2019 (6) TMI 855 - AT - Central Excise

CEVAT credit - input service distribution - main allegation in the SCN is that the ISD has wrongly distributed the service tax credit by not following the principle of proportionate to the turnover of sales. Rule 7 of CCR 2004 as applicable during the relevant period and upto 01.04.2012 - Rule 7 of CCR 2004 - extended period of limitation - HELD THAT - In the present case the entire demand is not sustainable on the ground that Rule 7 of CCR 2004 during the relevant period did not prescribe any formula for distribution of cenvat credit by the ISD and therefore no liability can be fastened on them. Extended period of limitation - HELD THAT - No case has been made out by the department for invoking extended period of limitation in as much as mere not indicating the formula adopted for distribution of cenvat credit does not amount to suppression of facts as there was no obligation upon the assessee to disclose the formula adopted by them. Therefore, even on limitation we rule in favour of the assessee. There is also a force in the argument of the assessee that the cenvat credit distributed by the ISD cannot be modified by a recipient of the ISD invoices namely appellant. Appeal allowed - decided in favor of appellant.

Issues involved:
1. Alleged wrongful allocation of excess cenvat credit by the Input Service Distributor (ISD) to the appellant.
2. Jurisdiction of the Commissioner of Central Excise to issue a show cause notice.
3. Invocation of the extended period of limitation for raising demands.

Issue 1: Alleged wrongful allocation of excess cenvat credit by the ISD:
The appellant, a manufacturer of watches, availed cenvat credit based on ISD invoices issued by their head office. The contention was that the ISD wrongly allocated excess cenvat credit to the appellant by not following the proportionate turnover of sales among different units. The appellant argued that as the relevant period was before 1.4.2012, no specific formula was required for distribution by the ISD. The ISD was free to adopt any method, and the appellant had used a rational approach based on overheads. It was emphasized that the ISD, not the appellant, distributed the credit, and any errors should be addressed to the ISD, not the appellant. The Tribunal agreed, citing precedents and ruled in favor of the appellant, stating that the demand was unsustainable as no specific formula was mandated for distribution during the relevant period.

Issue 2: Jurisdiction of the Commissioner to issue a show cause notice:
The appellant argued that the Commissioner lacked the authority to issue a show cause notice regarding an act committed by their head office, which was the ISD. It was contended that any discrepancies by the ISD should be addressed to them directly, not to the recipient of the invoices. The Tribunal concurred, stating that the show cause notice was incorrectly issued to the appellant and lacked authority, thereby ruling in favor of the appellant on this ground as well.

Issue 3: Invocation of the extended period of limitation:
The appellant contested the invocation of the extended period of limitation, stating that there was no obligation to disclose the basis for credit distribution, as it was done by the ISD, a separate registrant. The Tribunal agreed, emphasizing that the mere absence of disclosing the distribution formula did not constitute suppression of facts. Consequently, the demand failed on the ground of limitation, and the Tribunal ruled in favor of the appellant on this issue too.

In conclusion, the Tribunal set aside the impugned order, ruling in favor of the appellant on all grounds. The appeal was allowed with consequential benefits, if any, based on the findings that the demands were unsustainable due to the absence of a prescribed formula for credit distribution by the ISD during the relevant period, the lack of jurisdiction of the Commissioner to issue the show cause notice, and the failure to meet the extended period of limitation requirements.

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