No restriction to distribute credit of service tax prior to taking input service distributor registration.

PJ/Case law/2013-14/1635

Case:-DAGGER FORST TOOLS LTD. Versus COMMISSIONER OF C. EX., MUMBAI-I

Citation:- 2013 (30) S.T.R. 206 (Tri. - Mumbai)

Brief Facts:-The Appellant M/s. Dagger Forst Tools Ltd., have a number of manufacturing units at Thane, Ambernath and Aurangabad. Their office at Thane has registered themselves as input service distributor with effect from 4- 10-2008. Thereafter, they distributed the credit of Service Tax paid on common input service such as Consultancy services, advocate services, house keeping, security etc., to their various units in proportion to the turnover of the unit. These services were received by them during the period February, 2008 to October, 2008. The Department was of the view that since the appellant registered themselves as input service distributor only from 4-10-2008, they can distribute credit only of the taxes paid on or after 4-10-2008 and not the taxes paid prior to 4-10-2008. Accordingly, a show cause notice was issued and the appellant was denied credit on the ground that the services were received prior to 4-10-2008 and the taxes were also paid prior to that date and, therefore, the appellant could not have distributed the credit in respect of the taxes paid. The appellant was also imposed with a penalty of an equivalent amount. The appellant preferred an appeal before the lower Appellate Authority who dismissed their appeal, hence the appellant is before Tribunal.

Appellant’s Contention:-The Appellant submits that they have registered as input service distributor as per the provisions of Rule 4A of the Service Tax Rules, 1994. Sub-rule (2) to the said Rule says that once a person has registered as an input service distributor, he can distribute the credit by issuing serially numbered and dated invoices/bills indicating therein the name, address and registration number of person providing input services, the name and address of the input service distributor, the name and address of the recipient of the credit distributed and the amount of the credit distributed. There is no restriction provided in the said Rule with respect to the date on which the tax liability has been discharged in respect of the credit distributed. In other words, his contention is that even in respect of the taxes paid prior to the registration as input service distributor, he is entitled to distribute the tax credit.

Respondent’s Contention:-The Respondent reiterates the findings of the lower authorities. However, on a specific query as to whether there is any specific restriction in the Cenvat Credit Rules, 2004 which provides that credit can be distributed only in respect of taxes paid on or after the date of registration as input service distributor, he fairly concedes that the Rule does not specifically provide for any such restriction.

Reasoning of Judgment:-After considering the facts & submissions by the appellant, Tribunal is of the view that the appeal itself can be disposed of at this stage. Therefore, after dispensing with the requirement of pre-deposit of the dues adjudged, the appeal is taken for consideration and disposal. Input service distribution is a facility granted to a manufacturer/service provider who operates from a number of premises. There is no restriction under the Cenvat Credit Rules, 2004, with regard to the period for availing Cenvat credit of Service Tax paid. In other words, a manufacturer/input service provider can avail Cenvat credit of the Service Tax paid irrespective of any time limitation. The only condition to be satisfied is that they should have paid the Service Tax prior to availing the credit. So long as this condition is satisfied, there is no time-limit prescribed in the Rule within which the Cenvat credit has to be taken. If that be so, there is no reason why in the case of input service distributor alone, a restriction should be placed with respect to availment of Cenvat credit i.e. input service distributor is permitted to distribute only taxes paid on or after registration. Such a restriction is totally unwarranted and is not provided for in the law. Therefore the order passed by the lower Appellate Authority is not in accordance with the law and the same is liable to be set aside. Accordingly, the impugned order is set aside and the appeal is allowed with consequential relief, if any. The stay application is also disposed of.

Decision:-Appeal Allowed.

Comment:- The essence of this case is that when there is no restriction of time limit for availing cenvat credit in respect of input services, then the allegation of denying credit with respect to input service distributor on the sole contention that credit can be distributed only after taking registration as input service distributor is totally devoid of merits. Credit can be availed any time as far as the service tax stands paid on the input services.

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PJ/Case law/2013-14/1635

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