Job worker manufacturing biscuits under principal's brand name entitled to CENVAT credit on input services under Section 4A

CESTAT Ahmedabad ruled in favor of job worker manufacturing biscuits under principal manufacturer's brand name. The case involved distribution of input service credit from principal manufacturer to contract manufacturing units and duty payment on MRP less permissible abatement under Section 4A of Central Excise Act. Following precedent set by larger bench in Krishna Food Products case, CESTAT held that job worker was entitled to CENVAT credit on input services. The tribunal set aside the impugned order and allowed the appeals, settling the issue in favor of the assessee.

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Issues Involved:

(a) Distribution of input service credit by the Principal manufacturer to its Contract Manufacturing Units (Job workers) for the period December 2010 to September 2015.

(b) Applicability of the judgment of the Larger Bench of Tribunal in Krishna Food Products regarding the distribution of credit prior to 01.04.2016.

(c) Invocation of the extended period and penal provisions in the absence of any conscious or deliberate suppression of facts or mis-statement by the Appellants.

Summary:

Issue (a): Distribution of Input Service Credit:
The core issue was whether the distribution of input service credit by the Principal manufacturer to its Contract Manufacturing Units (Job workers) was permissible for the period December 2010 to September 2015, prior to the amendment of Rule 7 of CCR effective from 01.04.2016. The appellant, manufacturing biscuits exclusively for Parle Biscuits Pvt. Ltd under Notification No. 36/2001-CE, claimed that they were treated as deemed principal manufacturers and thus entitled to CENVAT Credit. The Tribunal found that the contract manufacturer steps into the shoes of the principal when operating under the Registration Exemption Notification, and Rule 7 of CENVAT Rules allows distribution of credit to "its manufacturing units," which includes contract manufacturers.

Issue (b): Applicability of Krishna Food Products Judgment:
The Tribunal referred to the Larger Bench decision in Krishna Food Products, which held that the distribution of credit was permissible for the period prior to 01.04.2016 as the amendment to Rule 7 was clarificatory in nature and thus applicable retrospectively. The Tribunal concluded that the appellant was justified in distributing credits on input services attributable to the final product on a pro-rata basis proportionate to the turnover of each unit, including contract manufacturing units, under Rule 7(d) of the CENVAT Rules.

Issue (c): Invocation of Extended Period and Penal Provisions:
The Tribunal noted that there was no conscious or deliberate suppression of facts or mis-statement by the Appellants. Similar disputes with various CMUs of Parle had been resolved in their favor either on limitation by various Benches or on merits by the Larger Bench of the Tribunal. Consequently, the extended period and penal provisions were not invokable.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals in favor of the appellant, and concluded that the issue involved had been settled in favor of the assessee based on the judgment in Krishna Food Products. The matter was pronounced in the open court on 14.02.2024.

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