2024 (10) TMI 1334 - AT - Central Excise

Denial of Cenvat Credit distributed during April to June 2012 by the Appellant s Head Office (Input Service Distributor) at Kolkata to the Appellant unit at Palej (Bharuch) - denial on the ground that the ISD did not distribute the Credit amongst all units proportionate to the respective turnovers of the units, resulting in distribution of excess Credit to the Palej unit - revenue neutrality - intent to evade or not - extended period of limitation - HELD THAT - It is found that as regard distribution of credit in respect of common input service , the provisions is made under Rule 7 of Cenvat Credit Rules, 2004 which has undergone the change with effect from 01.04.2016. It is found that the proportionate distribution of the input service credit was made mandatory by amendment with effect from 01.04.2016. However, prior to the said amendment there was no compulsion on the assessee to distribute the credit either to one unit or proportionately to different units. Therefore, even if the entire credit is distributed to the appellant instead of distribution proportionately to all the units, credit to the appellant unit cannot be denied. It is also found that the other units to whom the proportionate credit should have been distributed have paid much more duty from PLA /cashthan the said attributed credit therefore, this being clearly a revenue neutral situation, the demand is not tenable. In the case of Unifrax India Ltd v CCE 2023 (10) TMI 955 - CESTAT AHMEDABAD , the CESTAT Ahmedabad has held that 'in view of existing provisions of CENVAT Credit Rules, 2004 during relevant period, the 100% credit availed by the appellant is in order in terms of Rule 2007, existing at the relevant time.'. In view of the judgments on the point of distribution of input service credit as well as on revenue neutrality it is settled that even if the cenvat credit is distributed to one unit only during the relevant period, the credit cannot be denied. The impugned order is set aside - Appeal is allowed.

Issues Involved:

a. Whether Cenvat Credit distributed during April to June 2012 by the Appellant's Head Office (Input Service Distributor) at Kolkata to the Appellant unit at Palej (Bharuch) can be denied on the ground that the ISD did not distribute the Credit amongst all units proportionate to the respective turnovers of the units, resulting in distribution of excess Credit to the Palej unit.

b. Whether the entire issue is revenue neutral, considering that the other units were paying Central Excise duty through PLA, which was much higher than the alleged excess credit distributed to the Appellant unit at Palej.

c. Whether the demand was barred by time and larger period of limitation was not applicable since the issue was revenue neutral and hence there can be no intention to evade duty.

Detailed Analysis:

Issue a: Proportionate Distribution of Cenvat Credit

The primary issue was whether the Cenvat Credit distributed by the Appellant's Head Office to the Palej unit could be denied on the grounds of non-proportionate distribution among all units based on their respective turnovers. The Tribunal noted that the requirement for proportionate distribution of credit was introduced with effect from 01.04.2016. Prior to this amendment, there was no statutory obligation for the assessee to distribute credit proportionately among different units. Therefore, the distribution of the entire credit to the Palej unit, instead of proportionately to all units, was permissible under the rules applicable during the period in question (April to June 2012). The Tribunal concluded that credit could not be denied on this basis, as the rules mandating proportionate distribution were not in force at the relevant time.

Issue b: Revenue Neutrality

The Tribunal addressed the argument of revenue neutrality, wherein it was contended that even if the credit was distributed entirely to the Palej unit, there was no revenue loss to the government. This was because the other units, which could have received proportionate credit, were paying significantly higher duties through the Personal Ledger Account (PLA) than the amount of credit involved. The Tribunal found this argument persuasive, noting that the situation was indeed revenue neutral. Consequently, the demand for reversal of credit was deemed untenable as there was no actual loss to the revenue.

Issue c: Time Bar and Limitation

Regarding the issue of time bar and the applicability of the extended period of limitation, the Tribunal did not delve into this matter in detail, as the appeal was decided on merits. However, it was noted that since the situation was revenue neutral, there could be no intention to evade duty, which is a prerequisite for invoking the extended period of limitation. The Tribunal left the issue of time bar open, as the appeal was resolved on the substantive grounds of credit distribution and revenue neutrality.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal. It was determined that the credit distribution to the Palej unit was in compliance with the rules applicable during the relevant period, and the situation was revenue neutral, negating any revenue loss to the government. The Tribunal's decision was supported by various judgments, including those from higher courts, which reinforced the view that procedural irregularities, such as non-registration of ISD or non-proportionate distribution of credit, should not result in denial of substantial benefits when the records are maintained and verifiable. The appeal was allowed, and the order was pronounced in open court on 23.10.2024.

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