2023 (5) TMI 1129 - AT - Central Excise

Distribution of CENVAT Credit - input services attributable to the final product on a pro-rata basis proportionate to the turnover of each unit between the manufacturing plants of Parle Biscuits and its contract manufacturing units - rule 7(d) of the CENVAT Rules - HELD THAT - A Division Bench of the Tribunal 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 (5) TMI 906 - CESTAT NEW DELHI expressed reservations about the proposition of law laid down by the Division Bench in SUNBELL ALLOYS CO OF INDIA LTD MACHSONS PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE CUSTOMS 2014 (2) TMI 297 - CESTAT MUMBAI and also noticed that a Division Bench of the Tribunal in COLGATE PALMOLIVE (INDIA) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE 2011 (2) TMI 57 - CESTAT MUMBAI had taken a contrary view. The Division Bench, therefore, referred the questions for consideration by a Larger Bench of the Tribunal. The Larger Bench of the Tribunal in M/S. KRISHNA FOOD PRODUCTS held that Parle was justified in distributing credits on input services attributable to the final product on a pro-rata basis proportionate to the turnover of each unit between the manufacturing plants of Parle and its contract manufacturing units, including the appellant (Krishna Food), under rule 7(d) of the CENVAT Rules. In view of the answer given by the Larger Bench of the Tribunal, the order dated 05.07.2018 passed by the Commissioner (Appeals) cannot be sustained and is set aside - appeal allowed.

Summary

Issues involved:
The appeal challenges the order confirming the demand of CENVAT credit and interest, upheld by the Adjudicating Authority, for a contract manufacturing unit engaged in manufacturing biscuits for a principal company. The key issue is whether the distribution of credits on input services by the principal company to its contract manufacturing units, including the appellant, on a pro-rata basis is justified under the CENVAT Rules.

Details of the Judgment:

Issue 1: Authorization and Manufacturing Arrangement
The appellant claims authorization by the principal company to manufacture biscuits on its behalf, complying with procedural formalities under the Central Excise Act and rules. Inputs for manufacturing are supplied by the principal company, and the appellant takes credit for payment of duty on the cleared biscuits. Input services are also availed and utilized by the appellant in accordance with the CENVAT Credit Rules.

Issue 2: Distribution of Credits
The principal company, registered as an input service distributor, centralized activities like advertisement and marketing for all manufacturing units. Credits on input services were distributed proportionately to turnover between the principal company's manufacturing plants and contract manufacturing units, including the appellant, as per the CENVAT Rules.

Issue 3: Legal Reference and Reservations
A Division Bench of the Tribunal referred questions regarding the legality of issuing Input Service Distributors' invoice and entitlement to CENVAT credit for input services attributed to goods on which excise duty is paid. The Larger Bench of the Tribunal upheld the justification of distributing credits on input services on a pro-rata basis, leading to the allowance of the appeal and setting aside of the Commissioner (Appeals) order.

Conclusion:
The Larger Bench's decision favored the appellant, affirming the justification of distributing credits on input services among manufacturing units. Consequently, the Commissioner (Appeals) order was set aside, and the appeal was allowed.