2023 (11) TMI 720 - AT - Central Excise

Puducherry manufacturing unit has proper jurisdiction for CENVAT credit disputes despite credits distributed from Bangalore ISD unit

CESTAT Chennai held that the Puducherry manufacturing unit had proper jurisdiction to face show cause notices for wrongful CENVAT credit availment, ... Lack of Jurisdiction - principle of comity and doctrine of impossibility - Wrongful availment of CENVAT Credit of service tax paid at Puducherry - credit is attributable to trading activity done at Bangalore unit of the company - nexus of input services to manufacturing activity. The first point argued by the Ld. Counsel for appellant is that Show cause notices issued to the appellant- manufacturing unit at Puducherry is without jurisdiction - HELD THAT:- The Head office situated at Bangalore is registered as ISD and thus distributed the credit to the appellant in terms of Rule 7 of CCR, 2004 - Rule 9 speaks about the documents on which credit can be availed. The main contention of the appellant is that as the Head Office at Bangalore has availed credit and distributed the same to the appellant- manufacturing unit at Puducherry, the excise formation at Puducherry lacks jurisdiction to allege wrong availment of credit, issue notice of demand to disallow the credit or recover the same. In other words, it is argued that the Puducherry unit being the unit which has received the credit which was distributed by Bangalore unit, the eligibility of credit cannot be questioned at the end of recipient unit. From Rule 14, it is clear that the wrongly availed credit is to be recovered from the manufacturer/ service provider. Rule 14 uses the words ‘taken and utilised wrongly’. Later, in 2008, the word ‘and’ was substituted with ‘or’. It has to be stated that, whether be it ‘AND’ or ‘OR’ the demand can be made against the appellant-manufacturer who has utilised the credit for payment of duty - In the present case, the Bangalore unit is not able to utilise the huge credit. It is only the manufacturing unit that can utilise the credit for payment of duty. For this reason, we have to say that the Show Cause Notice issued to the appellant- Puducherry unit is well within the jurisdiction. The method of ISD registration and distribution between several units of a corporate body is a facilitation by which the availment of credit is made convenient when there are more than one unit. The tax paid on input services is availed as credit by the Bangalore unit (ISD). Usually, the invoices are raised in favour of Head office by the service provider even though the services may be consumed in other units. The ISD unit therefore avails the credit on behalf of the other units and then distributes it as per provisions of law - the appellant manufacturing unit who has received the credit distributed by the ISD unit cannot be said to be a recipient unit in literal sense so as to oust the jurisdiction of the formations at Puducherry - the issue on jurisdiction is answered in favour of Revenue and against assesse. The credit availed on various input services prior to 01.04.2011 have been denied alleging that there is no nexus for input services with the manufacturing activity. Prior to 01.04.2011 all these services the definition of input services had a wide ambit as it contained the words ‘activities relating to business’. So for the period prior to 01.04.2011 are availed for activities relating to the credit availed is eligible as these services are business of the manufacturer. For the period after 01.04.2011 it can be seen that in the appellant’s own case the credit availed on all services, except Housekeeping services and AMC/warranty services have been allowed. The department having allowed the credit for certain period cannot deny credit for other subsequent/different periods. Credit is availed on exempted services (trading) - HELD THAT:- In the present case, the trading activity takes place mainly at Head office at Bangalore. The credit availed in respect of trading at Bangalore unit is only Rs.9,49,60,261/- on the total turnover. There is a huge balance of unavailed credit or undistributed credit lying in stock with the Bangalore unit. This being so, it cannot be alleged that the credit in respect of trading has been distributed. The Departmnet has not been able to explain as to how Rs.1,73,60558/- pertains to trading when the credit has been distributed to the appellant unit. It is settled law that it is not required that there should be one to one correlation for availment of credit or utilisation. The same would apply for distribution of credit by ISD also. This being so, the explanation put forward by appellant with their consistent plea is tenable and acceptable. The denial of Cenvat Credit for different periods and the demand raised thereon cannot sustain. The issue on merits is answered in favour of assessee and against the Revenue - Appeal allowed. Issues Involved:1. Jurisdiction of the Show Cause Notices.2. Eligibility of CENVAT credit on various input services.3. Credit availed on input services related to trading activity.4. Consistency in the Department's stance on input services across different periods.Summary:Jurisdiction of the Show Cause Notices:The appellant argued that the Show Cause Notices issued to the manufacturing unit at Puducherry lacked jurisdiction since the Head office at Bangalore, registered as Input Service Distributor (ISD), distributed the credit. The Tribunal held that the demand could be raised against the appellant-manufacturer who utilized the credit for payment of duty, and thus, the Show Cause Notice issued to the Puducherry unit was within proper jurisdiction. This view was supported by the decision in Clariant Chemicals India Ltd., emphasizing that the manufacturing unit, which utilizes the credit, is the appropriate entity to address the demand.Eligibility of CENVAT Credit on Various Input Services:The definition of 'input service' under Rule 2(l) of CCR, 2004 was analyzed for periods before and after 01.04.2011. For the period before 01.04.2011, the credit availed was deemed eligible as the definition included 'activities relating to business.' For the period after 01.04.2011, the Tribunal noted that the Department had allowed credit for certain periods and could not deny it for others. Services like Housekeeping and Warranty/AMC were also discussed, with the Tribunal finding them eligible based on previous decisions and the nature of the services.Credit Availed on Input Services Related to Trading Activity:The Department alleged that part of the credit distributed related to trading activity, which is not an eligible input service. The appellant countered this by providing detailed calculations showing that the credit distributed did not pertain to trading activity. The Tribunal accepted the appellant's explanation, noting that the Department failed to counter the figures and calculations provided by the appellant.Consistency in the Department's Stance on Input Services Across Different Periods:The Tribunal observed that the Department had allowed credit on certain input services in subsequent periods while denying it for earlier periods. This inconsistency was noted, and the Tribunal held that the Department could not deny credit for earlier periods when it had allowed it for subsequent ones.Conclusion:The Tribunal set aside the impugned orders, allowing the appeals with consequential reliefs, if any. The issues on jurisdiction and merits were resolved in favor of the assessee and against the Revenue.