TaxTMI 
TaxTMI 
2024 (10) TMI 6
X X X X Extracts X X X X
X X X X Extracts X X X X
....ributor (ISD)'. All units except unit at Noida and ISD at Delhi are involved in manufacturing. Unit-II at Baddi i.e. the respondent is availing the Cenvat Credit based on the invoices issued by ISD. During the audit, the department entertained the view that ISD has wrongly transferred the credit attributable to all units exclusively to the respondent. Based on the audit report, three show cause notices were issued proposing the demand of Rs. 2,44,49,545/- along with interest and penalty on the ground that ISD has wrongly transferred the credit attributable to all units including the units at Guwahati in contravention of second proviso to Rule 3(4) of Cenvat Credit Rules. Further, show cause notices dated 09.09.2010 and 01.08.2011 alleged that the respondent is not eligible to take the credit of service tax paid on Clearing & Forwarding Agents Services as it is a post manufacturing activity which is not used in or in relation to manufacturing of the goods. After following the due process, the Adjudicating Authority vide the common impugned order dropped the demand proposed in all the show cause notices on the basis that second proviso to Rule 3(4) ibid is only applicable on the inpu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot a case where the head office of the respondent was providing output services and input credit service accumulated with them was in relation to input services which were used for providing the output services by them and due to non-utilization of said accumulated Cenvat Credit, the head office of respondent distributed the said credit to their manufacturing units. 4.5 He also submits that in the present case, all the input services received by the respondent's head office namely Advertisement, C&F Agent Service, Professional and Consultancy Service, GTA Service, Telephone Service, Legal Service, Manpower Recruitment & Supply Agency's Service, Software Support Service etc though fall in the inclusive clause of the definition of the 'input services' are definitely used in relation to manufacture and clearance of the common finished goods i.e. "All-Out" by the respondent's five units including the two units located in Guwahati and availing the benefit of area based exemption under Notification Nos. 32-33/1999-CE. 4.6 He further submits that the Adjudicating Authority has erred in agreeing with the respondent's submission that all the aforesaid input services received in their ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inal Order No. 40851/2024 dated 11.07.2024 (Tri. Chennai) 5.3 The learned Counsel further submits that distribution of credit of service tax paid on common services received by ISD is not restricted by second proviso to Rule 3(4) ibid. She also submits that the law recognizes the concept of manufacturing cost and post manufacturing expenses like advertisement, market research etc which are incurred in relation to sale of goods and there is a difference between the expenses incurred for the manufacturing and other expenses; therefore,, the law recognizes the concept of difference in services procured for manufacturing and post sale services. She further submits that second proviso to Rule 3(4) provides that the Cenvat Credit of service tax paid on input services which are utilized in manufacturing of the final products cleared after availing the exemption notifications shall be utilized only for payment of duty on the final products in respect of which such exemption was availed. She also submits that the common services like advertisement expenses, C&F agents, market research etc received by ISD are not used directly in the manufacturing of final products cleared by the responde....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... She further submits that Guwahati units availing area based exemption cannot be said to be exclusively engaged in manufacturing of exempted goods. Under mechanism of area based exemption, Guwahati units pay the excise duty through the utilization of the credit or payment of cash on clearance of goods. These units get the refund of the duty paid in cash, but do not get the refund of the duty paid through utilization of credit. Thus, Guwahati units are not exclusively engaged in manufacturing and clearing the exempted goods; therefore, ISD has not violated Rule 7 ibid. 5.5 The learned Counsel also submits that extended period of limitation cannot be invoked because the respondent and ISD were regularly filing the returns in which they disclosed all the required details. For this submission, she relies on the following decisions: • Mahanagar Telephone Nigam Ltd vs. UOI and ors - 2023-TIOL-407-HC-DEL-ST • CCE & Cus vs. M/s Reliance Industries Ltd - 2023-TIOL-94-SC-CX 5.6 As regards the interest and penalty, the learned Counsel submits that when the demand itself is not sustainable, therefore, the question of interest and penalty does not arise. 6.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and other services covered under inclusive-clause. It shows that the concept of manufacturing cost and post manufacturing expenses like advertisement, market research etc are incurred in relation to sales of goods. 7. We note that proviso to Rule 3(4) limiting such credit availment does not apply where the credit is availed based on the invoices issued by ISD. In this regard, we may refer to the decision of the Tribunal in the case of Godrej Consumer Products Ltd (cited supra), wherein the proviso to Rule 3(4) has been examined and the Tribunal has observed as under: "6. For better appreciation, proviso to Rule 3(4) is reproduced as under :- "Provided further that the CENVAT credit of the duty, or service tax, paid on the inputs, or input services, used in the manufacture of final products cleared after availing of the exemption under the following notifications of Government of India in the Ministry of Finance (Department of Revenue) :- (i) No. 32/99-Central Excise, dated the 8th July, 1999 [GSR 508(E), dated 8th July 1999]; (ii) No. 33/99-Central Excise, dated the 8th July, 1999 [GSR 509(E), dated 8th July 1999]; (iii) No. 39/2001-C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tor shall distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely : - (a) the credit distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon; or (b) credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed." 6.1 Only with effect from 1-4-2012, Rule 7 has been amended to include that the distribution of credit shall be on pro rata basis. The decision in the case of ECOF Industries P. Ltd. (supra) also has laid down that there are no restriction under the said Rules limiting the distribution of service tax credit. In the present case, the appellant has availed the credit on ISD invoices distributed by their Head Office. To such availment or utilization of credit by appellant, the proviso to Rule 3(4) does not apply at all. We therefore are of the view that the demand raised alleging that the appellant has violated provisions of Rule 2(1) r/w proviso to Rule 3(4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....services. It is the distributor who can be charged with awareness of exempted output/output service. if any, and who is empowered by the statute to take the credit. And it is only such availment by the distributor that can be put to notice for ineligibility as espoused in the decisions that fulfill the criteria of precedent." 9. As regards the allegation of the appellant-Revenue that the respondent has not followed the provisions of Rule 7, which provides the manner of distribution by ISD, we find that first of all, the show cause notices do not allege the violation of any one of the provisions of Rule 7; and secondly, during the relevant period, Rule 7 does not provide for the mechanism of distributing the credit proportionately. The said condition was made effective only from 01.04.2012, therefore, the allegation of department that the respondent has violated the provisions Rule 7 does not hold good. This has been held consistently by the Tribunal and the High Courts in the various decisions as cited supra. 10. Further, we note that the credit of service tax used exclusively in units manufacturing exempted goods cannot be attributed to a specific unit. Services like adverti....