Tribunal ruling on CENVAT credit for input services distribution & membership fee eligibility.

The Tribunal set aside the demand alleging contravention of Rule 3(4) of CENVAT Credit Rules, 2004, regarding availing CENVAT credit on input services distributed by Head Office as ISD. The demand on membership fee for Bombay Gymkhana Club Ltd was upheld as not eligible. The appeals were partly allowed, with the disallowance of credit on the membership fee being upheld.

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Issues:
1. Availment of CENVAT credit on input services distributed by Head Office as ISD.
2. Eligibility of credit on membership fee for Bombay Gymkhana Club Ltd.

Analysis:

Issue 1: Availment of CENVAT credit on input services distributed by Head Office as ISD:
The appellants, engaged in manufacturing mosquito repellent coils, availed CENVAT credit on input services distributed by their Head Office as Input Service Distributor (ISD). The Department alleged contravention of Rule 3(4) of CENVAT Credit Rules, 2004, stating that credit availed by units under area-based exemptions cannot be distributed. The appellants argued that Rule 7 did not mandate pro-rata distribution before April 2012. They cited a High Court decision to support their claim. The Tribunal noted that Rule 7 did not impose restrictions on credit distribution before 2012. The demand alleging violation of Rule 3(4) was set aside as it did not apply to the appellant's credit utilization.

Issue 2: Eligibility of credit on membership fee for Bombay Gymkhana Club Ltd:
The Department raised a demand on the appellant for availing credit on membership fee for Bombay Gymkhana Club Ltd, claiming it was not an eligible input service. The appellant contended that the fee was for business activities and thus eligible. However, the Tribunal upheld the demand, stating that the fee did not have a nexus with the manufacturing activity. The demand on this ground was therefore upheld.

In conclusion, the Tribunal set aside the impugned order except for upholding the disallowance of credit on the membership fee. The appeals were partly allowed accordingly, with any consequential benefits.

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