2015 (8) TMI 346 - AT - Central Excise

High Court emphasizes integral input services for manufacturing, allows credit for pre-registration services post-distribution.

M/s Oil & Natural Gas Corporation Ltd. Versus Commissioner of Central Excise, Customs And Service Tax, Raigad

M/s Oil & Natural Gas Corporation Ltd. Versus Commissioner of Central Excise, Customs And Service Tax, Raigad - TMI Issues Involved:1. Denial of Cenvat Credit on input services used in the manufacture of exempted goods.2. Eligibility of Cenvat Credit for services received prior to ISD registration but distributed post-registration.Issue-wise Detailed Analysis:1. Denial of Cenvat Credit on Input Services Used in the Manufacture of Exempted Goods:The Tribunal initially upheld the denial of Cenvat Credit on the ground that the input services were used exclusively for the production of exempted crude oil at Mumbai Offshore. The Tribunal's decision was based on the interpretation that since the crude oil was exempted, the credit could not be availed at the Uran factory.However, the Bombay High Court reversed this decision, emphasizing that the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004, is broad and includes services used 'directly or indirectly, in or in relation to the manufacture of final products.' The High Court clarified that the input services used at Mumbai Offshore are integral to the manufacturing process of dutiable final products at the Uran plant. Thus, the credit is admissible as long as it is used in the manufacture of dutiable goods, despite the intermediate product (crude oil) being exempt.2. Eligibility of Cenvat Credit for Services Received Prior to ISD Registration but Distributed Post-Registration:The core issue was whether the appellants could avail Cenvat credit on input services received by administrative divisions before their registration as Input Service Distributors (ISD) but distributed after obtaining ISD registration.The Tribunal, following the High Court's remand, analyzed the relevant statutory provisions and precedents. Rule 2(m) of the Cenvat Credit Rules, 2004, defines an ISD as an office that receives invoices for input services and issues invoices for distributing the credit. The rules do not explicitly restrict the distribution of credit for services received prior to ISD registration.The Tribunal referred to several judgments, including Dagger Forst Tools Ltd., which held that there is no time limit for availing Cenvat credit on service tax paid on input services. The Tribunal emphasized that procedural lapses, such as delayed ISD registration, do not warrant denial of credit if the services were received, tax was paid, and the services were used in the manufacture of dutiable goods.The Tribunal concluded that the appellants correctly availed Cenvat credit on the strength of invoices issued by registered ISDs, even for services received before ISD registration. The procedural requirement of ISD registration does not affect the substantive right to credit as long as the core conditions (receipt of service, payment of tax, and use in manufacturing dutiable goods) are met.Conclusion:The Tribunal allowed the appeal, setting aside the denial of Cenvat credit and emphasizing that procedural lapses should not impede the substantive entitlement to credit. The decision underscores the broad interpretation of 'input service' and the importance of substantive compliance over procedural formalities in the context of Cenvat credit.