Manufacturing unit can receive entire input service credit from head office before April 2016 amendment

CESTAT Ahmedabad allowed the appeal regarding denial of Cenvat Credit distributed by ISD from Head Office to manufacturing unit during April-June 2012. The tribunal held that prior to April 2016 amendment, there was no mandatory requirement for proportionate distribution of input service credit among all units. The appellant could receive entire credit instead of proportional distribution. Additionally, other units had paid more duty than their attributed credit share, creating revenue neutrality. The demand was therefore not sustainable and the impugned order was set aside.

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Issues Involved:

a. Whether Cenvat Credit distributed during April to June 2012 by the Appellant's Head Office (Input Service Distributor) at Kolkata to the Appellant unit at Palej (Bharuch) can be denied on the ground that the ISD did not distribute the Credit amongst all units proportionate to the respective turnovers of the units, resulting in distribution of excess Credit to the Palej unit.

b. Whether the entire issue is revenue neutral, considering that the other units were paying Central Excise duty through PLA, which was much higher than the alleged excess credit distributed to the Appellant unit at Palej.

c. Whether the demand was barred by time and larger period of limitation was not applicable since the issue was revenue neutral and hence there can be no intention to evade duty.

Detailed Analysis:

Issue a: Proportionate Distribution of Cenvat Credit

The primary issue was whether the Cenvat Credit distributed by the Appellant's Head Office to the Palej unit could be denied on the grounds of non-proportionate distribution among all units based on their respective turnovers. The Tribunal noted that the requirement for proportionate distribution of credit was introduced with effect from 01.04.2016. Prior to this amendment, there was no statutory obligation for the assessee to distribute credit proportionately among different units. Therefore, the distribution of the entire credit to the Palej unit, instead of proportionately to all units, was permissible under the rules applicable during the period in question (April to June 2012). The Tribunal concluded that credit could not be denied on this basis, as the rules mandating proportionate distribution were not in force at the relevant time.

Issue b: Revenue Neutrality

The Tribunal addressed the argument of revenue neutrality, wherein it was contended that even if the credit was distributed entirely to the Palej unit, there was no revenue loss to the government. This was because the other units, which could have received proportionate credit, were paying significantly higher duties through the Personal Ledger Account (PLA) than the amount of credit involved. The Tribunal found this argument persuasive, noting that the situation was indeed revenue neutral. Consequently, the demand for reversal of credit was deemed untenable as there was no actual loss to the revenue.

Issue c: Time Bar and Limitation

Regarding the issue of time bar and the applicability of the extended period of limitation, the Tribunal did not delve into this matter in detail, as the appeal was decided on merits. However, it was noted that since the situation was revenue neutral, there could be no intention to evade duty, which is a prerequisite for invoking the extended period of limitation. The Tribunal left the issue of time bar open, as the appeal was resolved on the substantive grounds of credit distribution and revenue neutrality.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal. It was determined that the credit distribution to the Palej unit was in compliance with the rules applicable during the relevant period, and the situation was revenue neutral, negating any revenue loss to the government. The Tribunal's decision was supported by various judgments, including those from higher courts, which reinforced the view that procedural irregularities, such as non-registration of ISD or non-proportionate distribution of credit, should not result in denial of substantial benefits when the records are maintained and verifiable. The appeal was allowed, and the order was pronounced in open court on 23.10.2024.

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