2015 (11) TMI 681 - AT - Central Excise

Tribunal broadens office interpretation in Cenvat Credit Rules, allows appeal

The Tribunal allowed the appeal, emphasizing a broad interpretation of 'an office' in Rule 2 (m) of the Cenvat Credit Rules, 2004. The appellant's Head ... Denial of CENVAT Credit - Revenue alleges that the credit distributed by Head Office is only permissible to the manufacturer/appellant but not the credit distributed by its Regional Offices - Held that:- Definition of input service distributor using the term an office is applicable to the appellant, but the term an office cannot be limited to a physical boundary but shall be interpreted as different boundaries which are offices and distribute the credit. The requirement is that credit distributing agency should be an office only but not a confined boundary. The reason is probably an office maintains record to verify the credit distributed. - assessee is not merely entitled to take credit of the unit where the products is manufactured, but it may also get credit of input tax paid by its head office to arrest cascading effect which is the mandate of Rule 7 of Cenvat Credit Rules, 2004. That Rule governs the procedure/manner of distribution of credit by a input service distributor prescribing two conditions. - There is no finding by the Adjudicating authority of any violation of the above conditions. Therefore there cannot be denial of Cenvat credit distributed to the appellant for its consumption. - Decided in favour of assessee. Issues: Interpretation of Rule 2 (m) of Cenvat Credit Rules, 2004 regarding credit distribution by head office and regional offices; Violation of natural justice in adjudication process; Definition of input service distributor; Conditions for distribution of credit by input service distributor.The judgment involved a dispute regarding the interpretation of Rule 2 (m) of the Cenvat Credit Rules, 2004 concerning the distribution of credit by the head office and regional offices of a cement manufacturer. The Revenue contended that only credit distributed by the head office was permissible, while the appellant argued that this restriction was not explicitly mentioned in the show-cause notice, leading to a violation of natural justice. The appellant relied on a precedent from the Hon'ble High Court of Karnataka to support their position.The Tribunal found that the appellant's Head Office was registered as an Input Service Distributor (ISD), while the regional offices had different registrations. The Revenue argued that credit distributed only by the head office was allowable, emphasizing that the rules aimed to prevent abuse of Cenvat Credit. However, the Tribunal highlighted the importance of the term 'an office' in a broader sense, not limited to physical boundaries, to interpret the rule effectively and prevent a narrow reading that could undermine the legislative intent.The Tribunal emphasized that the term 'an office' in Rule 2 (m) should be understood in a plural sense to uphold the spirit of the legislation and prevent cascading effects of taxation. It was noted that the appellant was entitled to credit not only for the manufacturing unit but also for input tax paid by the head office to prevent double taxation. The conditions for credit distribution by an ISD were outlined, emphasizing compliance with invoicing and the exclusion of credit for exempted goods or services.Ultimately, the Tribunal allowed the appeal, citing the failure to provide the appellant with an opportunity to defend against the specific interpretation of the term 'an office' as a ground for striking down the Adjudication order. The judgment underscored the importance of a comprehensive understanding of the rules to ensure fair treatment and prevent undue denial of Cenvat credit to the appellant.