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Judgment
N. Kumar, J.—This appeal is by the Revenue in respect of three different assessment orders passed by the Tribunal 2010 (17) S.T.R. 515 ], which restored the order of the Assessing Authority, who had upheld the exemption in respect of CENVAT credit which was set aside by the 1st Appellate Authority.
The assessee is a manufacturer of excisable goods falling under Chapter 34 of the Central Excise Tariff Act, 1985. The assessee has availed a service tax credit based on the invoice issued by the Chennai head office, which is registered as ''Input Service Distributor'' and has paid service tax for services received by them from various service providers like insurance, telephones, security charges, travelling expenses, advertising, market research, courier, xerox maintenance, utility services, bank charges, AMC, professional charges, etc. The head office in turn distributed the service tax to the assessee. The assessee availed and utilized the said credit for payment of Central Excise Duty on their final products. The services in question were received by their head office at Chennai in respect of advertisement and other services, which are meant for the products manufactured by their units located at other places i.e. other than Malur Unit. The services like telephone, security charges, etc., are all received by them at Chennai and not related to Malur Unit. On the ground that the assessee had contravened the provisions of Rule 3(1) of CENVAT Credit Rules (for short hereinafter referred to as the ''Rules''), a show cause notice came to be issued to the assessee on 31-12-2007 to show cause as to why irregular service tax credit availed of Rs. 3,09,518/- (3,04,887/- duty + Rs. 4,631/- cess) on input services which are not used in or in relation to the manufacture of finished goods or in relation to their manufacturing unit during December, 2006, should not be demanded and recovered from them under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A of Central Excise Act, 1944 along with interest and penalty. The assessee filed a detailed statement of objections and contended by referring to Rule 7 under which an input service distributor is allowed to distribute CENVAT credit in respect of service tax paid on input service to its manufacturing units or units providing output service. Therefore they sought for dropping of the proceedings. The Assessing Authority taking note of Rule 3(1) and Rule 7 and as well as the circular issued by the Board dropped the proceeding. Aggrieved by the same, the revenue preferred an appeal before the Commissioner of a Central Excise (Appeals-I), Bangalore. The Commissioner found that the credit distributed was pertaining to the advertisement of the product which were manufactured at the respondent''s other unit and not in their unit at Malur. The credit availed on other services viz., telephone, security services, insurance etc on which the service tax was paid at Chennai and that services provided were, not in the respondent''s unit at Malur. Therefore, he held that the assessee has not received the input service and there is no discussion in the findings as to whether the credit has been utilized in relation to the manufacture of the goods in their Malur unit. The credit so availed pertains to advertisement and other services meant for the products manufactured by their units located at a place other than their Malur unit and the service tax availed on input service were not provided in the assessee''s unit at Malur. The assessee has not used the input service in or in relation to the manufacture of the finished goods or in relation to their manufacturing unit. Therefore, the credit availed by the assessee is not in accordance with the provisions of the Rule 3(1) of CENVAT Credit Rules, 2004. Accordingly, the appeal was allowed. The order-in-original passed by the Assistant Commissioner of Central Excise, Bangalore IV Division, Bangalore was set aside and he confirmed the demand and interest and directed for payment of penalty of Rs. 1,00,000/- under Rule 15 of CENVAT Credit Rules, 2004. Aggrieved by the same, the assessee preferred an appeal to the tribunal. The tribunal relying on Rule 7 as well as the master circular issued by the Board held that the combined reading of Rule 7 and the clarificatory circular dated 23-8-2007 clearly shows that there are only two restrictions regarding the distribution of the credit. The said two restrictions have no application to the facts of this case. The restrictions sought to be applied in this case in limiting the distribution of the service credit tax made in respect of the Malur unit on the ground that the services were used in respect of the Cuttack unit finds no mention in the relevant rules and therefore the said restriction cannot be upheld. Accordingly, he allowed the appeal, set aside the order of the appellate authority and restored the order-in-original. Aggrieved by the same, the Revenue is in appeal.
The learned Counsel for the Revenue assailing the impugned order contends that admittedly the service tax is paid in respect of the unit at Cuttack and it is sought to be availed by the unit at Malur. As the said tax has not been paid in connection with the input used in manufacture of products at Malur unit or in the advertisement or production at Malur Unit, the assessee is not entitled to the benefit of CENVAT credit under the rules. The lower Appellate Authority has rightly held so which order has been erroneously set-aside by the tribunal and therefore he submits a case for interference is made out.
Per contra, the learned Counsel for the assessee submits that the definition of input service and input service provider read with Rule 3(1) and Rule 7(1) of the Rules makes it very clear that it is not the requirement of law, that the unit, which has paid the tax alone, is entitled to the benefit of the credit under the scheme. If a manufacturer has several units and has paid input tax, he is expected to register himself as a input service distributor, collect all these taxes paid and thereafter distribute the same to its various units except to two conditions which are mentioned in Rule 7. Therefore, he submits that there is no reason for interfering with the order passed by the tribunal, which is strictly in accordance with law.
In the light of the aforesaid facts and rival contentions, the question that arises for consideration is that when service tax is paid in respect of services obtained by a unit at Cuttack whether such a credit of the said service tax paid cannot be utilized by a unit at Malur belonging to the same manufacturer, namely the assessee.
As we are concerned only about input service, it is sufficient to extract the definition of input, input service and input service distributor, which are defined at Rule 2(k) - ''Input'', Rule 2(1) - ''Input service'' and Rule 2(m) - ''Input service provider'' as under :-
Rule 2(k) "input" means -
(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Rule 2(1) "input service" means any service :-
(i) used by a provider of taxable, service for providing an output service, or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research storage upto the place of removal procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
2(m) "input service distributor" means as office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;
Rule 3(1) has been defined as under :-
A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit.
It is in this context, the definition of input service distributor makes it clear that a manufacturer or a producer of a final product or a provider of output service may have more than one unit and may be distributed in various parts of the country. It is in this background the definition of service distributor is defined as office of the manufacturer or producer of a final product or provider of output service which receives invoices issued under Rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be. Therefore, the law mandates that the manufacturer who wants to avail the benefit of this service tax if he has more than one unit he should also get registered himself as a service provider and then, he would be able to collect all the input service tax paid in all its units and accumulate them at its head office and distribute the said credit to its various units. At the time of distribution, the manner of distribution is provided in Rule 7 which reads as under :-
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) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon, or
(b) credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.
Therefore, only two limitations are put for the distribution of credit by an input service distributor. Firstly, it cannot exceed the amount of service tax paid and secondly, the credit of service tax attributable to service used shall not be distributed in a unit exclusively engaged in the manufacture of exempted goods or providing of exempted services.
In fact, the Board has issued a circular clarifying in this regard, which is extracted by the tribunal at para 7 which reads as under :-
Para 7. Para 2.3 of the Master Circular referred to by the Id. Advocate reads as under :-
2.3.- An ''Input service distributor'' is an office or establishment of a manufacturer of excisable goods or provider of taxable service. It receives tax paid invoices/bills of input services procured (on which Cenvat credits can be taken) and distributes such credits to its units providing taxable services or manufacturing excisable goods. The distribution of credit is subject to the conditions that - (a) the credit distributed against an eligible document shall not exceed the amount of service tax paid thereon, and (b) credit of service tax attributable to services used in a unit either exclusively manufacturing exempted goods or exclusively providing exempted services shall not be distributed. An input service distributor is required (under Section 69 of the Act, read with Notification No. 26/2005-S.T.) to take a separate registration.
Therefore, these are the only two limitations, which are imposed in Rule 7 preventing the manufacturer from utilizing the CENVAT credit, otherwise, he is entitled to the said credit. Merely because the input service tax is paid at a particular unit and the benefit is sought to be availed at another unit, the same is not prohibited under law. It is in this context, the manufacturer is expected to register himself as a input service distributor and thereafter, he is entitled to distribution of credit of such input in the manner prescribed under law. Therefore, the order passed by the tribunal is legal and valid and does not suffer from any legal infirmity and does not call for any'' interference and therefore it is dismissed.