Manufacturing units receive favorable credit distribution ruling on input services; Commissioner's decision overturned.

The Larger Bench upheld the distribution of credits on input services among manufacturing units on a pro-rata basis, favoring the appellant. Consequently, the Commissioner (Appeals) order was set aside, and the appeal was allowed.

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Issues involved:
The appeal challenges the order confirming the demand of CENVAT credit and interest, upheld by the Adjudicating Authority, for a contract manufacturing unit engaged in manufacturing biscuits for a principal company. The key issue is whether the distribution of credits on input services by the principal company to its contract manufacturing units, including the appellant, on a pro-rata basis is justified under the CENVAT Rules.

Details of the Judgment:

Issue 1: Authorization and Manufacturing Arrangement
The appellant claims authorization by the principal company to manufacture biscuits on its behalf, complying with procedural formalities under the Central Excise Act and rules. Inputs for manufacturing are supplied by the principal company, and the appellant takes credit for payment of duty on the cleared biscuits. Input services are also availed and utilized by the appellant in accordance with the CENVAT Credit Rules.

Issue 2: Distribution of Credits
The principal company, registered as an input service distributor, centralized activities like advertisement and marketing for all manufacturing units. Credits on input services were distributed proportionately to turnover between the principal company's manufacturing plants and contract manufacturing units, including the appellant, as per the CENVAT Rules.

Issue 3: Legal Reference and Reservations
A Division Bench of the Tribunal referred questions regarding the legality of issuing Input Service Distributors' invoice and entitlement to CENVAT credit for input services attributed to goods on which excise duty is paid. The Larger Bench of the Tribunal upheld the justification of distributing credits on input services on a pro-rata basis, leading to the allowance of the appeal and setting aside of the Commissioner (Appeals) order.

Conclusion:
The Larger Bench's decision favored the appellant, affirming the justification of distributing credits on input services among manufacturing units. Consequently, the Commissioner (Appeals) order was set aside, and the appeal was allowed.

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