Tribunal Upholds Decision on Improper Credit Distribution

The Tribunal upheld the Commissioner's decision that the appellants violated Rule 7(c) of CCR, 2004 by improperly distributing credit on input services related to dealer premises and unregistered godown, which were not eligible for credit under Rule 2(l) of CCR, 2004. The appellants' argument that the demand was time-barred was rejected, as activities were not properly intimated to the Department. The reduced penalty was considered appropriate, and the Tribunal dismissed both appeals, affirming the original order.

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Issues:
- Appeal against order rejecting appeal in respect of SCN dated 14.03.2016 and upholding demand of Rs. 1,71,661/- with reduced penalty for SCN dated 04.07.2016.
- Availing CENVAT credit on input services related to dealer premises and unregistered godown.
- Allegations of wrongly availed CENVAT credit, violation of Rule 7(c) of CCR, 2004, and suppression of facts.
- Arguments regarding sustainability of the impugned order, activities in premises, time-barring of demand, and late filing.

Analysis:
The case involved two appeals challenging an order passed by the Commissioner (A) rejecting one appeal and upholding a demand with reduced penalty in another. The appellants, engaged in manufacturing corrugated boxes, availed CENVAT credit on input services related to their dealer premises and unregistered godown. The Department alleged wrongful availment of credit and violation of Rule 7(c) of CCR, 2004. A show cause notice (SCN) was issued demanding duty, interest, and penalty. The original authority confirmed the demand, leading to the appeal.

The appellants argued that the impugned order lacked legal sustainability, emphasizing the activities in the premises, rent, labor, and security payments made based on invoices raised on the manufacturing unit. They contended that the demand was time-barred, citing prior intimation to the Department about activities. The Department countered, stating the credit availed did not fall under the definition of 'input services.'

After hearing both sides and reviewing the records, the Tribunal found that the appellants' manufacturing facility, head-office, dealer premises, and unregistered godown were all in the same industrial area. The appellants, registered as an input service distributor, distributed credit of Service Tax on input services solely to the manufacturing unit. The Tribunal upheld the Commissioner's finding that the appellants violated Rule 7(c) of CCR, 2004 by distributing credit improperly. It was also held that the availed credit on services related to the dealer premises and unregistered godown did not pertain to the manufacture of final products, thus not eligible under Rule 2(l) of CCR, 2004.

The Tribunal noted that the letter dated 18.03.2013 only informed about job-work, not about availing CENVAT credit on services received. The reduced penalty for the subsequent period was deemed appropriate as suppression could not be alleged. Consequently, the Tribunal upheld the impugned order, dismissing both appeals.

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