AI Structured Summary
Not yet generated for this judgment
Judgment
Common services CENVAT credit availed on invoices issued by service providers other
than M/s. Expeditors Intl. India Pvt. Ltd.",,,,,,
Year,"MPP B-
165",MPP B-59,"MPP B-
163","MPP C-
217","MPP-5A-
BMS","Ineligible
credit
pertaining to
other units
A,B,C,D,E,F,G=C+D+E+F
2014-15,834163,,56342,,,56342
2015-16,1349873,105175,31926,40009,56530,233640
2016-17,13352582,82865,11696,37309,148378,280248
2017-18,408459,16694,3447,8802,21093,50036
TOTAL,3925077,204734,103412,86119,226002,"6,20,266
unutilized credit from ER-1 Returns and ST-3 Returns which also contains the disputed credit has been transferred to Form GST TRAN-1 in terms of,,,,,,
Section 140 of the CGST Act, 2017 read with Rule 117 of CGST Rules, 2017 which provide for carry forward of credit from erstwhile regime into the",,,,,,
electronic credit ledger of the GST regime. She further submitted that the credit pertaining to other units is also merged in the electronic credit ledger,,,,,,
and shall be utilized as a single unit and therefore there shall be no bifurcation of credit pertaining to different units and the same shall be considered as,,,,,,
credit belonging to a single unit. She further submitted that the demand in the present case is not sustainable as the entire transaction is revenue,,,,,,
neutral, as the credit even if distributed by the appellants to their other units and availed by such units, the credit in turn shall remain within the",,,,,,
Appellants’ Company only as the Appellants have a single registration under GST for the State of Karnataka. Therefore, as per the learned",,,,,,
Counsel, the payment of tax under the present demand would merely result in a revenue neutral situation and would not cause any loss to the",,,,,,
exchequer. She further submitted that the net effect of such transactions will be NIL because the credit not distributed by the appellant will be,,,,,,
available to the other units of the appellants. She further submitted that the Department has not disputed the admissibility and eligibility of the credit,,,,,,
and therefore, the exercise of reversal of credit will merely be in the nature of re-allocation or re-distribution of credit by the ISD. She further",,,,,,
submitted that it has been consistently held by various Courts that non-distribution of credit by the ISD is a condonable procedural lapse, in cases",,,,,,
where the situation is rendered revenue neutral. In support of this submission, she relied upon the following decisions: Â",,,,,,
· Doshion Ltd. v. CCE, Ahmedabad, reported in 2013 (288) E.L.T. 291 (Tri. - Ahmd.) affirmed by the Hon’ble High Court of Gujarat in 2014",,,,,,
(36) STR 972 (Guj.) and 2016 (41) STR 884 (Guj.) Â,,,,,,
· Commr. of C.T., Pune-I, Commissionerate v. Oerlikon Balzers Coating India P. Ltd. - 2019 (366) E.L.T. 624 (Bom.). Â",,,,,,
· Hindustan Zinc v. Commissioner of CGST, Udaipur reported in 2019 (4) TMI 475. Â",,,,,,
· Sri Krishna Pharmaceuticals Ltd. vs. CCE, Hyderabad, reported in 2015 (40) S.T.R. 1039 (Tri. - Bang.).",,,,,,
4.1. She further submitted that the appellant is eligible for credit of Rs.1,22,145/- out of Rs.6,04,338/- being the credit on common input services",,,,,,
availed by all units which has been received from other services providers which is indicated in Table B cited supra. Learned Counsel further,,,,,,
submitted that for the period up to 01.04.2016 i.e. for the period of April 2014 to March 2016, the appellants were not liable to distribute CENVAT",,,,,,
credit pertaining to common input services used in more than one unit of the appellant company on pro-rata basis and the demand for the said period is,,,,,,
liable to be set aside. She further submitted that the demand of CENVAT credit of Rs.6,66,043/- for the period of April 2014 to March 2016",,,,,,
confirmed in the impugned order is without any authority of law and is liable to be set aside. She also submitted that Rule 7 of CCR, 2004 up till",,,,,,
31.03.2016 provided that the input service distributor (ISD) 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 certain conditions. The said Rule 7 of CCR, 2004 was amended vide Notification",,,,,,
No.13/2016-CE(NT) dated 01.03.2016 and the phrase “may distribute†was substituted with “shall distribute†with effect from 01.04.2016. In,,,,,,
support of her submission that prior to 01.04.2016, the appellant was not required mandatorily to distribute the service tax paid to its units. For this",,,,,,
submission, she relied upon the following decisions: Â",,,,,,
· Commr. of C.T., Pune-I, Commissionerate v. Oerlikon Balzers Coating India P. Ltd. - 2019 (366) E.L.T. 624 (Bom.). Â",,,,,,
· Hindustan Zinc v. Commissioner of CGST, Udaipur reported in 2019 (4) TMI 475 and 2019 (370) E.L.T. 1582 (Tri. - Del.). Â",,,,,,
· Gloster Cables Ltd. v. Commissioner of Central Tax, Medchal -2018 (363) E.L.T. 1197 (Tri. - Hyd.)",,,,,,
4.2. The next submission of the learned Counsel for the appellant is that when the Department has not disputed the eligibility or entitlement of the,,,,,,
credit then it is a settled law that substantial benefit of CENVAT credit cannot be denied on procedural lapse. Thus, the benefit of the disputed",,,,,,
CENVAT credit cannot be denied on the ground that the appellants have failed to distribute the credit in terms of Rule 7 of the CENVAT Credit,,,,,,
Rules, 2004. For this submission, she relied upon the following decisions: Â",,,,,,
· Trident Powercraft Pvt. Ltd. v. CCE, Bangalore, reported in 2016 (41) S.T.R. 687 (Tri. â€" Bang). Â",,,,,,
· Kemwell Bio Pharma Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Bangalore, reported in 2017 (47) S.T.R. 70 (Tri. - Bang.).",,,,,,
Â,,,,,,
· Pricol Ltd. v. Commissioner of Central Excise, Coimbatore, reported in 2015 (38) S.T.R. 668 (Tri. - Chennai).",,,,,,
4.3. She also submitted that the extended period of limitation cannot be invoked as the appellants have not suppressed the facts with intention to evade,,,,,,
payment of duty, rather the appellants provided all the documents to the Audit Department at the time of verification. She further submitted that the",,,,,,
demand in the present case is revenue neutral and it is a settled law that extended period of limitation cannot be invoked and penalty cannot be,,,,,,
imposed in situation resulting in revenue neutrality.,,,,,,
On the other hand, learned AR defended the impugned order.",,,,,,
After considering the submissions of both the parties and perusal of the material on record, I find that in the present case, the learned Commissioner",,,,,,
has confirmed the demand of CENVAT credit on the grounds that the appellant has failed to distribute the credit to its various units regarding common,,,,,,
input service. The defence of the appellant that after the implementation of GST with effect from 01.07.2017, the appellants have taken single",,,,,,
registration for all the 9 units working in the State of Karnataka in terms of Section 25 of the CGST Act, 2017. Further, I find that the unutilized credit",,,,,,
from ER-1 Returns and ST-3 Returns were transferred to Form GST TRAN-1 in terms of Section 140 of the CGST Act 2017 read with Rule 117 of,,,,,,
CGST Rules 2017 and the same was further taken to Electronic Credit Ledger. Further, I find that the net effect of not distributing the credit to",,,,,,
various units and availed by the ISD will be NIL after coming into force of GST because the Department has not disputed its admissibility and,,,,,,
eligibility. Further, I find that this issue of revenue neutrality has been considered by the various Courts and it has been held that non-distribution of",,,,,,
credit is condonable as procedural lapse, especially in situation which is revenue neutral. Further, I find that in the case of Doshion Ltd. v. CCE,",,,,,,
Ahmedabad (supra) wherein it has been held that procedural irregularity in the case of ISD distribution is a revenue neutral situation and there is no,,,,,,
loss to the Revenue. Similarly, in the case of Commr. of C.T., Pune-I, Commissionerate v. Oerlikon Balzers Coating India P. Ltd (supra), it has been",,,,,,
held by the Hon’ble High court of Bombay that the entire exercise in the case of non-distribution of credit by an ISD would be revenue neutral, as",,,,,,
the distribution of CENVAT credit to the various units would result in lesser service tax being paid by cash on their taxable activity, as they would",,,,,,
have utilized the CENVAT credit available for distribution for such payments. Further, Tribunal in the case of Hindustan Zinc v. Commissioner of",,,,,,
CGST (supra) quashed the proceedings initiated by the Department on account of non-distribution of proportionate credit by an ISD on the ground that,,,,,,
the said transaction is revenue neutral. Further, I find that for the period prior to 01.04.2016 i.e. for the period April 2014 to March 2016, the appellants",,,,,,
were not liable to distribute CENVAT credit pertaining to common input services used in more than one unit of the appellants’ company on pro-,,,,,,
rata basis as Rule 7 of CENVAT Credit Rules, 2004 was amended vide Notification No.13/2016 dated 01.03.2016 wherein the phrase “may",,,,,,
distribute†was substituted with “shall distribute†with effect from 01.04.2016, but both the authorities have not considered the amendment",,,,,,
effected from 01.04.2016 and wrongly confirmed the demand for the period prior to 01.04.2016. Further, I find that in the case of Commr. of C.T.,",,,,,,
Pune-I, Commissionerate v. Oerlikon Balzers (supra), it has been held that for the period prior to 01.04.2016, the assessee was entitled to avail and",,,,,,
utilize the CENVAT credit pertaining to common input services at one unit without distribution of the same on pro-rata basis to the relevant units,,,,,,
consuming the said input service. The Hon’ble High Court also noted that Rule 7 of CCR, 2004 merely gave an option to the assessee to distribute",,,,,,
input service credit as evidenced by the word “may distributeâ€. The decision of the Hon’ble High Court was followed by the Tribunal in the,,,,,,
case of Hindustan Zinc v. Commissioner of CGST (supra) wherein the Tribunal held that proportionate distribution of credit was not mandatory prior,,,,,,
to amendment with effect from 01.04.2016 in Rule 7 of CENVAT Credit Rule, 2004 and quashed the proceedings on the ground of revenue neutrality.",,,,,,
Further, I also find that once the Department has not disputed the eligibility or entitlement of credit then the failure of the appellant to distribute the",,,,,,
same and transition to GST after coming into force of GST is only a procedural lapse and it will not affect the substantive right of the appellant,,,,,,
because the failure to comply with the provisions of ISD are at best may be termed as procedural irregularity and it has been consistently held by,,,,,,
various Courts that substantive right cannot be denied merely on procedural irregularity. Similarly, the extended period of limitation invoked by the",,,,,,
Department is not sustainable in the present case because the appellant has not concealed any information from the Department and all the documents,,,,,,
were provided by the appellant to the Audit Party and on the basis of Audit Report, the SCN was issued. Further the entire demand in the present",,,,,,
case results into revenue neutral because even if the appellant had distributed the credit, it would have been available for utilization by appellant post",,,,,,
GST regime in terms of Section 25 of the CGST Act, 2017.",,,,,,
6.1. Further, I find that pre-requisite of revenue neutrality is that there is no extra benefit to the assessee and no loss is caused to the Revenue and",,,,,,
these two pre-requisites are fulfilled in the present case because even if the disputed credit was distributed to the units at a pro-rata basis, net effect",,,,,,
of such transaction would have been NIL and in the present case, the SCN was issued to the appellant after the introduction of GST that at which",,,,,,
point the issue has become revenue neutral because the appellant has taken one registration.,,,,,,
In view of my discussion above and by following the ratios of various decisions relied upon by the appellant cited supra, I am of the considered view",,,,,,
that the impugned order is not sustainable in law because in the present case, the entire situation is revenue neutral and therefore the demand is not",,,,,,
sustainable and I set aside the same by allowing the appeal of the appellant.,,,,,,
(Order pronounced in Open Court on 12/07/2021),,,,,,