Hon ble High Court of Judicature at Bombay in the matter of THE COMMISSIONER, CENTRAL TAX, PUNE-I COMMISSIONERATE VERSUS M/S. OERLIKON BALZERS COATING INDIA P. LTD. 2018 (12) TMI 1300 - BOMBAY HIGH COURT in an appeal filed by the department and in that matter the assessee having units at various places viz. Pune, Gurgaon, Chennai, Jamshedpur etc. took the Cenvat credit in its books during the period October, 2009 to March, 2014 at the Pune Unit only which was objected to by the department and it was the specific case of the department that the assessee should have distributed the tax credit to the various units situated across the country and should not have availed Cenvat Credit at Pune Unit only. In that decision the Hon ble High Court after considering Rule 7 ibid as it was existing both pre and post amendment in 2012 held that the assessee was entitled to utilize the Cenvat credit at its one unit only i.e. Pune unit. The Hon ble High Court also gone into the issue of revenue neutrality in that matter. The opening words of Rule 7 is may distribute and therefore the assessee is not under any obligation to distribute. The word shall which has been used later in the clauses/ subclauses to rule 7 will come into operation only if the assessee chooses to distribute among its units. Meaning thereby if the appellant chooses to distribute then only he has to follow all the conditions laid down in Rule 7 therein including clause (d) which mandates that such distribution be done on pro rate basis. During the period in issue the distribution was optional only was further strengthen from the fact that in the year 2016 Rule 7 was further amended and the word may was substituted with the word shall which makes it mandatory for the assessee to distribute the credits between the units - Otherwise also it is no doubt true that the entire excise would be revenue neutral as the utilization by any unit of the same entity would not make any loss to the exchequer as the credit disallowed from one unit in proportion to second unit will be eligible as credit to such other unit and the net credit availment and utilization form a company s perspective will remain unchanged and also that the appellant is not going to gain anything extra to its entitlement. In such a scenario there is no question of any suppression on the part of the appellant and therefore extended period is also not invokable in the facts of the case and on this count also the demand fails. The impugned order is set aside and the appeal filed by the appellant is allowed.

Summary

Issues Involved:
The appeal challenges the Order passed by the Commissioner of GST & Central Excise (Appeals), Nashik, regarding the entitlement to Cenvat Credit for common input services utilized in the Die Lube Unit as per Rule 7 of Cenvat Credit Rules, 2004.

Comprehensive Details:

Issue 1: Entitlement to Cenvat Credit
The appellant, engaged in manufacturing excisable goods, availed Cenvat credit of common services for its Die Lube Unit, leading to a demand notice for alleged violation of Rule 7 of Cenvat Credit Rules, 2004. The department contended that common input services should be distributed pro rata based on turnover of units. The Adjudication order disallowed the credit, leading to an appeal which was rejected by the Commissioner (Appeals).

Issue 2: Interpretation of Rule 7
The appellant argued that as the Die Lube unit only manufactured excisable goods and not exempted goods, the Cenvat credit availed on input services should not be faulted. They emphasized that being the head office, not an Input Service Distributor (ISD) registrant, they were entitled to avail and utilize the credit without distribution. The issue of revenue neutrality was raised, asserting that the credit availed would be eligible for the Die Lube unit, resulting in no loss to revenue.

Judicial Precedent and Rule Interpretation
A similar issue was considered by the Bombay High Court in a case involving distribution of Cenvat credit among units. The Court highlighted the optional nature of distribution under Rule 7, stating that the word 'may distribute' indicates the assessee's discretion. The Court emphasized that the word 'shall' in subsequent clauses of Rule 7 applies only if the assessee chooses to distribute. The decision underscored that the exercise would be revenue neutral, as distribution would result in lesser service tax paid by units utilizing the credit.

Conclusion
The Tribunal, considering the optional nature of distribution and the absence of revenue loss, set aside the impugned order and allowed the appeal, providing consequential relief as per the law. The decision emphasized the discretionary aspect of distribution under Rule 7 and the concept of revenue neutrality in such cases.

*(Pronounced in open Court on 13. 06. 2023)*