Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

Comments

Print   |    |  Comment

PJ/Case Laws/2011-12/1308

Distribution of cenvat credit taken in one unit to another unit of assessee

 
Case: CCE, Bangalore-I versus ECOF Industries Pvt. Ltd.
 
Citation: 2011 (23) S.T.R. 337 (Kar.)
 
Issue:- Whether service consumed in one unit and credit can be taken at other unit by distributing the same?
 
 Brief Facts:- Respondent-assessee is a manufacturer of excisable goods falling under Chapter 34 of the Central Excise Tariff Act, 1985. They had availed ser­vice tax credit based on the invoice issued by the Chennai head office, which is registered as 'Input Service Distributor' and had 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. 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 assessee had contravened the provisions of Rule 3 (1) of CCR, 2004 by irregular availment of service tax credit and a show cause notice was issued to them. It was alleged that said input services were not used in or in relation to the manufacture of finished goods or in relation to their manufacturing unit during December, 2006.
 
Assessee 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 Board Circular, dropped the proceeding.
 
Ag­grieved by the same, Revenue preferred an appeal before the Commissioner (Appeals). The Commissioner found that credit distributed was pertaining to advertisement of 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 Makin Therefore, it was held that assessee has not received input service and there is no discussion in the findings as to whether the credit has been utilized in relation to manufacture of 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 was held to be not in accordance with the provisions of the Rule 3(1) of CENVAT Credit Rules, 2004. Accordingly, the appeal was allowed. Order-in-original passed by the Assistant Commis­sioner was set aside. The Commissioner (Appeal) 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, The Tribunal allowed the appeal, set aside the order of the appellate authority and restored the order-in-original. Aggrieved by the same, Revenue filed appeal before the High Court.
 
Appellant’s Contention:- Revenue 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 arid therefore he submits a case for interference is made out.
 
Respondent’s Contention:- 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 an 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.
 
Reasoning of the Judgment:- The High Court held that 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.
 
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.
 
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.
 
Decision:- Appeal dismissed.
 
Comment:- This is very important decision which says that under the concept of “service tax distributor”, it is not to be seen whether the service is consumed in one unit. Thus, if the payment is made from head office then it should be distributed amongst various units of a manufacturer. The department is raising reverse stands many times. We have seen that in one unit they have raised this point of consumption but in second case when we said we have consumed fully in this factory then they say that the invoice is in name of head office and it should be distributed. Hence, this decision has put an end to this type of arguments. Now, it is clear that when the invoice is in name of head office then it should be distributed.

Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com