By TIOL News Service

NEW DELHI, NOV 18, 2016: THE appellant was engaged in the manufacture of grey cement and is registered with the Central Excise Department. M/s. J.K. White Cement Works (JKWCW), a white cement plant, is located 2 kms away from the appellant's unit and is registered with the Central Excise Department. Both the appellant and JKWCW are units of same legal entity i.e. M/s. J.K. Cement Ltd. JKWCW is also registered as "Input Service Distributor(ISD) for disbursement of input service credit to the appellant. To facilitate the appellant for carrying out its manufacturing activity, JKWCW produces electricity, through a power plant installed in its unit, on job work basis and transmits a part of the electricity to the appellant, which is used by it in the manufacture of its final product. Remaining part of the electricity so generated is used by JKWCW in its factory itself. For the purpose of operation of the power plant, JKWCW procures certain services namely, manpower supply services, technical consultancy services, maintenance and repair services etc. and reimburses applicable service tax claimed on the invoices raised by the service providers. The service tax so paid was availed as CENVAT credit by JKWCW. JKWCW, since holding a valid ISD registration, distributes such input service credit to the appellant, in proportion to the electricity transmitted to it for use in manufacture by the appellant. The said credit was availed by the appellant on the basis of invoices issued by JKWCW. Availment of the CENVAT credit by the appellant was objected to and denied by the Department inter alia, on the ground that JKWCW does not qualify as an "ISD", as it does not work as an office of the appellant. as envisaged under Rule 2 (m) of the Cenvat Credit Rules, 2004; Input services were exclusively received by JKWCW and not by the appellant; electricity, classifiable under Chapter No. 2716 of the Central Excise Tariff Act. 1985, is non-excisable, therefore input services used in its generation, cannot be distributed in terms of Rule 7 of the Credit Rules.

After hearing both sides, the Tribunal held:

+ it is the undisputed fact that the appellant and JKWCW are units of the same legal entity, i.e., M/s. J.K. Cement Ltd. and valid ISD registration has been granted to JKWCW for distributing the credit to the appellant. For distributing the credit by JKWCW and taking of CENVAT credit by the appellant on the basis of ISD invoices are in conformity with the CENVAT scheme. Further, the conditions enumerated in Rule 7 of the said rules have been duly complied with by JKWCW in the capacity of ISD. in-as-much-as, the credit has been distributed against the valid documents referred to in Rule 9 and the credit distributed does not exceed the amount of service tax paid thereon Since the appellant was manufacturing dutiable goods, taking of CENVAT credit of service tax on the basis of ISD invoices is in conformity with the rules and the same cannot be denied on the ground that JKWCW does not work as the office of the appellant- Since the appellant has taken the CENVAT credit based on the tax paid documents, and complied with the requirement of Rule 7 of the CENVAT Credit Rules, 2004, the credit so taken, cannot be denied to the appellant. Payment, if any, regarding admissibility of credit can be raised at the end of the Input Service Distributor which in the present case has not been done;