Input service distributor credit and extended limitation fail where proportionate allocation is proper and no suppression is proved.

Rule 7 of the Cenvat Credit Rules, 2004, as applicable during the relevant period, permitted an input service distributor to allocate credit on a turnover basis, and the Tribunal treated sales promotion services received through the common distributor as validly distributable even though they related to the final product of another unit. The post-amendment mandatory wording was held inapplicable to the dispute period, so denial of Cenvat credit was not sustainable. On limitation, regular ER returns and audit-based verification did not establish fraud, collusion, wilful misstatement, or suppression with intent to evade duty, so the extended period could not be invoked and the notice was time-barred.

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Issues: (i) Whether Cenvat credit distributed by the input service distributor on sales promotion services could be denied to the appellant unit on the ground that the services related to the final product manufactured by another unit; (ii) Whether the show cause notice invoking the extended period of limitation was barred by time.

Issue (i): Whether Cenvat credit distributed by the input service distributor on sales promotion services could be denied to the appellant unit on the ground that the services related to the final product manufactured by another unit.

Analysis: Rule 7 of the Cenvat Credit Rules, 2004, as it stood during the relevant period, permitted distribution of credit by an input service distributor on a turnover basis and did not restrict distribution merely because the service was connected with the final product of another unit. The Tribunal held that the appellant manufactured an essential ingredient of the final product, the service was received by the common input service distributor, and the credit had been proportionately distributed among units. The post-amendment version introducing mandatory language was held inapplicable to the period in dispute.

Conclusion: The denial of Cenvat credit was not sustainable, and the credit distribution was held to be proper in favour of the assessee.

Issue (ii): Whether the show cause notice invoking the extended period of limitation was barred by time.

Analysis: The appellant had been filing regular ER returns and the Department relied on audit records. The Tribunal found no positive act of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade duty. In the absence of such ingredients, the extended period could not be invoked.

Conclusion: The show cause notice was held to be time-barred and the extended period of limitation was unavailable to the Department.

Final Conclusion: The credit demand and penalty could not be sustained either on merits or on limitation, and the appellant's challenge succeeded in full.

Ratio Decidendi: Credit distributed by an input service distributor cannot be denied on a narrow unit-wise application where the service is commonly attributable and the statutory distribution rule during the relevant period permits proportionate allocation; the extended period of limitation requires proof of deliberate suppression or equivalent culpable conduct.

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