Appellant's Compliance with Rule 7 Pre-2012 Amendment Upheld, CENVAT Credit Distribution Allowed

The Tribunal concluded that the appellant complied with Rule 7 before the 2012 amendment, allowing distribution of CENVAT credit among units without pro rata distribution. The demand to disallow the credit was deemed unsustainable, leading to the setting aside of the impugned order and allowing the appeals. The consistent judicial view supported the appellant's position, resolving the issue definitively.

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Issues Involved:
1. Validity of CENVAT credit availed on ISD invoices.
2. Compliance with Rule 7 of the Cenvat Credit Rules, 2004.
3. Applicability of amendments to Rule 7 effective from 1.4.2012.
4. Distribution of CENVAT credit among units.

Detailed Analysis:

1. Validity of CENVAT Credit Availed on ISD Invoices:
The primary issue revolves around the appellant availing CENVAT credit based on ISD invoices issued by the head office for various services. The adjudicating authority disallowed this credit, arguing that proper records were not maintained to show the services availed by the Tarapur Unit. The authority contended that the credit was allocated without considering whether the services were used in or related to the manufacturing activities at the Tarapur Unit.

2. Compliance with Rule 7 of the Cenvat Credit Rules, 2004:
The appellant argued that during the relevant period (November 2005 to October 2006), Rule 7 did not require proportional distribution of credit based on the usage in respective units. The rule was amended effective from 1.4.2012 to include this provision. The appellant cited several judgments (ECOF Industries Pvt. Ltd., India Cements Ltd., Doshion Ltd., National Engineering Indus. Ltd., Diamond Power Infrastructure Ltd.) to support their claim that the credit should not be denied as the conditions of Rule 7 were met.

3. Applicability of Amendments to Rule 7 Effective from 1.4.2012:
The Tribunal noted that Rule 7, prior to the amendment on 1.4.2012, required only two conditions for distributing input service credit:
- The credit distributed should not exceed the amount of service tax paid.
- Credit attributable to services used exclusively for exempted goods or services should not be distributed.

The Tribunal found that these conditions were complied with, and there was no restriction on the quantum of credit to be distributed before the amendment. Therefore, the demand based on the premise that the service credit was not used in the appellant's factory was not sustainable.

4. Distribution of CENVAT Credit Among Units:
The Tribunal referred to the ECOF Industries Pvt. Ltd. case, which clarified that the availability of credit is related to the manufacturer or service provider as a whole and not restricted to any particular unit. The Master Circular dated 23-8-2007 and subsequent judgments confirmed that there were no restrictions on distributing credit among units, provided the two conditions of Rule 7 were met.

The Tribunal also cited the India Cements Ltd. case, which emphasized that the term "an office" in Rule 2(m) should be interpreted broadly to include multiple offices that distribute credit. The National Engineering Indus. Ltd. case reaffirmed that the rule allowed distribution of credit among units without pro rata distribution until the amendment in 2012.

Conclusion:
The Tribunal concluded that the appellant complied with the conditions of Rule 7 as it stood before the amendment on 1.4.2012. The demand for disallowing the CENVAT credit was not sustainable. The impugned order was set aside, and the appeals were allowed. The consistent view across various judgments supported the appellant's position, making the issue no longer res integra.

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