2022 (10) TMI 1075 - AT - Central Excise

CENVAT Credit - ISD - distribution of input service credit - credit denied on the ground that credit could be distributed by Parle only to its own manufacturing unit under rule 7 of the CENVAT Credit Rules, 2004 and not to the appellant which is not a manufacturing unit of Parle - whether the appellant was entitled to take CENVAT credit prior to 01.04.2016 since credit for the period w.e.f. 01.04.2016 has been granted by the Commissioner (Appeals)? HELD THAT - The submission that was advanced on behalf of the appellant before the Larger Bench in 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 (51) TMI 906 - CESTAT NEW DELHI was that rule 7 of CENVAT Rules allowed distribution of credit even prior for the period to 01.04.2016 and, in any case, substitution of rule 7 of the CENVAT Rules would have retrospective application. After noticing the provisions of the CENVAT Rules and the Authorization submitted by Parle, which was accepted by the appellant, the Larger Bench observed that there are substance substance in the contention advanced by learned counsel appearing for the appellant that the 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. In view of the aforesaid decision of the Larger Bench of Tribunal in Krishna Food Products, it has to be held that the Commissioner (Appeals) was not justified in denying CENVAT credit distributed by Parle prior to 01.04.2016. The order dated 25.03.2019 passed by the Commissioner (Appeals) to the extent is has denied such benefit is, therefore, set aside - the appeal is allowed.

Summary

Issues:
- Whether input service credit distributed by one company to another can be denied based on specific rules under the CENVAT Credit Rules, 2004.

Analysis:
The main issue in this case revolves around the denial of input service credit distributed by one company to another based on the interpretation of rule 7 of the CENVAT Credit Rules, 2004. The appellant, a contract manufacturing unit, received input services from another company, and the question was whether this credit distribution was valid. The Commissioner (Appeals) initially allowed the credit from April 2016 but denied it for the period prior to this date. The appellant argued that the denial was incorrect, citing a decision by the Larger Bench of the Tribunal in a similar case.

The appellant, engaged in manufacturing products for another company, claimed that the inputs were procured by the main company and supplied to them for manufacturing. The appellant utilized this credit for duty payments on products cleared for the main company. The dispute arose when a show cause notice was issued alleging irregular credit availing and suppression of facts by the appellant. The Assistant Commissioner confirmed a portion of the credit but denied some, leading to an appeal by the appellant.

The key contention was whether the appellant was entitled to the credit distribution before April 2016. The appellant argued that rule 7 of the CENVAT Rules allowed for such distribution even before the amendment, and the substitution of the rule should have retrospective application. The Tribunal referred to the Authorization submitted by the main company, which accepted the appellant as a manufacturing unit, and the decision by the Larger Bench supported the appellant's position. The Tribunal held that the denial of credit by the Commissioner (Appeals) for the period before April 2016 was unjustified, and the appeal was allowed, setting aside the previous order.

In conclusion, the judgment clarified the applicability of rule 7 of the CENVAT Rules regarding the distribution of input service credit between companies, emphasizing that such credit distribution could not be denied based on specific rules. The decision highlighted the importance of considering past practices and agreements between parties in determining the eligibility for input service credit.