Manufacturer can distribute CENVAT credits between registered units as input service distributor under Rule 7

The HC ruled in favor of the taxpayer regarding CENVAT credit distribution between registered units of a company. The court held that once a manufacturer registers as an input service distributor under Rule 7 of CENVAT Credit Rules, 2004, it can distribute service tax credits between its various units subject only to specified limitations. The court emphasized that company divisions/units are not separate legal entities and rejected the revenue's argument that credits cannot be transferred between units. The HC also noted that show cause notices cannot be issued for credits that were reversed or paid back before notice issuance. Revenue's appeal was dismissed.

---

---

Issues Involved:
1. Whether the CESTAT, Kolkata erred by allowing Tata Steel Limited, Jamshedpur to take all the CENVAT Credit alone.
2. Whether the CESTAT, Kolkata erred by holding that the Companies Act, 1956 may supersede the provisions of the Central Excise Act, 1944/Finance Act, 1994 and the rules made thereunder in respect of laws and procedure of taxation.

Detailed Analysis:

Issue 1: Allocation of CENVAT Credit
The primary issue was whether Tata Steel Limited (TSL), Jamshedpur was entitled to take all the CENVAT Credit alone, despite services being provided to separate registered units of Tata Steel Division. The Tribunal held that TSL was entitled to distribute the credit of service tax paid in respect of services under the Brand Equity and Business Promotion Agreement (BEBP) exclusively to its Jamshedpur Steelworks. This decision was based on the relevant legal provisions, which had received approval from the Karnataka High Court, Gujarat High Court, and the Supreme Court of India.

The Tribunal applied the decision of its coordinate Bench in the case of Jubiliant Life Science Limited vs. Commissioner of Customs, Central Excise & Service Tax, which was affirmed by the Supreme Court. The Tribunal concluded that the credit was correctly availed, distributed, and utilized by TSL, and thus, the tax demanded and penalties imposed by the Commissioner were unsustainable.

Issue 2: Supersession by the Companies Act, 1956
The second issue was whether the Tribunal erred by holding that the Companies Act, 1956 may supersede the provisions of the Central Excise Act, 1944/Finance Act, 1994. The Tribunal's decision was based on the settled legal position that divisions and units of a company are not separate legal entities but part of the same legal entity, the company. This interpretation was supported by various judicial precedents, including decisions by the Tribunal and the Supreme Court.

The Tribunal noted that the restriction on distribution of credit to only the unit receiving the particular service was introduced by the Finance Bill, 2012, effective from April 1, 2012. Therefore, there was no such restriction prior to this date, and the credit distributed by the ISD (Head Office of TSL at Mumbai) to the Jamshedpur Steelworks was legal and valid.

Additional Considerations:
- Input Service Distributor (ISD) Provisions: The Tribunal emphasized that the law mandates manufacturers to register as an ISD to distribute the credit of service tax paid on input services to various units. The only limitations are that the credit distributed should not exceed the amount of service tax paid and should not be distributed to units exclusively engaged in manufacturing exempted goods or providing exempted services.

- Reversal of Credit: TSL had reversed the credit amounting to Rs. 83,86,784/- along with interest before the issuance of the show cause notice, which the Tribunal found to be in compliance with the provisions of the CENVAT Credit Rules.

- Judicial Precedents: The Tribunal's decision was consistent with earlier judicial decisions, including those of the Karnataka High Court in Commissioner of C.Ex., Bangalore vs. ECOF Industries Pvt. Ltd., and the Gujarat High Court in Commissioner of Central Excise vs. Dashion Ltd.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's decision that TSL was entitled to distribute the CENVAT Credit exclusively to its Jamshedpur Steelworks and that the provisions of the Companies Act, 1956 did not supersede the Central Excise Act, 1944/Finance Act, 1994 in this context. The questions of law were decided against the Revenue, and the appeal was dismissed.

---