UniDeritend Ltd. loses appeal as CENVAT credit availability determined by Rule 7(d) amendment timing, not invoice dates

CESTAT Mumbai dismissed UniDeritend Ltd.'s appeal regarding CENVAT credit availability under Rule 7(d) of CENVAT Credit Rules, 2004. The tribunal held that since the company availed credit after the rule amendment, the amended law applied regardless of when invoices were raised. UniDeritend Ltd. was required to follow Rule 7(d) and Explanation 3 existing at the time of credit availment. The demand for credit reversal was upheld, and penalty was deemed justifiable due to clear rule language. Revenue's appeal was allowed.

---

---

Issues:
1. Distribution of Cenvat credit of input services among multiple units.
2. Interpretation of Rule 7(d) of the Cenvat Credit Rules.
3. Applicability of penalty under Section 11AC of the Central Excise Act.

Issue 1: Distribution of Cenvat credit of input services among multiple units:
The case involved appeals by both the Revenue and M/s. UniDeritend Ltd. against the Commissioner (Appeals) order. UniDeritend Ltd. argued that they had units at different locations and had availed Cenvat credit of common input services only at one unit, leading to a demand notice. They contended that the credit accrued before the amendment to Rule 7(d) of the Cenvat Credit Rules, allowing them to distribute the credit as per the rules existing before the amendment. UniDeritend Ltd. emphasized that there was no intention to evade duty as the entire credit was available to all three units, and they could not have gained anything by availing credit in just one unit. The invoices for the services showed they were raised before the amendment, but there was no verification of payment dates. UniDeritend Ltd. argued that their right to distribute credit arose when the credit became available to them, citing a Supreme Court decision and Section 38A of the Central Excise Act.

Issue 2: Interpretation of Rule 7(d) of the Cenvat Credit Rules:
The Tribunal noted that Rule 7(d) and Explanation 3 were inserted in the Cenvat Credit Rules on 1.4.2014, allowing distribution of Cenvat credit among units based on turnover. The Tribunal clarified that duty paid by an assessee does not automatically become Cenvat credit; it must be claimed in the account and returns as Cenvat credit. While UniDeritend Ltd. claimed the credit after the amendment, the law applicable at the time of availing the credit was to be followed. As Rule 7(d) and Explanation 3 were in existence when the credit was availed, UniDeritend Ltd. was required to adhere to these provisions. Consequently, the demand for reversal of credit was upheld.

Issue 3: Applicability of penalty under Section 11AC of the Central Excise Act:
Regarding the penalty, Revenue argued that since the demand of duty was upheld, the mandatory penal provisions under Section 11AC applied. Revenue contended that Rule 7(d) was clear, leaving no room for interpretation. The Tribunal agreed with Revenue, stating that the rule was unambiguous, and UniDeritend Ltd.'s argument lacked merit. The imposition of the penalty was deemed justifiable due to the clear language of the rule. Consequently, UniDeritend Ltd.'s appeal was dismissed, and Revenue's appeal was allowed.

In conclusion, the Tribunal upheld the demand for reversal of credit and imposed a penalty under Section 11AC, emphasizing the importance of adhering to the clear provisions of the law, especially in matters of Cenvat credit distribution and penalty applicability.

---