CX - Renting of Immovable property service and Telephone services can be exclusively identified as used wholly by one unit - mischief of Rule 7(c) of CCR, 2004 attracted: CESTAT
By TIOL News Service
MUMBAI, FEB 01, 2018: THESE are Revenue appeals filed against the order of the Commissioner (Appeals) dropping demand of CENVAT Credit, interest and penalties.
The AR submitted that the respondent had availed CENVAT Credit in respect of different services availed at various branches/depots and business units; that the credit of services which were exclusively used at such business units cannot be distributed in terms of Rule 7 of the CCR, 2004 which prescribes the manner of distribution of credit by input service distributor. Furthermore, the 19 services in respect of which the credit had been taken were utilized at various branches/depots/business units and in terms of Rule 7(c), the credit of services usedex clusively there cannot be transferred.
Reliance is also placed on the decision in Kitply Industries Ltd. - 2011-TIOL-91-SC-CX to assert that all the four categories laid down in the decision of Larger Bench of the Tribunal in the case of Jay Yushin Ltd.- 2002-TIOL-126-CESTAT-DEL-LB should be fulfilled to pass the test of Revenue neutrality.
The respondent assessee argued that the core activity of each of the business centers/branch is to look after the business of manufacturing and trading and to provide customer services, book orders, HR, taxation, logistics as well as promotion, trading, etc.; that the services are of the nature which are common to all business; that since the Revenue has not challenged the admissibility of otherwise, the entire situation is Revenue neutral.
The Single Member Bench observed-
++ Insofar as the first issue is concerned, I find merely because the Revenue has not challenged the distribution of 19 other services, the challenge of revenue to two services, viz. renting of immovable property and telephone service, cannot be dismissed. Renting of immovable property service and telephone services can be exclusively identified as used wholly by one unit. In these circumstances, it may attract the mischief of Rule 7(c) of the Cenvat Credit Rules. A perusal of other services on which no objection has been raised would show that none of them can not be identified as exclusively used by one unit and therefore, the Revenue is correct in distinguishing between these 19 services and services of renting of immovable property and telephone services.
++ Moreover, it is an admitted fact that the respondents apart from conducting manufacturing and provisions of services are also engaged in trading activity. Thus the credit of entire duty would not be available to them in respect of the premises which are exclusively engaged in trading activity . Thus, if a premise is only used for trading activities, then the distribution of credit exclusively attributable to such unit will result in revenue loss to the Government. Thus, apparently there is no revenue neutrality in the instant case.
The Revenue appeals were allowed.
Quick reference:
Rule 7: Manner of distribution of credit by input service distributor : The input service distributor may 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) ….
(b) ….
(c) Credit of service tax attributable to service used wholly by a unit shall be distributed only to that unit.
……..
(d) Input Service Distributor (ISD) to distribute the Cenvat Credit of all such services which the attributable to more than one unit, (i.e. which are commonly used for more than one unit) pro-rata on the basis of the turnover.
(See 2018-TIOL-402-CESTAT-MUM)
