2019 (3) TMI 1046 - AT - Central Excise

CENVAT Credit - input service distribution - credit denied on the basis of invoices issued by input service distributor (ISD) who have been passing the credit of service tax paid on services which have no relation with the manufacture of soap - Held that - The relevant statutory provisions are Rule 7 of CCR which prescribes the manner of dispute of credit by input service distributor and Rule 7A of CCR which talks about the recovery of cenvat credit wrongly taken or erroneously refunded. From Rule 7 and Rule 7A of CCR, it is clear that the input service distributor shall distribute the cenvat credit in respect of service tax paid on the input services to its manufacturing units provided the credit distributed does not exceed the amount of service tax paid and that the credit of service tax attributable to a particular unit shall be distributed only to that unit. The credit shall be allowed on the basis of invoice/ Bill/ challan issued by an office of premise of said provider of output service. The provisions makes it clear that the credit if distributed by ISD if is found ineligible credit, the same can be reversed by the ISD itself. If the reversal is prior utilisation of credit, no question of interest and penalty at all arises - In the present case, it is an acknowledged fact that out of the total proposed credit of ₹ 56,70,178/- the amount of ₹ 47,11,370/- has already been reversed and that all other demands have been dropped except for the demand of 1st SCN for reversal of credit of ₹ 44,33,290/-. It becomes clear that the amount reversed satisfy the demand even of SCN dated 15.01.2015 alleging the construction services to be ineligible input - thus Department was not justified for confirming the said demand. Demand of interest and penalty - Held that - It is apparent from the record that entire credit was reversed even before the issuance of SCN. In view of Rule 14 of CCR as discussed above and even in view of Section 11AC of Central Excise Act, 1944, the question of demanding interest at the appropriate and the imposition of proportionate penalty does not also arises. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Admissibility of cenvat credit based on invoices issued by Input Service Distributor (ISD) for services unrelated to soap manufacturing.
2. Reversal of cenvat credit and penalties imposed by the Department.
3. Appeal against the Order-in-Appeal No. 176-18-19 dated 31.07.2018.
4. Interpretation of Rule 7 and Rule 7A of Cenvat Credit Rules, 2004 regarding credit distribution by ISD.
5. Justification of demand for reversal of credit by the appellant.

Issue 1: Admissibility of cenvat credit based on invoices by ISD:
The Department observed that the appellant availed cenvat credit based on invoices issued by ISD for services not related to soap manufacturing, leading to the issuance of several show-cause notices (SCNs) demanding recovery of inadmissible cenvat credit, interest, and penalties.

Issue 2: Reversal of cenvat credit and penalties:
The appellant reversed a significant portion of the cenvat credit before the SCNs were issued. The Order-in-Original confirmed the demands, but the Order-in-Appeal partially allowed the appeal, setting aside some demands while confirming others. The appellant contested the confirmation of certain demands and penalties.

Issue 3: Appeal against Order-in-Appeal No. 176-18-19:
The appellant appealed before the Tribunal after being aggrieved by the modifications made in the Order-in-Appeal No. 176-18-19 dated 31.07.2018, seeking further relief from the demands and penalties imposed.

Issue 4: Interpretation of Rule 7 and Rule 7A of CCR:
The Tribunal analyzed Rule 7 and Rule 7A of Cenvat Credit Rules, 2004, which govern the distribution and recovery of cenvat credit by ISDs. These rules specify the conditions under which ISDs can distribute credit and the procedures for reversing wrongly taken credit.

Issue 5: Justification of demand for reversal of credit:
The core dispute revolved around whether the appellant was liable to reverse the credit despite the ISD already reversing a substantial amount. The Tribunal examined relevant case laws and statutory provisions to determine the appellant's liability and the justification for the demands made by the Department.

In a detailed analysis, the Tribunal observed that the appellant had already reversed a significant portion of the cenvat credit, satisfying a substantial part of the demands raised by the Department. The Tribunal highlighted the provisions of Rule 7 and Rule 7A of CCR, emphasizing the role of ISDs in credit distribution and the permissibility of credit reversals by ISDs for inadmissible credits. Citing precedents, the Tribunal concluded that the confirmation of demands against the appellant was not justified, especially when the credit had already been reversed by the ISD.

Moreover, the Tribunal noted that the entire credit had been reversed even before the issuance of the SCNs, rendering the imposition of interest and penalties unwarranted. Referring to Rule 14 of CCR and Section 11AC of the Central Excise Act, the Tribunal determined that the demands for interest and penalties were not applicable in this scenario. The Tribunal set aside the Order under challenge, ultimately allowing the appeal in favor of the appellant.

This comprehensive analysis of the legal judgment highlights the intricacies of cenvat credit reversal, the role of ISDs, and the interpretation of relevant statutory provisions in resolving the dispute between the appellant and the Department.