CENVAT credit distribution from captive mines to manufacturing units through Input Service Distributor invoices allowed under Rule 7(b)

CESTAT Kolkata allowed the appeal regarding CENVAT credit distribution of input services from captive mines to manufacturing units through Input Service Distributor invoices. The Tribunal held that since both mines and manufacturing units belonged to the same legal entity engaged in manufacturing dutiable goods, the distribution of credit was legally permissible under CENVAT Credit Rules. The Commissioner's finding that credit distribution violated Rule 7(b) was deemed untenable. The Tribunal relied on its earlier decision in a similar case covering 2016-2017 period. Service tax demands, interest, and penalties were set aside.

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Issues:
1. Whether the Appellant is entitled to avail CENVAT Credit of input services relating to captive mines.
2. Whether the distribution of credit by the captive mines as Input Service Distributor (ISD) is in accordance with the law.

Analysis:

Issue 1:
The appeal was filed against an Order-in-Original confirming the demand of service tax, interest, and penalty by the Commissioner of Central Excise and Service Tax. The Appellant, a manufacturing unit of Steel Authority of India Ltd. (SAIL), procured raw materials from captive mines under SAIL's control. The Appellant availed CENVAT Credit based on ISD invoices issued by the mines. The Commissioner alleged that since the mines were exempt from duty payment and not under the Appellant's office but SAIL's administrative control, they were not eligible to distribute credit. The Appellant argued that captive mines are integral to manufacturing units and inputs used in captive mines for production of dutiable goods are eligible for credit. The Tribunal, referring to previous decisions, held that the Appellant is entitled to avail CENVAT Credit of input services from captive mines.

Issue 2:
The Tribunal found that the Appellant and the mines belong to one legal entity engaged in manufacturing dutiable goods. The Tribunal held that the distribution of credit by the mines as ISD is in accordance with the law. It was concluded that the Commissioner's observation that the distribution of credit by the mines contravened Rule 7(b) of the CENVAT Credit Rules was legally untenable. Consequently, the Tribunal set aside the demands of service tax, interest, and penalty confirmed in the impugned order and allowed the appeal filed by the Appellant.

The Tribunal's decision was based on the integral link between the captive mines and the manufacturing unit, allowing the Appellant to avail CENVAT Credit of input services from the mines and confirming the legality of the credit distribution by the mines as ISD.

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