2016 (11) TMI 995 - AT - Central Excise

Appeal Granted: Cenvat Credit Rules Allow Distribution of Credit by Input Service Distributor

M/s J.L. Morison (India) Ltd. Versus Commissioner of Central Excise, Aurangabad

The Tribunal allowed the appeal, ruling in favor of the appellants. It held that Rule 7 of the Cenvat Credit Rules permits the distribution of credit by ... Denial of CENVAT credit - input service distributor - input service credit distributed by the ISD were availed in a different manufacturing unit i.e. the sister concern of the appellant - Held that: - I find that the appellants have availed credit on the strength of an ISD document issued in respect of services availed by their sister unit located at Bangalore - there is no final finding in respect of the disallowance of credit availed in respect of services availed by their sister unit at Banagalore. The said order only states that there are some entries mentioning Bangalore Plant, Insurance policy of other unit which “needs detailed verification”. This cannot be considered as denial of credit and therefore, the argument of learned AR does not hold much force. Reliance placed on the decision of the case of Commissioner of Central Excise, Bangalore-I Commissionerate Versus Ecof Industries (P.) Ltd. [2011 (4) TMI 560 - KARNATAKA HIGH COURT] where similar issue was decided and it was held that the assessee is entitled to distribute the cenvat credit on the input services on its manufacturing unit or other units providing the output services Appeal allowed - decided in favor of appellant. Issues:1. Availing credit of Service Tax paid on input service credit distributed by Input Service Distributor (ISD).2. Disallowance and quantification of CENVAT Credit by the Assistant Commissioner.3. Challenge to the Commissioner (Appeals) order regarding disallowance of credit for services availed by sister unit.4. Interpretation of Rule 7 of the Cenvat Credit Rules regarding distribution of credit by ISD.5. Application of previous legal judgments on similar issues.Analysis:1. The appellants availed credit of Service Tax based on ISD documents issued by their Head Office, registered as an ISD. A show-cause notice alleged improper credit availing for services used in a different manufacturing unit. The first adjudicating authority confirmed the demand, but the Commissioner (Appeals) remanded the case for re-quantification. The Assistant Commissioner revised the demand, dropping a portion, which was further contested before the Commissioner (Appeals), resulting in a final demand of Rs. 1,02,030/- and penalty under Section 11AC.2. The Counsel argued no restriction on ISD credit distribution, citing Rule 7 of Cenvat Credit Rules and a Karnataka High Court decision supporting their stance.3. The Respondent contended that the Commissioner (Appeals) order finalized credit disallowance for services from the sister unit, citing a Tribunal case upheld by the Supreme Court, arguing against challenging the order.4. The Tribunal found no final denial of credit for services from the sister unit, as the remand order only required verification of specific entries. Referencing the Karnataka High Court decision, the Tribunal held that Rule 7 allows distribution of credit to manufacturing or other units providing output services, rejecting the argument restricting credit to the unit of product manufacture.5. Following the legal precedent and reasoning from the Karnataka High Court decision, the Tribunal set aside the impugned order and allowed the appeal, emphasizing the entitlement to distribute Cenvat credit as per Rule 7, contrary to the restrictive interpretation.In conclusion, the Tribunal's decision favored the appellants based on the interpretation of Rule 7 and the legal precedent, allowing them to avail credit for services distributed by the ISD without restrictions based on the unit of product manufacture.