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 strict interpretation of Rule 7 of Cenvat Credit Rules 2004 prevailing before April 1, 2012, the company was entitled to entire credit distributed by head office to its unit, despite having three units. Following Bombay HC precedent in Commissioner vs. Oerlikon Balzers case, CESTAT found the demand contrary to Rule 7 provisions and existing judgments. The impugned order was set aside and appeal allowed.

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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 unit

The 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 appellant

The 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, 1944

The 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.

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