2024 (6) TMI 761 - AT - Central Excise

CENVAT Credit - ISD invoices - input services were not used directly or indirectly or in or in relation to the manufacture of final goods by Paharpur unit - HELD THAT - It could be seen that upto 31.03.2012, no condition is specified to the effect that credit can be distributed only when the particular unit is using the input services. Therefore, we find that the Department is in error in taking the stand that Cenvat credit can be distributed only for the input services used by Paharpur unit. In terms of the above provisions even if the services were used by other units, still the ISD distributing Head Office could have distributed the said Cenvat credit to the Paharpur Unit till the Rule was amended on 01.04.2012. Therefore, there are no error in the ISD invoices issued by the Mumbai unit based on which the Appellant has taken the Cenvat credit. On this count itself, the confirmed demand for the period June 2005 to 31.03.2012 stands set aside. Eligibility of Cenvat taken by the Mumbai unit which distributed the Cenvat Credit - HELD THAT - Admittedly the Cenvat credit on various input services have accrued to the Head Office. They are duly registered as ISD in Mumbai for the Cenvat credit coming to them on account of various input service invoices. For the ISD invoices raised by them towards distribution of such Cenvat credit, they have been filing their ST-3 Returns before their jurisdictional authorities at Mumbai. Therefore, if they have taken the Cenvat credit in respect of any input services which is considered as ineligible, it was for the Mumbai Revenue officials to initiate recovery proceedings against them. The Paharpur unit (the present Appellant) has only taken the credit, so distributed by the Mumbai ISD unit. They have no control over the Cenvat taken by the Mumbai Head Office on various services. It has been time and again held by various Tribunals that the recipient cannot be questioned for the eligibility or otherwise of the Cenvat availing Head Office registered under ISD - the Kolkata authorities had no jurisdiction to question the eligibility of Cenvat taken by the Mumbai unit which distributed the Cenvat Credit. Several decisions have clearly held that jurisdiction to question the Cenvat availment lies with the officials with whom the ISD Returns are filed for issuing any Show Cause Notice towards eligibility of Cenvat credit. This Bench also in the M/S NALCO WATER INDIA LIMITED VERSUS COMMISSIONER OF CGST EXCISE, HOWRAH 2024 (3) TMI 751 - CESTAT KOLKATA has considered the Mahindra Mahindra case, but held that the ISD Cenvat receiving unit cannot be questioned on the eligibility of input services. Therefore, the present proceedings initiated against the Appellant is without jurisdiction. For the period from 01.04.2012 to 31.03.2013, the appellants have claimed that they have taken the credit for the Service Tax paid by the Head Office for the services rendered to their Paharpur unit only. Thus the conditions set w.e.f. 01.04.2012 under Rule 7 of the Cenvat Credit Rules also have been fulfilled. Appeal allowed.

Summary

Issues Involved:

1. Eligibility of Cenvat credit based on ISD invoices.
2. Jurisdiction of Kolkata authorities to question the Cenvat credit distributed by the Mumbai ISD unit.
3. Compliance with Rule 7 of the Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Eligibility of Cenvat credit based on ISD invoices:

The appellant's manufacturing unit at Paharpur took Cenvat credit based on ISD invoices issued by their corporate office in Mumbai. The Department issued Show Cause Notices alleging that the input services were not received by the Paharpur unit and thus were not used in the manufacture of final goods by the Paharpur unit. The adjudicating authority confirmed a demand of Rs.13,55,26,043/- on the ground that the Cenvat credit was taken on ineligible input services.

The appellant argued that the Show Cause Notice did not allege that certain input services were ineligible for Cenvat credit but only that the services were utilized by other manufacturing units. The appellant contended that the adjudicating authority had traversed beyond the scope of the Show Cause Notice by listing various input services as ineligible.

The Tribunal found that the only allegation in the Show Cause Notice was the non-utilization of services by the Paharpur unit, with no list of ineligible services provided. The Tribunal concluded that the Department's stand that Cenvat credit can only be distributed for services used by the Paharpur unit was incorrect, as Rule 7 allowed distribution of credit even if services were used by other units until the rule was amended on 01.04.2012. Therefore, the confirmed demand for the period June 2005 to 31.03.2012 was set aside.

2. Jurisdiction of Kolkata authorities to question the Cenvat credit distributed by the Mumbai ISD unit:

The appellant argued that the eligibility of Cenvat credit should be questioned by the jurisdictional officials at Mumbai, where the ISD unit is registered and files its returns. The Kolkata authorities lacked jurisdiction to raise eligibility questions for Cenvat credit taken and distributed by the Mumbai ISD unit.

The Tribunal relied on precedents such as Nalco Water India Limited vs. Commissioner of CGST & Excise, Howrah, and Gulf Oil Corporation Ltd. vs. Commissioner of C.Ex. & Service Tax, VAPI, which held that the eligibility of Cenvat credit should be questioned only at the ISD unit's end. The Tribunal concluded that the Kolkata authorities had no jurisdiction to question the eligibility of Cenvat credit taken by the Mumbai unit and distributed to the Paharpur unit. Consequently, the proceedings initiated against the appellant were deemed without jurisdiction, and the impugned order was set aside.

3. Compliance with Rule 7 of the Cenvat Credit Rules, 2004:

The appellant contended that Rule 7, as it existed until 31.03.2012, did not specify that input services must be used by the unit taking the Cenvat credit. The Tribunal agreed, stating that the ISD distributing Head Office could distribute Cenvat credit to any unit as long as the conditions specified under Rule 7 were met. The Tribunal found no error in the ISD invoices issued by the Mumbai unit based on which the appellant took the Cenvat credit. Therefore, the confirmed demand for the period June 2005 to 31.03.2012 was set aside.

For the period from 01.04.2012 to 31.03.2013, the appellant claimed that the credit was taken for services rendered to the Paharpur unit only, complying with the amended Rule 7 conditions. The Tribunal, without delving into the factual details, set aside the confirmed demand for this period due to lack of jurisdiction.

Conclusion:

The Tribunal allowed the appeal with consequential relief, if any, as per law, setting aside the impugned order on the grounds of eligibility of Cenvat credit, jurisdiction, and compliance with Rule 7 of the Cenvat Credit Rules, 2004.