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. Additionally, the distribution of the credit to other units without following the prorata distribution principle was deemed acceptable for the period preceding 01.04.2012.

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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 Services
The 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 Units
The 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.

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