2023 (6) TMI 242 - AT - Service Tax

Tribunal grants Cenvat Credit for input services in property creation. Prorata distribution rule not mandatory pre-2012.

The Tribunal allowed the appeals, determining that the Appellant is entitled to Cenvat Credit for input services utilized in creating immovable property. ... Eligibility of Cenvat credit for input services used in setting up immovable property - eligibility under Rule 2(l) of the Cenvat Credit Rules, 2004 - distribution of Cenvat credit by an Input Service Distributor - prorata distribution requirement prior to amendment w.e.f. 01.04.2012Eligibility of Cenvat credit for input services used in setting up immovable property - eligibility under Rule 2(l) of the Cenvat Credit Rules, 2004 - Appellant's entitlement to Cenvat credit taken for input services received by its Visakhapatnam unit which resulted in creation of immovable property for the period prior to 01.04.2011. - HELD THAT: - The Tribunal held that the question is no longer res integra and, applying precedents of High Courts and this Bench, accepted that where input services were availed prior to 1-4-2011 the definition of 'input service' then included services relating to setting up of factory/premises and such services qualify for Cenvat credit even if they resulted in immovable property. The Adjudicating Authority's focus on absence of nexus between the receiving units and the services did not amount to a challenge to the Appellant's initial eligibility under Rule 2(l); the Authority in fact conceded that the credit was correctly taken at the Visakhapatnam end. Having regard to earlier decisions and Board Circular No. 943/04/2011-CX (29-4-2011), the Tribunal held the Appellant entitled to the Cenvat credit claimed for the period in dispute. [Paras 16]Cenvat credit of the appellant for the input services used in setting up the Visakhapatnam unit (period up to 31.03.2011) is allowed.Distribution of Cenvat credit by an Input Service Distributor - prorata distribution requirement prior to amendment w.e.f. 01.04.2012 - Validity of distribution of Cenvat credit by the Appellant's Head Office to other units (via ISD) for the period prior to 01.04.2012 without applying a prorata formula. - HELD THAT: - The Tribunal noted that Rule 7 (as in force prior to the later insertion of clause (d)) did not impose a prorata distribution requirement and relied on the decisions of the High Courts (Dashion Ltd and National Engineering Industries Ltd) and the Board Circular dated 16.02.2018 which accepted those decisions. As those authorities and the Board treat distribution prior to the amendment as permissible and revenue-neutral (subject to the conditions in the Rules), the Tribunal found no error in the Appellant's distribution of service tax credit to its other units for the disputed period. [Paras 19]Distribution of Cenvat credit by the appellant to its other units during the period 2006-2011 is held to be permissible and the challenge to such distribution is rejected.Final Conclusion: Appeals allowed: the Cenvat credit claimed for input services used in setting up the Visakhapatnam unit for the period up to 31.03.2011 is held to be eligible, and the distribution of that credit to other units by ISD during the disputed period is held to be permissible in view of the pre-amendment position and subsequent Board circular. Issues Involved:1. Eligibility of Cenvat Credit for input services used in setting up and expansion of the factory premises.2. Distribution of Cenvat Credit to other units without following the principle of prorata distribution.Summary:Issue 1: Eligibility of Cenvat Credit for Input ServicesThe Appellant, a manufacturer of chemical products, claimed Cenvat Credit for input services used in setting up and expanding their Visakhapatnam unit during 2006-07 to 2010-11. The Department contended that since these services resulted in the creation of immovable property, no Excise Duty or Service Tax was paid, making the credit ineligible. The Appellant argued that tribunals and high courts have consistently held that Cenvat Credit is permissible even if the services result in immovable property. The Tribunal referred to the High Court of Punjab & Haryana in the case of Bellsonica Auto Components India Pvt Ltd, which supported the Appellant's stance, stating that such services are covered under Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal concluded that the Appellant is eligible for the Cenvat Credit of Rs.4,18,68,904/- for the period in question.Issue 2: Distribution of Cenvat Credit to Other UnitsThe Department also challenged the distribution of Cenvat Credit to other units, arguing that the credit was transferred without a nexus to the services received by the Visakhapatnam unit and without following any prorata distribution principle. The Appellant countered that prior to 01.04.2012, there was no requirement for prorata distribution. The Tribunal referred to the Board Circular No. 1063/2/2018-CX and judgments from the High Courts of Gujarat and Rajasthan, which clarified that Cenvat Credit could be distributed in any manner before the amendment effective from 01.04.2012. The Tribunal found no error on the part of the Appellant in distributing the Service Tax to other units during the disputed period and allowed the appeal.Conclusion:The Tribunal allowed the appeals, holding that the Appellant is eligible for the Cenvat Credit for input services used in the creation of immovable property and that the distribution of such credit to other units without prorata distribution was permissible for the period before 01.04.2012.