2024 (5) TMI 325 - AT - Central Excise

Company entitled to entire Cenvat credit distributed by head office under Rule 7 interpretation

CESTAT Ahmedabad ruled in favor of appellant company regarding Cenvat credit entitlement for period April 2008 to March 2012. The tribunal held that under ... Entitlement to Cenvat credit on the entire credit distributed by their head office despite the fact that the appellant company having three units - period April 2008 to March 2012 - HELD THAT:- In view of strict interpretation of Rule 7 prevailing prior to 01.04.2012, the entire credit distributed by the head office of the appellant to the appellant’s unit alone is absolutely in the order and the same cannot be disputed. This issue has been considered by the Hon’ble Bombay High Court in the case of THE COMMISSIONER, CENTRAL TAX, PUNE-I COMMISSIONERATE VERSUS M/S. OERLIKON BALZERS COATING INDIA P. LTD. [2018 (12) TMI 1300 - BOMBAY HIGH COURT] wherein it was held that 'our attention is invited to Rule 7 of the CENVAT credit Rules, 2004 as substituted w.e.f. 1.4.2016 which has made it mandatory for distribution of input services to the various units providing output services. This is evidence by the use of words “shall distribute the Cenvat Credit” in the substituted Rule 7 as Cenvat Credit Rules 2004 w.e.f. 1.4.2016. Therefore, on plain reading of Rule 7 as existing both pre and post amendment 2012 covering period involved in these proceedings, the respondent - assessee was entitled to utilize the CENVAT credit available at its Pune unit.' Thus, the entire demand which is contrary to the Provision of Rule 7 and the various judgments given on this issue, the demand is not sustainable - the impugned order is set aside - appeal is allowed. Issues Involved:1. Eligibility of the appellant to avail the entire Cenvat credit distributed by the ISD to one unit.2. Jurisdiction of the show cause notices issued to the appellant.3. Applicability of the extended period of limitation u/s 11A of the Central Excise Act, 1944.Issue 1: Eligibility of the appellant to avail the entire Cenvat credit distributed by the ISD to one unitThe appellant's head office, registered as an input service distributor (ISD), distributed the entire service tax credit to the Silvassa unit, although the appellant had other manufacturing units in Haryana and Jammu & Kashmir. The department, based on a CERA audit, issued five show cause notices alleging that the appellant was only eligible to avail 1/3rd of the credit and the remaining 2/3rd should have been distributed to the other units. The adjudicating authority confirmed the demand of Rs. 49,58,186/- along with an equivalent penalty, which was upheld by the Commissioner (Appeals).The Tribunal found that during the relevant period (April 2008 to March 2012), Rule 7 of the Cenvat Credit Rules, 2004 did not mandate proportionate distribution of credit among various units. The amended provision requiring pro-rata distribution came into effect only from 01.04.2012. The Tribunal cited multiple judgments, including those of the Bombay High Court and CESTAT, which supported the appellant's position that the distribution of the entire credit to one unit was permissible under the unamended Rule 7.Issue 2: Jurisdiction of the show cause notices issued to the appellantThe appellant contended that the show cause notices were without jurisdiction as the issue of whether the ISD could distribute the entire credit to the Silvassa unit should be examined at the ISD level, not at the recipient unit's end. The Tribunal did not explicitly address this jurisdictional argument but focused on the substantive issue of credit distribution.Issue 3: Applicability of the extended period of limitation u/s 11A of the Central Excise Act, 1944The appellant argued that the demand for the extended period was time-barred as there was no suppression of facts. The credit was availed based on statutory invoices and declared in statutory registers and monthly ER-1 returns. The Tribunal, having decided the appeal on merits, did not address the limitation issue but noted that subsequent show cause notices on the same issue cannot invoke the extended period of limitation.Conclusion:The Tribunal set aside the impugned order, allowing the appeal with consequential relief, if any, in accordance with law. The demand was found unsustainable as the distribution of the entire credit to one unit was in accordance with the unamended Rule 7 of the Cenvat Credit Rules, 2004.