2010 (4) TMI 259 - AT - Service Tax

Cenvat Credit - Input Service Distributor - Refund of Cenvat Credit - Violation of Rule 7 - under Rule 5 of the Cenvat Credit Rules 2004 read with Notification no. 5/2006-CE(NT) - Export - Department rejected the refund claim on the ground that the appellants were not registered for service tax purposes with the Cuddapah Division and that they had not produced any Centralised Service Tax registration; that they had failed to produce any record/register in support of their accumulation of credit. - appellant contended that as far as the Appellant is concerned they do not have any other unit other than this EOU and in this unit also they do not have a sale/clearance to DTA. It is his submission that the reasons for accumulation of cenvat credit was because of the above two factors. - Held that - the provisions of Rule 7 can be brought into play only if the appellant wishes to get registered himself as input service credit distributor. If the appellant is not inclined to do so and if he does not have any more than one manufacturing unit then there is no compulsion for him to work under Rule 7 - Refund allowed

Summary

Issues:
Refund claim rejection based on non-observance of Rule 7 of Cenvat Credit Rules, 2004.

Analysis:
The appeal challenged the rejection of a refund claim amounting to Rs. 77,150, based on unutilized Cenvat Credit of duty paid between 1/4/2006 to 31/3/2007. The Asst. Commissioner sought clarification on various aspects including the eligibility for refund and unjust enrichment. The Range Officer recommended rejection due to lack of service tax registration and supporting documentation. A show cause notice was issued, alleging violation of Cenvat Credit Rules and Service Tax Credit Rules. The Order-in-Original rejected most of the claim except for Rs. 4094. The appellant contended that the rejection was unfounded, citing compliance with earlier claims. The Commissioner (Appeals) upheld the rejection after a personal hearing.

The main contention was the alleged non-observance of Rule 7 of the Cenvat Credit Rules, 2004, concerning the distribution of credit. The appellant argued that they did not have multiple units or sales to Domestic Tariff Area (DTA), leading to credit accumulation. They claimed that procedural violations should not hinder the refund, especially since a similar claim was approved previously. The JDR supported the Commissioner (Appeals)'s findings, particularly referring to para 11 of the impugned order.

The key issue revolved around the appellant's eligibility for the Cenvat Credit refund despite billing the head office without proper service tax registration. The Commissioner (Appeals) acknowledged the correctness of documents but upheld the rejection due to procedural non-compliance regarding billings to the head office. The Commissioner's presumption that credit was availed at various branches based on head office bills was not supported by evidence or the show cause notice. Rule 7 applicability was contingent on the appellant registering as an input service credit distributor, which was unnecessary if the appellant had only one manufacturing unit. The absence of additional units during the relevant period was confirmed by the local authorities, undermining the Commissioner (Appeals)'s presumption.

In conclusion, the appellate tribunal set aside the impugned order, allowing the appeal with any consequential relief. The decision highlighted the unsubstantiated nature of the presumption regarding credit availing at multiple units and emphasized the lack of evidence supporting the rejection based on non-observance of Rule 7.