2025 (9) TMI 328 - AT - Central Excise

Cenvat credit allowed for erection and installation at brand shop as within 'place of removal'; extended period demands set aside

CESTAT ALLAHABAD - AT allowed the appeal. The Tribunal held CENVAT credit for erection/commissioning/installation services at the appellant's brand shop ... CENVAT Credit - services received at depot-Brand Shop - credit denied by stating that these services are not the part of advertising agency services and were received at premises beyond the place of removal - Demand of reversal of CENVAT Credit on certain services – which are in respect of the trading activities - extended period of limitation - penalties. CENVAT Credit - services received at depot-Brand Shop - credit denied by stating that these services are not the part of advertising agency services and were received at premises beyond the place of removal - HELD THAT:- It is observed that appellant has availed CENVAT Credit in respect of certain services which have been received by them at their depot-Brand Shop. Undisputedly these credits are in respect of the erection commissioning and installation services received by them at the said premises. The credit has been sought to be denied by stating that these services are not the part of advertising agency services and were received at premises beyond the “place of removal”. Reliance has been placed on various decisions which were deciding the issue in respect of GTA Service received beyond the place of removal. As per the main of clause of definition of input services as per Rule 2 (l) of the CENVAT Credit Rules, 2004, the input services have been defined stating that “used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal”, and the place of removal has been defined by the Section 4 (3) (c) of the Central Excise Act, 1944. As per the decision of Hon’ble Supreme Court has in the case of MRF Ltd [1995 (5) TMI 28 - SUPREME COURT] the brand shop (depot) of appellant will be covered by the definition of “Place Removal” and all the expenses incurred at the depot became the part of the assessable value for payment of excise duty. The appellant incurred certain expenses towards the maintenance of brand shop, and these expenses were towards services of erection, commissioning, installation etc., which were subject to service tax. The CENVAT credit in respect of the service tax paid in respect of such services received by the appellant could not have been denied. The decisions relied upon in the impugned order are not on the issue in dispute and hence could not have been relied upon. Thus there are no merits in the impugned order to this extent. Demand of reversal of CENVAT Credit on certain services – which are in respect of the trading activities - HELD THAT:- Undisputed fact as has been acknowledged in the impugned order is that the appellant was receiving IPR Services from their principals in South Korea and paying the service tax due on the same on reverse charge basis. The said services were common input services both exempted trading services and for sale of the goods subjected to excise duty. The issue in the present case is not vis a vis the admissibility of CENVAT Credit in respect of the said service. The demand has been made for recovery of the amount to be reversed in terms of Rule 6 (3) of the CENVAT Credit Rules, 2004. Appellant have admitted and have reversed the amount due for the period February 2013 to January 2014, along with the interest. Impugned order records the said admission and proceeds to demand for the remaining period of demand i.e. for the period April 2011 to January 2013. Extended period of limitation - HELD THAT:- In the impugned order or in the show cause notice no specific reason has been stated for invoking extended period of limitation. It has not been brought on record as to what facts lead to invocation of extended period in the present case and for imposition of the penalties, on the appellant. In absence of any such allegation or finding in the impugned order, there are no position to hold that extended period of limitation could have been invoked for making this demand. There are no merits in the demand made by invoking the extended period of limitation except for the amount of CENVAT Credit for the period February 2013- January 2014 reversed by the appellant suo motto along with interest even prior to the issuance of Show Cause Notice. In terms of Section 11A(2), no show cause notice could have been issued for this amount. Penalties - HELD THAT:- As there are no merits in the invocation of extended period of limitation, the penalties imposed also set aside. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether Cenvat credit claimed on services described as 'Brand Shop Management' (including erection, commissioning, installation, construction and maintenance at dealers'/sub-dealers' premises and retail brand shops) qualifies as 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004 and is admissible when such services are performed and consumed beyond the place of removal (factory gate) of excisable goods. 2. Whether Cenvat credit availed on Intellectual Property Rights (IPR)/technical know-how services and distributed by the corporate Input Service Distributor (ISD) to the Greater Noida manufacturing unit was correctly claimed where a portion of such services is attributable to trading (exempt) activity and ought to have been reversed under Rule 6(3) read with Rule 7 of the Cenvat Credit Rules, 2004. 3. Whether extended period of limitation and consequential penalties could be invoked for alleged wrong availment of credit, in absence of specific allegations of fraud, collusion, wilful misstatement or suppression of facts in the show cause notices. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of Cenvat credit on Brand-Shop Management services performed at dealers'/retail premises beyond place of removal Legal framework: Definition of 'input service' in Rule 2(l) Cenvat Credit Rules, 2004 (services 'used by a manufacturer ... in or in relation to the manufacture of final products and clearance of final products up to the place of removal'); concept of 'place of removal' under Section 4(3)(c) of the Central Excise Act; inclusion clause of Rule 2 listing activities like advertisement/sales promotion and setting up/renovation of premises. Precedent treatment: The impugned adjudication relied on Tribunal and High Court authorities (Kohinoor Biscuit/Tribunal; Allahabad High Court) and Supreme Court decisions (Maruti Suzuki, Vikram Cement, Vandana Global, and larger-bench authorities) to define nexus requirements and the 'place of removal' test. The appellant invoked decisions holding depot/retail outlets may constitute place of removal (MRF, Vasavadatta, and supporting administrative clarifications and Madras High Court authority) to contend eligibility. Interpretation and reasoning: The adjudicating authority found invoices, completion certificates and the retainer agreement show activities and charges inclusive of cost of materials and civil/electrical/installation work at dealer premises - i.e., construction, erection, installation, maintenance performed beyond factory gate and consumed after removal/sale. The authority applied the 'nexus' test: an input service must be integrally connected with manufacture or clearance up to the place of removal. Where services are rendered and consumed beyond the place of removal (factory gate), they lack the requisite nexus and are not input services for Cenvat. The appellant argued place of removal can be depot/brand shop; the Tribunal majority (allowing appeal) concluded the evidence did not establish that the dealers'/brand shops were the place of removal in this factual matrix and relied on Supreme Court/CBEC guidance that eligible services availed up to the depot may be creditable but only after fact-specific enquiry; accordingly the appellate body found the impugned order erred in applying precedents about GTA beyond place of removal and held that the brand shop/depot may fall within place of removal and that, on facts, the credit on services received at depots could not be denied categorically. Ratio v. Obiter: Ratio in adjudication below emphasized that services performed beyond place of removal and not integrally connected to manufacture are not input services (following Maruti Suzuki and related Tribunal decisions). Appellate conclusion (reasoned as ratio for this appeal) is that factual determination whether a retail/depot is 'place of removal' is critical; where goods are sold from depots/brand shops as part of the manufacturer's distribution network, services performed at those depots may be within the ambit of Rule 2(l) and eligible for credit. The appellate discussion of precedents (MRF, Vasavadatta, Madras High Court) constitutes binding application to facts here; broader observations about other cases are persuasive/obiter for other fact patterns. Conclusion: On the facts of this appeal the Brand Shop/retail premises could qualify as place of removal; the impugned denial of Cenvat credit for erection/installation/maintenance at those premises was unsustainable. The appeal is allowed on this issue and the denial set aside insofar as it disallowed credit on Brand-Shop Management services received at depots/brand shops without appropriate factual determination showing lack of nexus with place of removal. Issue 2 - Admissibility and allocation of Cenvat credit on IPR/technical know-how services distributed by ISD where a portion is attributable to trading activity Legal framework: Rule 6(3) and Rule 7 of the Cenvat Credit Rules, 2004 (manner of distribution by ISD; non-distribution of credit attributable exclusively to exempted services; pro rata distribution where services used by more than one unit - distribution based on turnover); Finance Act service classification of IPR services; reverse charge payment of service tax and entitlement to Cenvat credit; obligation to reverse or pay back credit attributable to exempt/trading activities. Precedent treatment: Authorities cited (Elder Pharmaceuticals, Mercedes Benz, Orion Appliances, and relevant Tribunal decisions) recognise that even where Rule 6(5) (earlier) permitted full credit, credit attributable to trading activity is not admissible; ISD must allocate and reverse credit attributable to exempt/trading activity. Reliance on decisions that insisted on quantification and reversal under Rule 7 was applied by the adjudicating authority; reliance by appellant on a separate Pune Commissionerate order (on admissibility to Pune unit) was distinguished as factually different and not binding. Interpretation and reasoning: The record showed the corporate ISD distributed IPR credit to manufacturing units; the appellant admitted receipt of IPR services, payment of royalty and service tax under reverse charge, and that an amount attributable to trading activity had been computed by the appellant itself. The appellant had reversed/pay-back a portion (Feb 2013-Jan 2014) but failed to reverse amounts for Apr 2011-Jan 2013 (Rs. 89,26,288 as quantified by the appellant). The adjudicator found the appellant had admitted the applicability of Rule 7 and its own quantification but had not explained differential treatment for earlier period; absence of records separating common use between excisable and exempted goods meant reversal under Rule 6(3)/Rule 7 was required. The appellate body agreed that the issue in the SCN concerned mis-allocation under Rule 7 (not the abstract admissibility of IPR credit) and that the appellant's failure to reverse undisputed trading-attributable credit justified demand for that unpaid portion. The adjudicator applied Elder Pharmaceuticals (and similar authority) that entitlement to credit does not extend to trading activity and that quantification/disallowance is appropriate for normal limitation period where the issue is debatable; penalty/extended period findings were separately addressed (see Issue 3). Ratio v. Obiter: Ratio: An ISD must distribute credit in accordance with Rule 7; where a portion of input service credit is attributable to trading/exempt activity, that portion is not admissible to manufacturing units and must be reversed/paid back. Admission by the assessee of applicability and quantification of trading portion, without reversal for the full period, supports confirmation of demand. Observations distinguishing separate decisions regarding admissibility of IPR credit on merits (Pune determination) are obiter as they address a different factual/legal question. Conclusion: Demand for reversal and recovery of Cenvat credit attributable to trading activity (to the extent not already reversed) is upheld. The adjudication confirming recovery of the undisputed/unreversed portion of IPR-related credit distributed to the Greater Noida unit is sustained on the basis of admitted applicability of Rule 7 and appellant's own quantification; the appeal is dismissed on this point. Issue 3 - Invoking extended limitation period and imposition of penalties Legal framework: Proviso to Section 11A (extended period) and penalty provisions under Rule 15(2) read with Section 11AC; jurisprudence requiring specific and explicit allegations of fraud, collusion, wilful misstatement or suppression of facts to invoke extended limitation; burden of proof for mala fide conduct lies on revenue (Supreme Court authorities). Precedent treatment: Cited Supreme Court authority and subsequent decisions emphasize that extended period/proviso applies only when show cause notice specifies which allegation among fraud/collusion/wilful misstatement/suppression or contravention with intent is made; mere detection of irregularity or non-payment is insufficient. Interpretation and reasoning: The impugned order did not state specific reasons or factual findings amounting to fraud, collusion or wilful suppression to justify invocation of extended period. The appellate body noted internal audit detection during MLU audit and voluntary reversal for one period, but absence of explicit averments in SCN and lack of evidence of intentional evasion meant extended limitation could not be invoked. Similarly, penalties tied to invocation of extended period were inappropriate where the demand falls within normal limitation and the issues involved debatable questions of law/fact. The authority applied settled principles that revenue must plead and prove mala fide to extend limitation and that mere non-payment does not automatically convert into willful evasion. Ratio v. Obiter: Ratio: Extended period and penalties cannot be sustained where SCN lacks specific allegations of intent to evade duty or collusion and where no positive acts demonstrating mala fide are established; therefore demands for periods within normal limitation should be treated accordingly and penalties set aside where invocation of extended period was improper. Observations about audit detection and voluntary payment are explanatory/obiter to factual matrix. Conclusion: Invocation of extended period of limitation and imposition of penalties in respect of amounts for which no specific averments of fraud/intent were made is not sustainable; penalties imposed are set aside and extended-period demand is disallowed except insofar as the appellant had already reversed/paid the admitted amount (Feb 2013-Jan 2014), which did not require a show cause for extended period.