2026 (3) TMI 743 - AT - Central Excise

Cenvat Credit: centralized billing and registration permit distribution of input-service credit across units; disallowance and extended-period demand set aside.

Under the Cenvat Credit Rules, 2004 an input service distributor may consolidate and distribute input service credit across an assessee's units where ... Eligibility for CENVAT credit under centralized billing/accounting and centralized registration for input services used across multiple units including a DTA unit and 100% EOU - effect of centralized billing/centralized registration on availing and utilization of CENVAT credit - distribution/utilization of CENVAT credit - disallowance of credit and confirmation of demand. Eligibility for CENVAT credit on input services used commonly by multiple units - HELD THAT:- This Tribunal in the matter of M/s. ECOF Industries [2011 (4) TMI 560 - KARNATAKA HIGH COURT] where it is held that combined reading of the Rule 7 and the clarificatory Circular dated 23-8-2007 clearly shows that there are only two restrictions regarding the distribution of the credit. The first restriction is that the credit should not exceed the amount of service tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules, the restrictions sought to be applied by the Department in this case in limiting the distribution of the service tax. Since appellant have obtained central service tax registration and informed to the concerned authority regarding utilization of the credit from time to time. Fact being so, alleging illegality in utilization of the credit and demand is unsustainable. Cenvat credit availed against each services, we find that the issues are covered by the decisions as relied by the appellant including the judgment of the Hon’ble Supreme Court in the matter of M/s. Zydus Lifesciences Ltd. [2023 (12) TMI 6 - SC ORDER], appellant is eligible for the cenvat credit as claim by them. In view of the above discussion, the impugned order is unsustainable and liable to be set aside. Final Conclusion: The impugned adjudication order denying CENVAT credit and confirming demand (including on extended period) is set aside; the appeal is allowed and the appellant's claims for CENVAT credit are accepted in accordance with law. Issues: (i) Whether the appellant is eligible to avail and utilize CENVAT credit as claimed on input services where centralized billing/accounting and centralized registration were in place, including credit relating to services used across DTA unit, 100% EOU and trading unit; (ii) Whether the distribution/utilization of CENVAT credit and the confirmation of demand (including for extended period) by the adjudicating authority is sustainable.Issue (i): Eligibility to avail and utilize CENVAT credit under centralized billing/accounting and centralized registration for input services used across multiple units including a DTA unit and 100% EOU.Analysis: The Tribunal examined Rule 7 of the Cenvat Credit Rules, the Master Circular and related clarifications, the appellant's exercise of centralized registration under Rule 4(2) of the Service Tax Rules, and the communications evidencing consolidation of CENVAT balances. The Tribunal relied on precedent holding that distribution of credit by an input service distributor is subject only to the restrictions specified in the Rules (credit not exceeding service tax paid and exclusion for services exclusively attributable to exempted goods/services) and that availability of credit is related to the manufacturer/provider as a whole rather than to a particular unit. The Tribunal also considered higher court authority addressing eligibility of credit for services used across units and recent Supreme Court authority referenced by the parties concerning classification of certain services.Conclusion: The appellant is eligible to avail and utilize the CENVAT credit as claimed under the centralized billing/accounting and centralized registration regime; the utilization of credit across the appellant's units is permissible subject to the limits in the Rules.Issue (ii): Validity of the adjudicating authority's disallowance of credit and confirmation of demand (including invocation of extended period) on the ground that credits were irregular or willfully availed.Analysis: The Tribunal found that the adjudicating authority did not adequately account for the centralized registration/notification and the rules governing distribution of credit, and that the impugned findings of suppression and willful contravention were not sustainable on the record. Relevant case law and circulars relied upon by the appellant were held to support entitlement to credit for the service categories in issue; accordingly, the demand and penalties confirmed by the adjudicating authority were found unsustainable.Conclusion: The disallowance of CENVAT credit, confirmation of demand and penalty (including invocation of extended period) are unsustainable and are set aside in favour of the appellant.Final Conclusion: The impugned order is set aside and the appeal is allowed; the appellant's claims for CENVAT credit are upheld and consequential relief, if any, shall follow in accordance with law.Ratio Decidendi: Under the Cenvat Credit Rules, 2004 an input service distributor may distribute CENVAT credit across units subject only to the specified restrictions (credit not exceeding service tax paid and exclusion for services exclusively used for exempted goods/services), and centralized registration/billing/accounting permits consolidation and utilization of eligible CENVAT credit across the assessee's units.