2024 (6) TMI 1115 - HC - Service Tax

CENVAT Credit - linking of services provided by M/s Tata Sons Limited to the separate registered units of Tata Steel Division with the production and business activities of M/s TSL, Jamshedpur as per the condition laid down in Rule 2(1) of Cenvat Credit Rules, 2004 - can Companies Act, 1956 may supersede the provisions of Central Excise Act, 1944/Finance Act, 1994 and the rules made there under in respect of laws and procedure of taxation? HELD THAT - The law mandates that the manufacturer who wants to avail benefit of this service tax, if he has more than one unit, should also get registered itself as a service provider, whereupon it would be able to collect the input service tax paid in all the units and accumulate them at its Head Office and thereafter distribute the said credit to its various units in the manner specified in Rule 7 of the CENVAT Credit Rules, which provide for only two limitations, viz., firstly it cannot exceed the amount of service tax paid and secondly the credit of service tax attributable to services used shall not be distributed in a unit exclusively engaged in the manufacture of exempted goods or providing of exempted service. No provision of the CENVAT Credit Rules, including Rule 7, prohibits input service tax paid at a particular unit being sought to be availed in another unit. Once the manufacturer is registered as an input service distributor in terms of Rule 7, it is entitled to distribute the credit of duty paid on such inputs in the manner prescribed to any of its unit keeping into account the limitations imposed by Rule 7. The extraneous reasonings of the adjudicating authority contained in the said order are irrelevant and have no substance or merit whatsoever, particularly in view of the settled proposition of law in this respect. In the instant case, the company Tata Steel Limited, which is duly incorporated and registered under the Companies Act, 1956 as a public limited company has various divisions/units situated in various parts of the country. The registered and Head Office of the company, including of the said divisions/units, is at Mumbai, the ISD in the instant case. It is settled proposition of law that divisions and units of a company are not separate legal entities/persons. It is also well settled, that once the decision of Tribunal has been accepted by the department in any other case; it cannot reagitate the same issue in another case. Neither Section 11A(1) of the Central Excise Act nor Section 73(1) of the Finance Act, 1994, as amended, provided, during the material period, for issuance of a show cause notice in respect of duty of excise or service tax, credit whereof had been availed wrongly but which was reversed or paid back prior to issuance of the show cause notice. The instant appeal is decided against the Revenue - Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Whether the CESTAT, Kolkata erred by allowing Tata Steel Limited, Jamshedpur to take all the CENVAT Credit alone.
2. Whether the CESTAT, Kolkata erred by holding that the Companies Act, 1956 may supersede the provisions of the Central Excise Act, 1944/Finance Act, 1994 and the rules made thereunder in respect of laws and procedure of taxation.

Detailed Analysis:

Issue 1: Allocation of CENVAT Credit
The primary issue was whether Tata Steel Limited (TSL), Jamshedpur was entitled to take all the CENVAT Credit alone, despite services being provided to separate registered units of Tata Steel Division. The Tribunal held that TSL was entitled to distribute the credit of service tax paid in respect of services under the Brand Equity and Business Promotion Agreement (BEBP) exclusively to its Jamshedpur Steelworks. This decision was based on the relevant legal provisions, which had received approval from the Karnataka High Court, Gujarat High Court, and the Supreme Court of India.

The Tribunal applied the decision of its coordinate Bench in the case of Jubiliant Life Science Limited vs. Commissioner of Customs, Central Excise & Service Tax, which was affirmed by the Supreme Court. The Tribunal concluded that the credit was correctly availed, distributed, and utilized by TSL, and thus, the tax demanded and penalties imposed by the Commissioner were unsustainable.

Issue 2: Supersession by the Companies Act, 1956
The second issue was whether the Tribunal erred by holding that the Companies Act, 1956 may supersede the provisions of the Central Excise Act, 1944/Finance Act, 1994. The Tribunal's decision was based on the settled legal position that divisions and units of a company are not separate legal entities but part of the same legal entity, the company. This interpretation was supported by various judicial precedents, including decisions by the Tribunal and the Supreme Court.

The Tribunal noted that the restriction on distribution of credit to only the unit receiving the particular service was introduced by the Finance Bill, 2012, effective from April 1, 2012. Therefore, there was no such restriction prior to this date, and the credit distributed by the ISD (Head Office of TSL at Mumbai) to the Jamshedpur Steelworks was legal and valid.

Additional Considerations:
- Input Service Distributor (ISD) Provisions: The Tribunal emphasized that the law mandates manufacturers to register as an ISD to distribute the credit of service tax paid on input services to various units. The only limitations are that the credit distributed should not exceed the amount of service tax paid and should not be distributed to units exclusively engaged in manufacturing exempted goods or providing exempted services.

- Reversal of Credit: TSL had reversed the credit amounting to Rs. 83,86,784/- along with interest before the issuance of the show cause notice, which the Tribunal found to be in compliance with the provisions of the CENVAT Credit Rules.

- Judicial Precedents: The Tribunal's decision was consistent with earlier judicial decisions, including those of the Karnataka High Court in Commissioner of C.Ex., Bangalore vs. ECOF Industries Pvt. Ltd., and the Gujarat High Court in Commissioner of Central Excise vs. Dashion Ltd.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's decision that TSL was entitled to distribute the CENVAT Credit exclusively to its Jamshedpur Steelworks and that the provisions of the Companies Act, 1956 did not supersede the Central Excise Act, 1944/Finance Act, 1994 in this context. The questions of law were decided against the Revenue, and the appeal was dismissed.