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TMI Blog2021 (5) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of Central Excise duty and that the appellant would avail CENVAT credit of Excise duty paid on the raw and packing materials and capital goods. It also provides that the appellant would made excise invoice/stock, Transfer Notes to Depots or Wholesalers of Parle and would pay Excise duty on the assessable value as shown in the invoice of Parle - It is in terms of the CENVAT Rules, the Registration Exemption Notification and the aforesaid authorization that it has to be determined whether input service credit is available to the appellant even prior to 01.04.2016. The Constitution Bench of the Supreme Court in COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. [ 2018 (7) TMI 1826 - SUPREME COURT] was constituted to examine what would be the interpretative rule to be applied while interpreting a tax exemption provision/ notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. The Supreme Court observed that the core issue to be examined in the event of any ambiguity in an exemption notification is whether the benefit of such an ambiguity should go to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Irrespective of the position that whether issuance of Input Service Distributors' invoice by Parle to Krishna is correct or otherwise, whether Krishna still is entitled for cenvat credit when the input service is attributed to the goods on which excise duty is paid includes the cost of services on which credit was taken." 2. To appreciate the aforesaid two issues, it would be useful to reproduce certain essential facts. 3. M/s. Krishna Food Products, the appellant is the sole appellant in Excise Appeal No. 52692 of 2019. It claims to be a contract manufacturing unit engaged in manufacturing biscuits for its principal "Parle Biscuit Pvt. Ltd.", Parle, which is the appellant in Excise Appeal No. 52694 of 2019. It claims that it has been authorised by Parle to manufacture on its behalf "biscuits" and to comply on its behalf all the procedural formalities contemplated under the Central Excise Act, 1944, Excise Act and the Rules framed thereunder in respect of the goods manufactured on behalf of Parle and also to furnish information relating to the price at which Parle would sell the said biscuits in order to enable the determination of the value of the said goods under section 4A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o discharge all liabilities under the Act and the rules made thereunder." 6. The inputs used for manufacture of the biscuits are supplied by Parle which pays for the inputs but the appellant takes credit of the same and utilises the credit for payment of duty on the biscuits cleared on account of Parle. The appellant also claims that it availed and utilised input services used in relation to the manufacture of biscuits for Parle in accordance with the provision of the CENVAT Credit Rules 2004, CENVAT Rules. 7. The final product is cleared on payment of excise duty by the appellant on the maximum retail price declared by Parle that is printed on the packages of the biscuits, as is provided under rule 10A of the Central Excise (Valuation) Rules 2000, Valuation Rules. The excise duty paid by the appellant over and above the amount of CENVAT credit is reimbursed by Parle. 8. It is stated that the quantity of biscuits manufactured by the appellant is reflected in the balance sheet of Parle as goods manufactured on behalf of Parle and sold and marketed by Parle. The excise duty paid on the biscuits cleared from the factory of the appellant is also accounted for in the balance sheet of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd ignores the decision of a Co-ordinate Bench of the Tribunal in Colgate Palmolive (I) Ltd.; (iv) Sunbell Alloys relies upon the decision of the Tribunal in Panacea Biotec Ltd. vs. Commissioner of Customs, New Delhi, 2003 (153) E.L.T. 627 (Tri.-Del.), but in Tamil Trading Corporation, it was held that Panacea Biotec was not correctly decided; and (v) In any view of the matter, as CENVAT is a beneficial scheme with the stated purpose of eliminating cascading effect of duties and taxes, substitution of rule 7 by a new rule 7 w.e.f 01.04.2016 means that the mistake/lacuna in the earlier rule 7 was corrected and so the substituted rule 7 would have retrospective effect from the inception of the rules. In support of this submission reliance has been placed on the decision of the Tribunal in Commissioner of Central Excise and Service Tax, Rajkot vs. M/s Reliance Industries Ltd, 2019-TIOL-1593-CESTAT-AHM. 12. Shri Ravi Kapoor, learned Authorised Representative of the Department made the following submissions: (i) Krishna is a job-worker which has undertaken the processing of the goods supplied by Parle; (ii) The services on which credit is taken and distributed by Parle has noth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of output service and the premises of a manufacturer including the factory, whether registered or otherwise." AFTER 1.04.2016 Rule 2(m) "input service distributor" means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, or an outsourced manufacturing unit as the case may be;" (bold portion added after amendment) Rule 7. "Manner of distribution of credit by input service distributor.- The input service distributor shall distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or unit providing output service or an outsourced manufacturing units, as defined in Explanation 4, subject to the following conditions, namely:- (a) ***** (b) ***** (c) ***** (d) The credit of service tax attributable as input service to all the units shall be distributed to all the units pro rata on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the manufacturer (M/s. Krishna Food) is the job-worker who has undertaken the processing of the goods supplied by M/s. Parle and the services on which credit is taken and distributed by M/s. Parle has nothing to do with the manufacturing operations undertaker by the M/s Krishna Food and, therefore, it is difficult to agree with the contention that the services received by M/s. Parle is an input service relating to the manufacture of goods by the job-workers (M/s. Krishna Foods). Secondly, 'input service distributor' means an office of the manufacturer or producer of final products. The office of M/s. Parle cannot be considered as an office of the job- worker (Krishna Foods) and, therefore, the definition of 'input service distributor' is not satisfied. Thirdly, Rule 7 deals with the manner of distribution, which specifically states that the input service distributor may distribute Cenvat credit of the service tax paid on the input service to its manufacturing units. The job workers' factory (M/s. Krishna Foods is not the manufacturing unit of M/s. Parle but they are independent legal entities by themselves and, therefore, the question of distribution of credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under. 8.1.1 From the above Rule 7 effective from 01.03.2016, I find the words 'an outsourced manufacturing units, as defined in Explanation 4' have been newly inserted in Rule 7, further the said Explanation 4 defines 'an outsourced manufacturing Unit', which says 'outsourced manufacturing unit' means a job-worker who is liable to pay duty or a manufacturer who manufacturers goods for the input service distributer. Thus, as regards to the contention of both the Appellants that as the Appellant No. 1 were working under the provisions of Notn. No. 36/2001-CE(NT) dated 26.06.2001, the Appellant No. 1 would be treated as the manufacturer on behalf of the Appellant No. 2 and/or extended arm/factory of the Appellant No. 2 so far as all Central Excise formalities were concerned, I find that had been any substance in such contention, then there would not have been any necessity for above referred amendment of Rule 7 of the said Cenvat Rules. 8.1.2 Further, as regards both the appellants' contention that the said amendment to rule 7 is applicable retrospectively, I am the view such contentions fail to stand, as in-term of Rule 7 of said Cenvat Rules credit distribution has been allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 01-04-2016 and from the amendment made in the Rules, it appears that the 'manufacturers', 'its manufacturing units' and 'job worker/contract manufacturing units' are independent legal entities by themselves. Further, the amendment made in the Rules by substitution of the existing rule 7 of Credit Rules is prospective i.e. effective from 1-4-2016 only, which is evident from the transitional provisions contained in rule 7 (e) of the Credit Rules. 19. The provisions of CENVAT rule 2(m) and 7, as they stood prior to 01.04.2016 and w.e.f. 01.04.2016, have been reproduced above. The provisions of the Registration Exemption Notification have also been reproduced above. It is clear that the Registration of every person, who produces, or manufacturers under the 2001 Rules has been exempted under the Registration Exemption Notification. It provides that every person who gets his goods manufactured on his account from any other person subject to the conditions that the said manufacturer authorises the person, who actually manufactures to comply with all procedural formalities in respect to the goods manufactured on behalf of the said manufacturer and, in order to enable the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-125, Siya, Dewas-Maxi Road, Destrict-Dewas.M.P.-455001..(hereinafter called as Krishna Food) in respect of Biscuits on Job Work basis. _____________________________________________________________________ 1. It has been decided that Krishna Food Products, would work as Job Worker for manufacturer of Biscuits for Parle Biscuits Pvt. Limited, Mumbai. 2. Parle Biscuits Pvt. Ltd. would arrange to send materials (Raw materials and Packing materials) through the supplier to Krishna Food Products, on payment of Central Excise duty. 3. Krishna Food Products, would avail Cenvat credit of Central Excise duty paid on the raw and packing materials, capital goods. 4. Krishna Food Products, would process and manufacture Biscuits, would also carry out inspection, packing and delivery of the manufactured Biscuits to the various depots located all over the county as per the direction given by Parle Biscuits Pvt. Ltd. Mumbai. 5. Loss of Non-standard materials would be borne by Krishna Food Products, depending upon nature of the case. 6. Biscuits will produced and packed in wrappers/cartoons (C.B.). 7. Krishna Food Products, would make Excise Invoice/Stock Transfer Notes (STN's) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service distributor" under rule 2(m) of the CENVAT Rules. Biscuits were manufactured not only in the factories of Parle, but also in the factories of other contract manufacturers. It is stated that the quantity of biscuits manufactured by the appellant is reflected in the balance sheet of Parle as goods manufactured on behalf of Parle and sold and marketed by Parle. The excise duty paid on the biscuits cleared from the factory of the appellant is also accounted for in the balance sheet of Parle as duties paid by them. It has also been stated that as a business strategy advertisement, market research, sales promotion and marketing was centralised and handled by the office of Parle at Bahadurgarh. Such Credit availed on input services attributable to the final product was distributed by Parle on a pro-rata basis proportionate to the turnover of each unit between its own manufacturing plants and its contract manufacturing units, including the appellant, under rule 7 (d) of the CENVAT Rules. 26. What is also important to notice is that rule 7 of the CENVAT Rules allows distribution of credit to its manufacturing units. It does not use the words its own manufactures units. It can, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de as revealed in a plethora of policy documents, legislation, and procedures. ****** ****** ****** The expression "his factory" should be interpreted to mean the factory where the importer wants to utilise the imported goods in terms of the Notification. The Department can not insist on ownership of the factory and deny registration for the purposes of the Notification. The Tribunal, in the case of Commissioner of Central Excise, Bangalore v. Electronic Research Ltd. cited by the ld. Advocate, has held that literal meaning of statute should be abandoned if it leads to unjustified results. In that case, goods imported under Concessional rate of duty for use in one factory were transferred to the factory of the importer at another place under certain circumstances. The Commissioner (Appeals) decided in favour of the importer. Revenue came in appeal before the Tribunal. The Tribunal held that the importer was entitled to exemption as neither the Rules nor the Notifications itself prohibited such transfer. The above decision was held in the context of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. The ratio of the above de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring units. It is a settled position of law that job-workers who actually undertake the manufacturing process is the 'manufacturer' of goods and not the supplier of raw materials. 5.7 In the light of these evidences available on record, it is crystal clear that the appellants are manufacturers on their own right and there is no manufacturing of goods on account of M/s. Merck Specialties Pvt. Ltd. Once this position is clear, the rules relating to input service credit distribution becomes easy to interpret. As per Rule 2(m) of the CCR, 2004 'input service distributor' means an office of the manufacturer or producer of output service. In this case, the distributor is M/s. Merck Specialties Ltd. whereas the manufacturers are the appellants. Since these are separate legal entities, office of M/s. Merck cannot be considered as an office of the manufacturer and hence Merck cannot be considered as an 'input service distributor' as defined under Rule 2(m) of the CCR, 2004. Further, as per Rule 7, the input service distributor has to distribute the credit to 'its manufacturing units'. The manufacturing units of the appellants are not that of M/s. Merck Specialties Ltd. and these units bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the submissions made by both sides and perused the records. The issue in dispute lies in a narrow compass that imported goods under exemption notification carrying condition of end use. Under Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 whether goods can be used in the importer's own factory or also can be used in the job worker factory. There is no dispute the goods were used on behalf of the appellant in their loan licensee (job work factory) on behalf of the appellant only. The ownership of goods remained with the appellant right from import of the goods up to the use in the final product. In this position, in our view the imported goods used for the specified purpose, the condition of end use stands complied with. The whole objective of the duty free imported bulk drug is that it should be used in the manufacture of life saving drugs or medicine. In our view, if this condition is fulfilled while the ownership of the goods is with appellant, it can be said condition of the end use is satisfied. This issue has come up in the case of Tamil Trading Corporation Ltd. (supra). (emphasis supplied) 31. It is, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the phase its manufacturing units should, therefore, be avoided, more particularly when the Registration Exemption Notification provides for authorisation for manufacture of goods on behalf of the principal manufacturer. There appears to be no good reason as to why CENVAT credits should not be allowed to be distributed to a job worker in the facts and circumstances of the present case. 36. In this connection reliance can be placed on the decision of the Karnataka High Court in CCE vs. Millipore India Pvt. Ltd., 2012 (26) S.T.R. 514 (Kar.), wherein it was held that if the cost of various services availed forms part of the assessable value of the goods manufactured and sold, there is no reason to deny CENVAT credit of duty and taxes paid on various inputs/ input services availed. The relevant portion of the judgment is reproduced below: "7.5 The principle of law that the services which form a part of the assessable value on which excise duty is discharged, would be available as Cenvat credit has also been accepted by the Hon'ble Karnataka High Court in the Case of CCE v. Milipore India P. Ltd. reported on 2012 (26) S.T.R. 514 wherein, it was held that if service tax is paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust necessarily go in favour of the assessee but the same would not be true for an exemption notification in regard to which the benefit of ambiguity must be strictly interpreted in favour of the Revenue. The Constitution Bench, therefore, answered the reference as follows: "52. To sum up, we answer the reference holding as under- (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subjected to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export case (supra) stands overruled." 40. The Supreme Court subsequently in Government of Kerala & Another vs. Mother Superior Adoration Convent, Civil Appeal No 202 of 2012 decided on 01.03.2021, drew a distinction between exemption provisions generally and exemption provisions which have a benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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