2019 (3) TMI 413 - AT - Central Excise

CENVAT Credit - input service distribution - credit availed on common input services, Chartered Accountants Services, Banking & other Financial Services, Management, Consultants Services to the registered office of the appellant having several units without obtaining license for input service distribution - Rule 7 of CCR - Held that - It has been clearly mentioned that the input service distributor May distribute the CENVAT Credit in respect of service tax paid on the input service to its manufacturing units (whether registered or otherwise) providing output services subject to certain conditions which was enumerated in the original draft with two conditions and two explanations while in 2012 with two conditions and three explanations. Therefore, from a plain reading of Rule 7, it is very much clear that the service distributor i.e. the main unit may distribute CENVAT Credit or hold the credit with itself. If it intends to distribute CENVAT Credit, then as per the conditions, it has to register itself and follow the rest of conditions like pro rata distribution on the basis of prediction as well as no distribution to the unit which is wholly providing exempted service. This being the dictate of the rule, it can be said that there is no provision under the CENVAT Credit Rules for mandatory registration for IST. Moreover, there is no restriction in the rule that the Central unit cannot avail the whole credit accruing through its unit for common input services even if it has got a centralized purchase sale and accounting system. Credit rightly availed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Admissibility of CENVAT Credit on common inputs without obtaining license for input service distribution.

Analysis:
The case involved the admissibility of CENVAT Credit on common inputs like Chartered Accountants Services, Banking & other Financial Services, Management, Consultants Services to the registered office of the appellant with multiple units without obtaining a license for input service distribution. An EA 2000 audit revealed that the appellant had availed and utilized input service credit for all five units illegally as it had not obtained IST registration, a mandatory requirement under Rule 2(m) and Rule 7 of the CCR Rules. Consequently, a duty demand of ?24,63,410/- was confirmed against the appellant, along with interest and penalties. The appellant challenged the audit report and subsequent show cause notice, leading to the matter being adjudicated, and the duty demand being upheld by the Commissioner (Appeals), prompting the appeal to the Tribunal.

During the appeal, the appellant argued that even if distribution through IST had been done, there would be no change in the credit availed, rendering the demand unsustainable due to revenue neutrality. The appellant relied on judicial decisions to support this contention. In response, the department's representative contended that the revenue-neutral situation was not raised before the lower authorities and could not be introduced at the Tribunal stage. The department supported the Commissioner (Appeals) order.

After hearing both sides and examining the relevant provisions of the CENVAT Credit Rules, the Tribunal analyzed the rules concerning the distribution of credit by input service distributors. It was noted that the rules did not mandate registration for IST distribution, giving the central unit the discretion to distribute or retain the credit. The Tribunal concluded that there was no irregularity in the appellant's availing of CENVAT Credit for common input services. As the credit was deemed admissible, the discussion on the legality of the period invocation lost significance, leading to the setting aside of the Commissioner (Appeals) order.

In the final judgment, the Tribunal allowed the appeal, setting aside the Commissioner (Appeals) order dated 28/02/2018. The decision was pronounced in court on 22/02/2019.