2024 (8) TMI 150 - AT - Central Excise

Distribution of credit of service tax paid to other two manufacturing units located at Pune and Gurgaon - Rule 7 of the CENVAT Credit Rules, 2004 - period April 2009 to March 2012 - HELD THAT - There are no impediment in the appellant availing of the entire service tax credit paid on import of services for their unit at Gummidipoondi only and not distributing the credit of service tax paid on such services to their other two manufacturing units located at Pune and Gurgaon during the impugned period. The appellant was eligible for availing the credit and the demand for duty, interest and imposition of penalty in the impugned order cannot be sustained. The impugned order hence merits to be set aside and is so ordered - appeal allowed.

Summary

Issues:
- Interpretation of Rule 7 of the CENVAT Credit Rules, 2004 regarding distribution of service tax credit among manufacturing units.

Detailed Analysis:

Issue 1: Interpretation of Rule 7 of the CENVAT Credit Rules, 2004
- The appellant, a manufacturer of goods availing CENVAT credit, challenged an Order in Original passed by the Commissioner of Central Excise, Chennai. The dispute arose from the appellant's availing of service tax credit paid on royalty, technical know-how charges, and consulting engineering fees for their unit at Gummidipoondi without distributing the credit to their other manufacturing units in Pune and Gurgaon.
- The appellant argued that Rule 7(d) was not in effect during the disputed period, citing a Division Bench ruling of the Bombay High Court in a similar case. The appellant contended that the Rule provided an option to distribute the credit among units, and it only became mandatory from April 2016.
- The respondent, however, supported the findings of the impugned order, asserting that the excess credit should have been distributed pro rata among all units as per Rule 7.
- The Tribunal examined the relevant provisions of Rule 7 both pre and post the 2012 amendment. It noted that the Rule allowed the assessee the discretion to distribute input services tax among its manufacturing units providing output services. The Tribunal highlighted that the mandatory distribution requirement only came into effect from April 2016.
- Relying on the judgment of the Bombay High Court, the Tribunal concluded that the appellant was entitled to avail the entire service tax credit for their Gummidipoondi unit without distributing it to the other units in Pune and Gurgaon during the disputed period.
- Consequently, the Tribunal held that the appellant was eligible for the credit, and the demand for duty, interest, and penalty in the impugned order was unsustainable. The order was set aside, and the appellant was granted any consequential relief as per the law.

This detailed analysis provides a comprehensive overview of the legal judgment, focusing on the interpretation of Rule 7 of the CENVAT Credit Rules, 2004 in the context of distributing service tax credit among manufacturing units.