2020 (1) TMI 369 - AT - Central Excise

CENVAT Credit - input service distribution - credit has been denied to the appellant which has been distributed by the Input Service Distributor (ISD) - Rule 7 of the Cenvat Credit Rules, 2004 - whether any notice has been issued to the ISD or not? HELD THAT - The answer came that no notice has been issued to the ISD - In terms of Rule 3 of the Cenvat Credit Rules, 2004, whatever service tax has been paid by the appellant, the appellant is entitled to avail Cenvat credit on that. Admittedly, the distribution of the Cenvat credit has not been disputed, therefore, the appellant is entitled to avail Cenvat credit on this ground only. In the impugned order, the learned Commissioner (Appeals) has made an observation that Parwanoo unit might be availing exemption under Notification No. 50/2003-CE dt. 10.06.2003. The said observation is factually incorrect as the appellant has produced ER-1 Returns for their Parwanoo unit before me, wherein it has been shown that the appellant is paying duty on their manufactured products. There are no merit in the impugned order, the same is set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of Cenvat credit by Input Service Distributor (ISD) to the appellant.
2. Interpretation of Rule 7 of the Cenvat Credit Rules, 2004 regarding distribution of Cenvat credit.
3. Observations made by the learned Commissioner (Appeals) regarding exemption under Notification No. 50/2003-CE for the Parwanoo unit.

Analysis:

Issue 1: Denial of Cenvat credit by ISD
The appellant appealed against the denial of Cenvat credit by the ISD. The appellant's head office distributed the Cenvat credit to various units, including Chennai and Parwanoo, based on service tax paid. The Revenue contended that since the service was not wholly used by the appellant, Cenvat credit should be proportionately distributed. The appellant argued that all units were duty paying, thus entitled to the full credit. The Tribunal noted that no notice was issued to the ISD. Considering Rule 3 of the Cenvat Credit Rules, 2004, the Tribunal found the appellant entitled to avail Cenvat credit as the distribution was undisputed.

Issue 2: Interpretation of Rule 7
The Tribunal analyzed Rule 7 pre and post 2012 amendments. It observed that the appellant had the option to distribute Cenvat credit among manufacturing units. Referring to a High Court decision, the Tribunal emphasized that the appellant could utilize Cenvat credit available at its units. The Tribunal held that the appellant was entitled to avail the Cenvat credit based on the Rule's provisions.

Issue 3: Observations on Parwanoo unit exemption
The Commissioner (Appeals) suggested that the Parwanoo unit might be availing exemption under Notification No. 50/2003-CE. However, the appellant demonstrated through ER-1 Returns that duty was paid on manufactured products at the Parwanoo unit. Consequently, the Tribunal found the Commissioner's observation factually incorrect and set aside the impugned order.

In conclusion, the Tribunal allowed the appeal, granting consequential relief. The judgment highlighted the appellant's entitlement to Cenvat credit, the discretionary nature of credit distribution under Rule 7, and the importance of factual accuracy in observations regarding exemptions.