By TIOL News Service

MUMBAI, OCT 17, 2014: THE appellant is engaged in the manufacture of equipment, machinery etc. at their manufacturing units situated at Khed(100% EOU) and Sanaswadi (DTA). Their Head Office is situated at Pune and the same is registered with department as Input service provider during the period June 2006 to April 2008.

The appellants' head office paid the service tax on commission paid to overseas commission agents for procuring the purchase orders for export of goods under reverse charge mechanism. Various other common input services were also used in or in relation to the manufacture of final dutiable goods and payments for the input services were made by the appellant's Head office. The head office distributed the service tax credit of Rs.3.79 crores to the appellant's DTA unit and which was utilized for payment of CE duty on the final product manufactured and cleared by them. The EOU unit was also clearing final goods in DTA on payment of applicable excise duty.

A SCN came to be issued to the appellant (DTA unit) that the service tax credit distributed by the appellant's Head office is not admissible as the service tax credit was availed in respect of input service received by the appellant EOU unit.

To avoid litigation, the appellant reversed the entire amount of service tax credit along with interest and availed the said credit at their EOU unit.

Nonetheless, CCE, Pune-III passed an order confirming the demand of Rs.3.79 crores and imposed equivalent penalty and also interest.

The appellant is before the CESTAT and submits that the H.O has paid the service tax and correctly distributed the same as per rule 7 of CCR, 2004; that the entire exercise is revenue neutral as the credit was available to the EOU unit; that the demand is time barred as there is no evidence that the appellant took the alleged inadmissible credit by way of suppression of facts or with intent to evade payment of duty. Reliance is placed on the following decisions in support of the above submissions viz. Ecof Industries 2009-TIOL-2109-CESTAT-BANG affirmed [2011-TIOL-770-HC-KAR-ST], Narayan Polyplast 2004-TIOL-110-SC-CX-LB, Narmada Chematur Pharmaceuticals 2004-TIOL-113-SC-CX-LB, Textile Corporation 2008-TIOL-242-SC-CX, Jamshedpur Beverages 2007-TIOL-230-SC-CX and Coca Cola India P. Ltd. 2007-TIOL-245-SC-CX.

The AR submitted that the service is not an input service as defined in rule 2(l) of CCR, 2004 and, therefore, the adjudicating authority has rightly confirmed the demand against the appellant.

The Bench extracted the contents of rule 7 of the CCR, 2004 and observed -

+ The said rule has been amended by Notification 18/12-CE dated 17.03.2012 wherein clause (c) has been inserted which is as follows:-

"(c) credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit"

+ Prior to said clause inserted in 2012, there was no bar on input service distributor to distribute the credit which pertains to one unit to another unit.

Noting that the said issue had been dealt with at length by the Tribunal in the case of Ecof Industries (supra), which decision has been affirmed by the Karnataka High Court [2011-TIOL-770-HC-KAR-ST], the Bench held that the appellant is entitled to take CENVAT credit during the impugned period as distributed by their head office.

The CESTAT also held that there is force in the argument of the appellant that the entire demand in the present case is barred by limitation inasmuch as the said fact of availment of credit was known to the Revenue during the course of audit but the SCN was issued invoking the extended period of limitation; that during the impugned period the decision of the Ecof Industries was in favour and the appellant had bonafide belief that they are entitled to take CENVAT credit as distributed by the head office;that the Rule was amended on 17.03.2012 in the light of the decision of Ecof Industries .

In fine, the appeal was allowed with consequential relief.

In passing : Actually, the earlier rule 7 of CCR, 2004 was substituted by notification 18/2012-CX(NT) dated 17.03.2012 (w.e.f 01.04.2012).

(See 2014-TIOL-2016-CESTAT-MUM)