2014 (8) TMI 625 - AT - Service Tax

Availment of CENVAT Credit - maintenance of SAP system - distribution of input services - Held that - There is no provision in the law to require the appellant unit to take only proportionate credit. Once the credit is admissible, any of the units can take the credit. Head office should have taken the registration and credit should have been distributed and also submits that he would make detailed submissions at the time of final hearing regarding admissibility - SAP system is definitely relatable to manufacture since SAP system is implemented right from raw material receipt to the clearance of finished products, the accountal is done on the computer system and therefore it may not be correct to say that it has no nexus with manufacturer. As regards proportionate credit I find that issue is covered by the decision of the Tribunal cited by the ld. counsel. Under these circumstances, appellant has made out a prima facie case for waiver of pre-deposit and therefore requirement of pre-deposit of the dues is waived and stay petition is allowed during the pendency of appeal - Stay granted.

Summary

Issues:
1. Admissibility of Cenvat credit on Service Tax paid for maintenance of SAP system.
2. Distribution of credit between multiple units of the same manufacturer.
3. Requirement of proportionate credit distribution.
4. Nexus of SAP system with manufacturing activities.
5. Waiver of pre-deposit and stay petition during appeal.

Analysis:
1. The appellant claimed Cenvat credit on Service Tax paid for maintaining the SAP system across its three units, based on an invoice issued in the name of the head office. However, the entire amount of Service Tax was credited to one unit without proportional distribution among all units, and the head office did not register as an input service distributor. The impugned order held that credit based on the head office's invoice was inadmissible due to lack of nexus with manufacturing activities.

2. Proceedings were initiated questioning the admissibility of the credit and the distribution among units. The appellant argued that the SAP system was integral to manufacturing operations in all units, citing a Tribunal decision supporting the view that any unit could claim the credit if it is admissible. The respondent contended that the head office should have registered and distributed the credit appropriately.

3. The Tribunal found merit in the appellant's argument, acknowledging the SAP system's direct link to manufacturing processes from raw material receipt to product clearance. It was deemed incorrect to deny the nexus with manufacturing. Regarding proportionate credit distribution, the Tribunal upheld the precedent cited by the appellant's counsel, allowing any unit to claim the credit if admissible, without the requirement of proportional distribution.

4. Consequently, the Tribunal granted a waiver of pre-deposit, recognizing a prima facie case for the appellant due to the established link between the SAP system and manufacturing activities. The stay petition was allowed during the appeal process, indicating a favorable stance towards the appellant's position on the admissibility and distribution of the Cenvat credit related to the maintenance of the SAP system.

This detailed analysis of the judgment highlights the issues surrounding the admissibility and distribution of Cenvat credit in the context of the SAP system maintenance, emphasizing the importance of nexus with manufacturing activities and the application of relevant legal precedents in reaching a decision.