Input Service Distributor entitled to distribute service tax credit to manufacturing unit despite no direct involvement. Appeal allowed.

The judgment clarified that the head office, registered as an input service distributor, is entitled to distribute the credit of service tax paid on input services to the manufacturing unit. The appellants' factory was deemed entitled to the credit of service tax paid by the head office, even though the head office was not directly engaged in manufacturing or providing output services. The demand was held to be barred by limitation due to the absence of positive suppression or mis-statement, resulting in the appeal being allowed with consequential relief to the appellants on merits and limitation.

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Issues Involved:
1. Entitlement to CENVAT credit by the head office as an input service distributor.
2. Distribution of CENVAT credit to the manufacturing unit.
3. Applicability of limitation period for the demand.

Issue-wise Detailed Analysis:

1. Entitlement to CENVAT credit by the head office as an input service distributor:
The appellants, manufacturers of CDR, CD Rom, DVDR, and DVD Rom, have their head office registered as an input service distributor under Rule 2(m) of the CENVAT Credit Rules, 2004. The head office received various services from foreign countries and paid service tax as a deemed service provider under Section 68(2) read with Rule 2(1)(d)(v) of the Service Tax Rules, 1994. The appellants availed CENVAT credit based on invoices issued by the head office. The Revenue contended that the head office, not being a manufacturer or provider of output services, was not entitled to avail and distribute the said credit. The judgment clarified that the head office, registered as an input service distributor, is entitled to distribute the credit of service tax paid on input services to the manufacturing unit, as per Rule 2(m) and Rule 7 of the CENVAT Credit Rules, 2004. The judgment emphasized that the head office's role as an input service distributor is valid and lawful, allowing the distribution of credit to the manufacturing unit.

2. Distribution of CENVAT credit to the manufacturing unit:
The services received by the head office were utilized by the appellants' factory in Noida. The judgment noted that the manufacturer is M/s. Moser Baer India Ltd., and both the head office and the factory belong to the same entity. It was highlighted that credit is available to the manufacturer, not the factory. The judgment referenced various Tribunal decisions, including TVS Motors Co. Ltd. v. CCE, Chennai and Ecof Industries Pvt. Ltd. v. CCE, Bangalore, which support the principle that credit can be availed by the factory based on invoices issued by the input service distributor. The judgment concluded that the appellants' factory was entitled to the credit of service tax paid by the head office, even if the head office was not directly engaged in manufacturing or providing output services.

3. Applicability of limitation period for the demand:
The judgment addressed the issue of limitation, noting that the head office was a registered input service provider and the credit availed was reflected in the statutory records. The Commissioner's reasoning for invoking the longer period of limitation was not accepted, as there was no positive suppression or mis-statement with intent to evade payment of duty. The judgment cited the Supreme Court decisions in Collector of Central Excise v. Chemphar Drugs & Liniments and Pushpam Pharmaceuticals Company v. CCE, Bombay, which established that invocation of the extended period requires positive suppression or mis-statement with an intent to evade duty. Consequently, the demand was held to be barred by limitation.

Conclusion:
The impugned order was set aside, and the appeal was allowed with consequential relief to the appellants on merits and limitation. The head office was entitled to distribute the CENVAT credit to the manufacturing unit, and the demand was barred by limitation due to lack of suppression or mis-statement.

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