2022 (10) TMI 875 - AT - Central Excise

CENVAT Credit - input service distribution - whether issuance of Input Service Distributor (ISD) invoice by M/s Parle Biscuits Pvt. Limited to its contract manufacturing unit (M/s M.B. Industries Pvt. Ltd.,) is legal and correct when the contract manufacturing is carried in terms of N/N. 36/2001-CE (NT)? - HELD THAT - The issue herein is squarely covered in favour of the appellant by the Larger Bench ruling of this Tribunal in the case of M/S. KRISHNA FOOD PRODUCTS, M/S. MARIAMMA R. IYER, M/S. PARLE BISCUITS PVT LTD. VERSUS THE ADDITIONAL COMMISSIONER OF CGST C. EX 2021 (5) TMI 906 - CESTAT NEW DELHI where it was held if amended provisions of rule 2(m) and rule 7 of the CENVAT Rules, after the 01.04.2016, merely seek to rectify the lacuna in the unamended rules and, therefore, would have effect from the inception of the rules. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legality of issuance of Input Service Distributor (ISD) invoice by M/s Parle Biscuits Pvt. Limited to its contract manufacturing unit.
2. Applicability of Rule 7 of CENVAT Credit Rules (CCR).
3. Invocation of extended period of limitation and penal provisions.

Detailed Analysis:

1. Legality of Issuance of ISD Invoice:
The primary issue is whether M/s Parle Biscuits Pvt. Limited (PBPL) can legally issue ISD invoices to its contract manufacturing units (CMUs) under Notification No. 36/2001-CE (NT). The appellants argued that Rule 2(m) read with Rule 7 of CCR, 2004 allows the distribution of CENVAT credit by an ISD to manufacturing units, including those not owned by the ISD but manufacturing on behalf of the principal manufacturer. The appellants, functioning as CMUs, were engaged in the manufacture of biscuits exclusively for PBPL and complied with all procedural formalities under the Central Excise Act and Rules. The appellants contended that the term "its manufacturing unit" should include outsourced or contract manufacturing units, and the amendment to Rule 7 effective from 1.4.2016, which explicitly included such units, was merely clarificatory and should apply retrospectively.

2. Applicability of Rule 7 of CCR:
The appellants maintained that even prior to the 2016 amendment, Rule 7 allowed for the distribution of CENVAT credit to job workers or contract manufacturers. They cited the case of Krishna Food Products, where the Larger Bench of CESTAT ruled that CENVAT credit could be distributed to contract manufacturing units. The Tribunal held that the amendment to Rule 7 was intended to rectify a lacuna and should be considered effective from the inception of the rules. Therefore, PBPL was justified in distributing credits on input services to its CMUs proportionate to their turnover.

3. Invocation of Extended Period of Limitation and Penal Provisions:
The appellants argued that there was no conscious or deliberate suppression of facts or misstatement on their part, and thus, the extended period of limitation and penal provisions should not be invoked. They emphasized that the issue was already referred to a larger bench, indicating that the matter was not free from doubt. Consequently, the demand for the period June 2013 to May 2015 was barred by limitation.

Conclusion:
The Tribunal, considering the submissions and the ruling in the case of Krishna Food Products, found in favor of the appellants. It concluded that PBPL was justified in distributing CENVAT credit to its CMUs under Rule 7(d) of CCR. The appeals were allowed, and the impugned orders were set aside, granting consequential benefits to the appellants.

(Pronounced on 20.10.2022)