2011 (4) TMI 560 - HC - Service Tax

Rule 7 allows CENVAT credit distribution for common advertisement services across units, regardless of manufacturing location

HC upheld the Tribunal's decision allowing the assessee to distribute CENVAT credit of service tax paid on advertisement services from its Chennai office ... Distribution of service tax credit between different units - manufacture of exempted goods or providing of exempted services - HELD THAT:- Assessee had availed the service tax credit based on the invoices issued by the Chennai office indicating that the service tax are taken by their unit at Malur. That the service tax paid by the Chennai unit pertains to advertisement of their product 'Sabena Dish Wash Bar' which was manufactured by their Cuttack Unit and not by the unit at Malur. Therefore, the assessee was dealing with the very same product. Therefore, the assessee is entitled to distribute the cenvat credit on the input services on its manufacturing unit or other units providing the output services. The view taken in the order in appeal that the distribution of credit is for the advertisement of the product, which is not at all manufactured at Malur unit, therefore, cannot be accepted The finding recorded by the Appellate Authority that the assessee is entitled to take credit only in the unit where the product is manufactured is therefore not the mandate of Rule 7 of the Cenvat Credit Rules. We confirm the view taken by the Tribunal. Issues: Interpretation of Cenvat Credit Rules regarding distribution of service tax credit between different units.Analysis:The High Court of Karnataka addressed the issue of the interpretation of the Cenvat Credit Rules concerning the distribution of service tax credit between different units. The appeal was filed by the revenue challenging the Tribunal's decision, which held that there were no restrictions in the Cenvat Credit Rules limiting the distribution of service tax credit between units. The case involved an assessee holding Central Excise Registration as manufacturers of excisable goods. The revenue alleged irregular availing of service tax credit by the assessee based on invoices issued by their Chennai Head Office for their unit at Malur. A show cause notice was issued, and after proceedings, the revenue appealed to the Commissioner of Central Excise, Bangalore, who confirmed the demand. The assessee then appealed to the Tribunal, which interpreted Rule 7 and a clarificatory circular, stating that there were only two restrictions on credit distribution. The Tribunal held that there were no restrictions as claimed by the revenue in limiting the distribution of service tax credit between units.The High Court considered the arguments presented and found that the assessee had availed service tax credit based on invoices from the Chennai office, even though the product was manufactured at the Cuttack unit, not at Malur. The Court highlighted Rule 7 of the Cenvat Credit Rules, which governs the distribution of credit by an input service distributor, imposing two conditions: the credit should not exceed the amount of service tax paid, and the credit should not be used for exempted goods or services. The Court emphasized that the assessee was entitled to distribute the credit on input services to its manufacturing unit or other units providing output services. The Court disagreed with the Appellate Authority's finding that credit distribution should only be where the product is manufactured, stating that it was not mandated by Rule 7.In conclusion, the High Court upheld the Tribunal's decision, stating that there was no substantial question of law in the appeal. The Court dismissed the appeal, affirming the view that the assessee was entitled to distribute the service tax credit between units as per the provisions of the Cenvat Credit Rules.