By TIOL News Service

MUMBAI, NOV 27, 2015: THE appellant is a manufacturing unit located at Roha, Maharashtra and manufactures chemicals, pigments, dyes etc. Their head office is located in Thane and which is registered as Input Service Distributor. The appellant as a company has other manufacturing units located in other parts of the country. The appellant company, in addition to manufacturing of various chemicals is also engaged in trading of similar goods. The period involved is July 2007 to December 2010.

The trading activities are not taxable either to service tax or excise duty. As a company, the appellant is availing services in the manufacturing unit, head office as also various branch offices. The input services are in relation to the manufacturing activity as also trading activities. As far as input services which are exclusively used in the manufacturing activity at Roha plant, appellants are taking credit and there is no dispute. However, there are services which are used both in trading and manufacturing and it is not possible to segregate the invoices/use-wise. The case of the Revenue is that the appellant-company is not entitled to take entire credit of input services in such cases but would be eligible to take credit based upon the turnover of manufacturing and trading.

It was found that out of total turnover, trading turnover is 15 - 18 % and manufacturing 85 - 82%. Revenue has proposed to deny 15-18% credit on common input services.

This amount is Rs. 1,30,90,786/-. Credit of Rs. 1,11,444/- taken on services like cab, photography, club/association, share transfer agent and stock agent and stock exchange are also sought to be denied as not being Input services. An amount of Rs.49,731/- along with interest on input services like cab, photography, club or association etc. which are exclusively for trading activity has been reversed by appellant.

SCDN was issued on 25/6/2012 and the same was confirmed by the CCE, Raigad along with equal penalty and interest.

In the matter of the Stay application, the CESTAT - 2014-TIOL-1255-CESTAT-MUM had while ordering pre-deposit of the entire demand of Rs.1.31 crores observed -

++ It is the appellant manufacturer who has taken the credit and, therefore, the recovery of wrongly taken credit has to be effected from him. The distribution of service tax through ISD is only a facility provided under the Rules and does not deal with recovery. Therefore, the credit, if taken wrongly, has to be recovered from the person who has taken credit. Thus, in view of the clarification given by the Board vide Circular dated 10-3-2014, read with provisions of Rule 14 of the CCR, 2004, it is absolutely clear that it is the jurisdictional excise authority over the unit availing the credit, who should initiate the proceedings and we hold accordingly.

++ In view of decision in  Mercedes Benz India Pvt. Ltd. case - 2014-TIOL-476-CESTAT-Mum the demand for reversal of input service tax credit by adopting the ratio of the turnover of trading activity and manufacturing activity, in the impugned order, cannot be faulted.

The appeal was heard recently.

The appellant reiterated the submissions made at the stage of consideration of stay application.

After considering the exhaustive submissions, the Bench elaborated the concept of ISD &made the following observations on various points argued by the appellant-

Jurisdiction:

+ Since the services may be across various offices or manufacturing unit, it is in order to sort out this difficulty of the trade, the concept of input service distributor was envisaged wherein a person having various manufacturing units or branch offices etc. would receive the invoices pertaining to services at one place i.e. offices and thereafter distribute the credit of service tax to various manufacturing units. Thus, legally ISD as also its manufacturing unit is single legal entity.

+ The situation is like the brain of a human being controlling different parts of the body, say hand. Similarly, here the head office would normally be controlling different manufacturing units or branch offices. Thus the distinction between the location of ISD and that of a manufacturing unit itself is immaterial. Credit is finally availed and utilized by the manufacturing unit. What learned counsel is trying to say is that show cause notice should be issued to head as hand has acted as per the direction of head. In our view, as rightly pointed out by learned AR, cause of action stands with availment and utilization of credit at the manufacturing unit. Of course, ISD and manufacturing unit are integrally connected, and both of them unitedly has to resolve the issue with the department. We, therefore, reject the plea regarding jurisdiction.

Assessment of ISD:

+ It would be seen from the Rule (rule 7) that input service distributor is expected to distribute the credit and ensure that the credit distributed does not exceed the amount of service tax paid as per the documents. The other condition is that the credit of service tax attributable to service used in a unit exclusively engaged in the manufacture of exempted goods or providing exempted service shall not be distributed. It will be seen from the above Rule that these are only two guidance for the ISD for distribution of the credit. There is no rule in Service Tax Law which provides assessment or self-assessment by ISD.

+ The judgment in the case of Godfrey Philips India Ltd. - 2009-TIOL-269-CESTAT-AHM cited by the appellant is sub silentio and per incuriam as it does not discuss Rule 3 or rule 9(5)/9(6) or Rule 14 of the Cenvat Credit Rules, but decides about the jurisdiction based upon Rule 2(m) of Cenvat Credit Rules i.e. definition of input service distributor and Rule 4A(2) of Service Tax Rules and format of certain documents.

Credit denial & assessment:

As regards the submission of the appellant that credit cannot be denied unless the assessment of distribution of credit made at ISD is set aside, the Bench observed -

"The above mentioned concept has been supported by this Tribunal in altogether different circumstances relating to excise and service tax assessment. There are many situations where goods were cleared by a manufacturer on a particular value, classification or rate of duty. When such goods were being received by another manufacturing unit and were being used as inputs in further manufacturing, the range officials in such unit were questioning value, classification or rate of duty paid by the original manufacturer. In those situations, this Tribunal has been taking a view that these aspects are to be assessed by the jurisdictional officer where such inputs have been manufactured and until and unless the assessment is changed or challenged by jurisdictional officers of such unit, the officers where such inputs are received and credit is being taken cannot question the same. As mentioned earlier, input service distributor is not providing either any service or manufacturing any goods. There is no requirement of assessment or self-assessment. Input service distributor is only receiving the invoices of service tax paid which in turn are being distributed to different manufacturing units/service providing units. ISD per se does not value, classify or decide the rate of duty relating to the services so received. Therefore there is no question of his assessing such services. All that he does is distributing the same."

Holding that there is no rule providing for assessment/self-assessment by ISD, the claim of the appellant was rejected outright.

The plea of the appellant to refer the matter to the Larger Bench was also held to be without any force and accordingly dismissed.

The clarification offered by the Board vide letter No. 137/68/2013-ST dated 10.3.2014,upon a reference made by the Commissioners, that the recovery can be made under Rule 14 of the CCR, 2004 from the person who has availed the wrong cenvat credit, was also noted to be correct and in order. Other issues raised by the appellant were rejected by the Bench by relying upon the decision in Mercedes Benz India Pvt. Ltd. - 2014-TIOL-476-CESTAT-Mum.

Limitation:

"It is an admitted position that the appellant was registered as input service distributor and the fact that the appellant was also undertaking trading activity was suppressed from department and this has been admitted by the Director of the company. Thus, there is a suppression of fact and in our view the extended period of limitation is correctly invoked."

Admissibility as Input Services:

"As far as the demand of Rs.1,11,444/- is concerned, appellant has already admitted that the demand of Rs.49,731/- as these have nothing to do with the manufacture of goods. As far as the remaining demand is concerned, which is relating to the security broker service, etc., the same is upheld. Penalty imposed in respect of the same is also upheld."

The Appeal was dismissed.

(See 2015-TIOL-2510-CESTAT-MUM)