TaxTMI 
TaxTMI 
2021 (5) TMI 906
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.... had taken a contrary view. The Division Bench, therefore, referred the following two questions for consideration by a Larger Bench of the Tribunal: "(i) Whether issuance of Input Service Distributors' invoice by Parle to its contract manufacturing unit is legal and correct when the contract manufacturing is carried out in terms of notification No. 36/2001-CE (NT). (ii) Irrespective of the position that whether issuance of Input Service Distributors' invoice by Parle to Krishna is correct or otherwise, whether Krishna still is entitled for cenvat credit when the input service is attributed to the goods on which excise duty is paid includes the cost of services on which credit was taken." 2. To appreciate the aforesaid two issues, it would be useful to reproduce certain essential facts. 3. M/s. Krishna Food Products, the appellant is the sole appellant in Excise Appeal No. 52692 of 2019. It claims to be a contract manufacturing unit engaged in manufacturing biscuits for its principal "Parle Biscuit Pvt. Ltd.", Parle, which is the appellant in Excise Appeal No. 52694 of 2019. It claims that it has been authorised by Parle to manufacture on its behalf "biscuits....
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....procedural formalities under the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, in respect of the goods manufactured on behalf of the said manufacturer and, in order to enable the determination of value of the said goods under section 4 or section 4A of the said Act, to furnish information including the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all liabilities under the Act and the rules made thereunder." 6. The inputs used for manufacture of the biscuits are supplied by Parle which pays for the inputs but the appellant takes credit of the same and utilises the credit for payment of duty on the biscuits cleared on account of Parle. The appellant also claims that it availed and utilised input services used in relation to the manufacture of biscuits for Parle in accordance with the provision of the CENVAT Credit Rules 2004, CENVAT Rules. 7. The final product is cleared on payment of excise duty by the appellant on the maximum retail price declared by Parle that is printed on the packages of the biscuits, as is provided under rule 10A of the Central Excise (Valuation) Rules 2000, Valuation....
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....reliance has been placed upon the decisions of the Tribunal in Tamil Trading Corporation vs. Commissioner of Central Excises, Tuticorin, 2006 (198) E.L.T. 539 (Tri.-Chennai), FDC Ltd. vs. Commissioner of Central Excise, Belapur, 2017 (357) E.L.T. 464 (Tri.-Mumbai) and Commissioner of Central Excise, Bangalore-I vs. Electronic Research Ltd., 2005 (187) E.L.T. 495 (Tri.-Bang.); (iii) The view taken by the Tribunal in Sunbell Alloys is not correct and ignores the decision of a Co-ordinate Bench of the Tribunal in Colgate Palmolive (I) Ltd.; (iv) Sunbell Alloys relies upon the decision of the Tribunal in Panacea Biotec Ltd. vs. Commissioner of Customs, New Delhi, 2003 (153) E.L.T. 627 (Tri.-Del.), but in Tamil Trading Corporation, it was held that Panacea Biotec was not correctly decided; and (v) In any view of the matter, as CENVAT is a beneficial scheme with the stated purpose of eliminating cascading effect of duties and taxes, substitution of rule 7 by a new rule 7 w.e.f 01.04.2016 means that the mistake/lacuna in the earlier rule 7 was corrected and so the substituted rule 7 would have retrospective effect from the inception of the rules. In support of t....
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....ufacturing units or units providing output service, subject to the following conditions, namely:- (a) ****** (b) ****** (c) ****** (d) credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period;" Explanation 1.- For the purposes of this rule, "unit" includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise." AFTER 1.04.2016 Rule 2(m) "input service distributor" means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, or an outsourced manufacturing unit as the case may be;" (bold p....
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....se notice covered the demand of CENVAT credit for the period 26.06.2013 to 20.02.2015, the provisions of rule 2(m) and rule 7, as they stood prior to 01.04.2016, would be applicable. The observations are as follows: "From the above it is apparent that if anybody wants to avail input service credit, the above provisions of law has to be complied with prior to 01.04.2016. As per the definition of 'input service distributor' it has to be a service used by the manufacturer, whether directly or indirectly, in relation to the manufacture of final products and clearance of the final products up to the place of removal. In the present case, the manufacturer (M/s. Krishna Food) is the job-worker who has undertaken the processing of the goods supplied by M/s. Parle and the services on which credit is taken and distributed by M/s. Parle has nothing to do with the manufacturing operations undertaker by the M/s Krishna Food and, therefore, it is difficult to agree with the contention that the services received by M/s. Parle is an input service relating to the manufacture of goods by the job-workers (M/s. Krishna Foods). Secondly, 'input service distributor' means an off....
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....ovision has been made for an ISD to distribute the credit of input services even to job workers/contract manufacturers manufacturing goods on their behalf and paying duty on their sales price/MRP, and this substitution has been made with a view to correct the mistake/lacuna in the earlier Rule and, hence, the same would have retrospective effect from the inception of the said Cenvat Rules. I find that the said amendment relied upon by the Appellants not only refute their contentions, on the contrary substantiate the adjudicating Authority's view. To which, let me enunciate the Rule 7 of the said Cenvat Rules, as substituted w.e.f. 1.04.2016., and is stands as under. 8.1.1 From the above Rule 7 effective from 01.03.2016, I find the words 'an outsourced manufacturing units, as defined in Explanation 4' have been newly inserted in Rule 7, further the said Explanation 4 defines 'an outsourced manufacturing Unit', which says 'outsourced manufacturing unit' means a job-worker who is liable to pay duty or a manufacturer who manufacturers goods for the input service distributer. Thus, as regards to the contention of both the Appellants that as the Appellant No. 1 were working unde....
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....ch a situation even prior to 01.04.2016 and, in any case, substitution of rule 7 of the CENVAT Rules would have retrospective application. 18. The main submission of the learned Authorized Representative of the Department is that the manufacturer i.e. Krishna is a job-worker who has undertaken the processing of the goods supplied by Parle, and the services on which credit is taken and distributed by Parle has nothing to do with the manufacturing operations undertaken by Krishna. Thus, the services received by Krishna is not 'input service' relating to the manufacture of goods by the job-worker i.e. Krishna. It is also the submission that rule 7 of Credit Rules has been substituted with effect from 01-04-2016 and from the amendment made in the Rules, it appears that the 'manufacturers', 'its manufacturing units' and 'job worker/contract manufacturing units' are independent legal entities by themselves. Further, the amendment made in the Rules by substitution of the existing rule 7 of Credit Rules is prospective i.e. effective from 1-4-2016 only, which is evident from the transitional provisions contained in rule 7 (e) of the Credit Rules. 19. The provisions of CENVAT rule 2(m)....
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....ured From any other person or his authorized Agent) We M/s. Krishna Food Products, Dewas, holding Central Excise Registration AAJFR4928LSD001 of Dewas hereby accept the above authorization and agree to discharge all liabilities under the Central Excise Act 1944 and Rules made thereunder in the respect the said goods manufactured from time to Time by us on behalf of the above mentioned manufacturer For KRISHNA FOOD PRODUCTS (Authorised Signatory) Place: Dewas Date: 8/3/2011" 21. The terms and conditions agreed upon are also reproduced below: "Terms and Condition mutually agreed up on Parle Biscuits Pvt. Ltd., North Level Crossing, Vile Parle (East), Mumbai-400057 and M/s. Krishna Food Products, Plot No. 124-125, Siya, Dewas-Maxi Road, Destrict-Dewas.M.P.-455001..(hereinafter called as Krishna Food) in respect of Biscuits on Job Work basis. _____________________________________________________________________ 1. It has been decided that Krishna Food Products, would work as Job Worker for manufacturer of Biscuits for Parle Biscuits Pvt. Limited, Mumbai. 2. Parle Biscuits Pvt. Ltd. would arrange to send material....
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....nufactured on his account". The exemption granted to Parle from registration necessarily means that Parle is exempted from all the procedural requirements which a registered person is required to undertake, like issuance in invoices, maintenance of records, filing of periodical returns, payment of duty etc. These requirements are met by the appellant, in terms of the undertaking submitted by the appellant. This would mean that the appellant steps into the shoes of Parle Since the duty is paid by the appellant, it follows that the credits are also claimed by the appellant. The Department has not objected to the availment of credits by the appellant on various inputs procured by Parle. What is disputed is the availment of credit on services distributed by Parle. 25. The office of Parle at Bahadurgarh is registered as a "input service distributor" under rule 2(m) of the CENVAT Rules. Biscuits were manufactured not only in the factories of Parle, but also in the factories of other contract manufacturers. It is stated that the quantity of biscuits manufactured by the appellant is reflected in the balance sheet of Parle as goods manufactured on behalf of Parle and sold and marketed by....
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.... interpretation of Rule 3. Their argument is that the Rule 3 uses the expression "his factory". In other words the lower authorities interpret that the importer should own a factory and he has to use the imported material only in his factory. Otherwise, the importer would not be entitled for the concessional assessment under the above Notification. If the importer uses the imported goods in a factory belonging to some other person he would not be entitled for the concessional assessment. The Tribunal's decision in the Panacea Bio-tech Ltd. case relied on by the Commissioner has broadly followed the above line of argument. In our view, the above approach is not at all in consonance with the philosophy of liberalisation and globalisation embraced by the Government of India in all its policies relating to Customs, Excise and Foreign Trade as revealed in a plethora of policy documents, legislation, and procedures. ****** ****** ****** The expression "his factory" should be interpreted to mean the factory where the importer wants to utilise the imported goods in terms of the Notification. The Department can not insist on ownership of the factory and deny registration for....
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....ce relating to the manufacture of goods by the job-workers. 5.4 Secondly, 'input service distributor' means an office of the manufacturer or producer of final products. The office of M/s. Merck cannot be considered as an office of the job-worker and, therefore, the definition of 'input service distributor' is not satisfied. Thirdly, Rule 7 deals with the manner of distribution, which specifically states that the input service distributor may distribute Cenvat credit of the service tax paid on the input service to its manufacturing units. The job-workers' factory is not the manufacturing unit of M/s. Merck Specialties Ltd. but they are independent legal entities by themselves and, therefore, the question of distribution of credit by M/s. Merck Specialties Ltd. to the job-workers does not satisfy the condition that the credit is distributed to its manufacturing units. It is a settled position of law that job-workers who actually undertake the manufacturing process is the 'manufacturer' of goods and not the supplier of raw materials. 5.7 In the light of these evidences available on record, it is crystal clear that the appellants are manufacturers on their own right a....
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....s. Merck Specialties Pvt. Ltd. In the present case, it is clear from the letter of authorization given by Parle and accepted by the appellant that the appellant manufactured biscuits for and on behalf of Parle as a job worker. Parle was also required to send raw materials and packing materials. The appellant was required to process and carry out inspection of various depots as per the directions given by Parle. In fact, the raw materials and the finished goods were to remain the property of Parle. There can be no doubt that the appellant had effectively stepped into the shoes of Parle. The factual position in the present case and in Sunbell Alloys is, therefore, entirely different. 30. The decision of the Tribunal in FDC also needs to be referred to, wherein after relying upon the decision of the Tribunal in Tamil Trading Corporation, it was held: "4. We have carefully considered the submissions made by both sides and perused the records. The issue in dispute lies in a narrow compass that imported goods under exemption notification carrying condition of end use. Under Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 w....
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....hich form part of the assessable value. Thus, advertisement, market research, sales promotion and marketing, of which credit has been distributed by Parle to the appellant and which services have also been specifically referred to in the press release, should be allowed. 34. According to the Department Parle, which has its own manufacturing units and also operates through contract manufactures, can distribute credits to its own units but cannot distribute credits to contract manufacturers who manufacture the goods for and on behalf of Parle though they operate on identical basis as the units of Parle. The interpretation put by the Department clearly seeks to dilute the spirit behind the CENVAT Rules and the Registration Exemption Notification. The whole purpose of CENVAT credit is to capture all costs so as to evade the cascading effect of duties and taxes. 35. A narrow and a literal interpretation of the phase its manufacturing units should, therefore, be avoided, more particularly when the Registration Exemption Notification provides for authorisation for manufacture of goods on behalf of the principal manufacturer. There appears to be no good reason as to why CENVAT credit....
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....strict interpretation should be given to rule 7 of the CENVAT Rules. 39. The Constitution Bench of the Supreme Court in Dilip Kumar was constituted to examine what would be the interpretative rule to be applied while interpreting a tax exemption provision/ notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. The Supreme Court observed that the core issue to be examined in the event of any ambiguity in an exemption notification is whether the benefit of such an ambiguity should go to the assessee or should be considered in favour of the revenue by denying the benefit of the exemption to the assessee. The Supreme Court concluded that every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of any ambiguity in a charging section, the benefit must necessarily go in favour of the assessee but the same would not be true for an exemption notification in regard to which the benefit of ambiguity must be strictly interpreted in favour of the Revenue. The Constitution Bench, therefore, answered the referenc....