2025 (1) TMI 785 - AT - Central Excise

ISD invoices for advertisement services qualify for CENVAT credit when directly linked to dutiable goods

CESTAT Allahabad allowed the appeal regarding admissibility of CENVAT credit passed through ISD invoices for input services of advertisement/sale ... Admissibility of CENVAT Credit passed on through ISD invoices - input service of advertisement /sale promotion - HELD THAT:- The issue herein is squarely covered in favour of the Appellant by the Larger Bench ruling of this Tribunal in the case of Krishna Food Products [2021 (5) TMI 906 - CESTAT NEW DELHI (LB)]. Under similar facts and circumstances, the Division Bench of this Tribunal held that 'This issue is whether the appellant would, irrespective of the answer to the first issue, be entitled to avail CENVAT credit when input service is attributed to the goods on which excise duty is paid and includes the cost of services on which credit was taken.' Conclusion - The issuance of ISD invoices by Parle Biscuits Pvt. Ltd. to its CMU was legal and correct. The appellant was entitled to avail CENVAT credit for input services attributed to the goods on which excise duty was paid. Appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the issuance of Input Service Distributor (ISD) invoices by the principal manufacturer (Parle Biscuits Pvt. Ltd.) to its Contract Manufacturing Unit (CMU) is legal and correct under Notification No. 36/2001-CE (NT).Whether the appellant (CMU) is entitled to avail CENVAT credit for input services when the input service is attributed to the goods on which excise duty is paid, including the cost of services on which credit was taken.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of ISD Invoices IssuanceRelevant legal framework and precedents:The case revolves around the interpretation of Rule 7 of the CENVAT Credit Rules, 2004, and Notification No. 36/2001-CE (NT). The Tribunal also referenced the judgment in Sunbell Alloys Co. of India Ltd. V/s Commr. of C. Ex., Belapur.Court's interpretation and reasoning:The Tribunal examined whether the CMU, being a separate legal entity, could receive CENVAT credit distributed by the ISD of Parle Biscuits Pvt. Ltd. The Tribunal found that the Larger Bench ruling in Krishna Food Products was applicable, supporting the legality of such distribution.Key evidence and findings:The Tribunal noted the comprehensive manufacturing role of the CMU, which undertook the entire manufacturing process for Parle Biscuits Pvt. Ltd., including packaging and dispatch.Application of law to facts:The Tribunal applied the provisions of the CENVAT Credit Rules to the facts, acknowledging that the CMU was engaged in manufacturing activities on behalf of the principal manufacturer and that the distribution of credit was proportionate to the turnover.Treatment of competing arguments:The Department argued that the CMU was not eligible for the credit as it was not a manufacturing unit of the ISD. However, the Tribunal found the appellant's argument, supported by the Larger Bench decision, more persuasive.Conclusions:The Tribunal concluded that the issuance of ISD invoices by Parle Biscuits Pvt. Ltd. to its CMU was legal and correct.Issue 2: Entitlement to CENVAT CreditRelevant legal framework and precedents:The Tribunal considered the provisions of Rule 2(m) and Rule 7 of the CENVAT Credit Rules, 2004, as well as the amendments post-01.04.2016.Court's interpretation and reasoning:The Tribunal emphasized that CENVAT is a beneficial scheme designed to prevent the cascading effect of taxes. It found that even under the unamended rules, the distribution of credit to manufacturing units, including job workers, was permissible.Key evidence and findings:The Tribunal noted that the input services, such as advertising and sales promotion, were used in the manufacture of the final products, justifying the distribution of credit.Application of law to facts:The Tribunal applied the rules to the appellant's situation, recognizing that the credit was distributed based on the turnover and was related to the manufacturing activities undertaken by the CMU.Treatment of competing arguments:The Department's argument that the CMU was not entitled to the credit was dismissed based on the Tribunal's interpretation of the rules and the Larger Bench's decision.Conclusions:The Tribunal concluded that the appellant was entitled to avail CENVAT credit for input services attributed to the goods on which excise duty was paid.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'CENVAT is a beneficial scheme with the stated purpose of allowing CENVAT credit of all taxes paid on inputs and services so as to avoid cascading effect of taxes and duties.'Core principles established:The distribution of CENVAT credit by an ISD to a CMU is permissible under the CENVAT Credit Rules, provided the credit relates to input services used in the manufacture of final products.The amendments to the CENVAT rules post-01.04.2016 are considered clarificatory and applicable from the inception of the rules.Final determinations on each issue:The issuance of ISD invoices by Parle Biscuits Pvt. Ltd. to its CMU was legal and correct.The appellant was entitled to avail CENVAT credit for input services attributed to the goods on which excise duty was paid.In conclusion, the Tribunal allowed the appeal, setting aside the impugned order, and granted consequential relief to the appellant.