CENVAT Credit - Amendment to Rule 7 is only prospective - Input services cannot be distributed to job workers prior to 01/04/2016 – demand upheld: CESTAT
By TIOL News Service
HYDERABAD, NOV 04, 2016: THE appellants are engaged in the manufacture of "PARLE" brand sugar boiled confectionary and were clearing their entire production to M/s Parle Products Private Limited, Mumbai (PPPL). The appellants were availing CENVAT credit on the input invoices issued by the principal manufacture, M/s PPPL and cleared the finished goods to M/s PPPL after discharging central excise duty liability. They also availed CENVAT credit on the invoices issued by M/s PPPL as Input Service Distributor (ISD). The department entertained the view that appellant being only a job worker to the principal manufacture viz: M/s PPPL, and being a totally independent entity from M/s PPPL, the appellant cannot avail CENVAT credit on the input invoices issued by M/s PPPL.
The appellant contended inter alia that:
Rule 7 of CENVAT Credit Rules, 2004 has been substituted with effect from 01.04.2016, wherein a specific provision has been made for an ISD to distribute the credit of input services to job workers/contract manufacturers who manufacture goods including outsourced manufacturing unit. That this amendment is made by "substitution" of existing Rule 7 of CENVAT Credit Rules, 2004. That this amendment is made only to correct the mistake/lacuna in the earlier rule and hence the same would have retrospective effect from the inception of CCR, 2004 (i.e. 10.09.2004). "Substitution" of any rule or any notification or any parts thereof would have retrospective effect from the date of incorporation of such rule or notification in the statute.
After hearing both sides, the Tribunal held:
+ Rule 7 clearly states that the input service distributor may distribute the CENVAT Credit in respect of service tax paid on the input service to its manufacturing units or units providing output service. The question is whether the appellant can be considered as a manufacturing unit of M/s PPPL. The crux of the first submission put forward by appellant is that the appellant would fall under the category of manufacturing unit of M/s PPPL as provided in Rule 7, CCR, 2004. It is the case of the appellant that as the appellant is manufacturing on behalf of M/s PPPL and under the scheme provided in notification no. 36/2001-CE (NT) dated 26.06.2001 the appellant has to be considered as a manufacturing unit of M/s PPPL. However, this issue stands settled against the appellant in the case of Sunbell Alloys Com of India Ltd, Machsons Pvt Ltd., Vs CCE & C, Belapur - 2014-TIOL-38-CESTAT-MUM
+ The second contention raised by the appellant is that the amendment brought forth to Rule 7 with effect from 01.04.2016 being a 'substitution' has to be applied retrospectively. At the outset, it has to be stated that there is nothing in the amendment which says that the amendment is to apply retrospectively. In this case, the amendment does not appear to be clarificatory or for correcting any obvious mistake or for removing any discrimination between same class. Therefore, the judgments cited by the appellant do not assist the appellant. As already stated since the amendment brought forth with effect from 01.04.2016 does not state that it is to apply retrospectively, it is concluded without any hesitation that the amendment is to apply prospectively only. The appellants are not eligible to avail CENVAT Credit on the input invoices distributed by ISD, M/s PPPL.
+ Demand is restricted to normal period as there was no suppression of facts by the Appellant.
(See 2016-TIOL-2871-CESTAT-HYD)
