2016 (1) TMI 21 - AT - Central Excise

Distribution of Cenvat Credit of input services received at Head office - Input Service Distributor (ISD) - credit exclusive related to one unit (which exempted) and distributed to other unit - Held that - In terms of Rule 7(b), the service tax attributable to service used in a unit exclusively engaged in the manufacture of exempted goods is not available. The expression exclusively appearing in the said Rule relates to the unit and not to the service tax. The unit has to be exclusively engaged in the manufacture of exempted goods meaning thereby that if service tax stands utilized in a unit which is manufacturing exempted as also dutiable goods, the said Rule will have no application. The expression exclusively is not associated with the word service tax as suggested by the learned advocate. The credit of service tax in respect of services used in the said Rudrapur unit is not available to the appellant s ISD. The order of the lower authorities to that extent, disallowing proportionate credit is upheld. Levy of penalty for wrong utilization of credit - Rule 15(3) of the CENVAT Credit Rules - Held that - The period involved in the present appeals is April 2006 to April 2010. - The said Rule provided maximum penalty of ₹ 2000/- While confirming the demand of credit, penalty reduced - Decided partly in favor of assessee.

Summary

Issues:
1. Distribution of CENVAT credit by an Input Service Distributor (ISD) to units engaged in different activities.
2. Denial of CENVAT credit for services used exclusively in an exempted unit.
3. Imposition of penalties under Rule 15 of CENVAT Credit Rules for wrong availment of credit.

Analysis:
1. The appellant, an ISD engaged in manufacturing construction chemicals in three units, distributed CENVAT credit of service tax to units at different locations. The issue arose when services used at the exempted Rudrapur unit were considered cenvatable and distributed to other units paying duty. Lower authorities initiated proceedings under Rule-7 of CENVAT Credit Rules, resulting in demands for credit denial and penalties. The appellant contended that credit on common services partially used in the exempted unit should be allowed. However, the Tribunal upheld the lower authorities' decision, stating that credit for services used exclusively in an exempted unit cannot be availed by the ISD, as per Rule 7(b).

2. Regarding penalties under Rule 15, the appellant argued that the unamended Rule 15(3) applied to one appeal, imposing a penalty of Rs. 2,000 for wrong credit availment without malafide intent. The Tribunal reduced the penalty to Rs. 2,000 for the relevant case. In the second appeal, the amended Rule 15(3) applied, requiring penalties for malafide intent. As the appellant had reflected the credit in statutory records and the issue involved legal interpretation, the Tribunal set aside the penalty in this case. The judgments were delivered on 29.10.2015 by the Appellate Tribunal CESTAT Bangalore, with detailed analysis and legal interpretations provided for each issue involved in the case.