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PJ/Case Law/2014-15/2173

Whether Cenvat Credit of Unit-X can be taken in Unit-Y? What is the time limitation for issuance of show cause notice?

Case:- CHINTAMANI LAMINATION Versus COMMR. OF SERVICE TAX, AHMEDABAD

Citation:-2014 (33) S.T.R. 327 (Tri.- Ahmd.)

Brief fact:- The appellant is engaged in manufacturing of CRGO transformer core. During the scrutiny of records, it was noticed that the appellant had availed Cenvat credit of service tax of Rs.1, 38,772/- on works contracts and consultancy fee of Civil Engineer for their unit-2. Credit was taken on 19-6-2008 and 1-10-2008. Proceedings were initiated for demanding the Cenvat credit on the ground that the same is not admissible by issue of show cause notice on 9-3-2010. After due process, the demand for Cenvat credit of Rs. 1, 38,772/- was confirmed, taking a view that the same is not admissible.  Penalty equal to amount imposed and interest has been demanded.

Appellant’s contention:- The appellant submitted that there is no dispute about payment of service tax on the service received and there is no dispute that the service has been used.  The only ground for denial is that credit should have been taken in unit-2 and not in unit-1. He also submitted that from the time the credit was taken till the same was reversed on 1-11-2010, the appellant had more credit in their account than the amount demanded and therefore the intention to evade duty is not sustainable and appellant is not liable to reverse the credit also because of the fact that show cause notice was issued beyond the period of one year. He also submitted that the credit could have been taken in unit-1 also since the definition of ‘Input service’ provides for availment of Cenvat credit of service tax paid on services used for setting up of factory also. Therefore he submitted , on merits as well as on limitation, the appellant had a case and is eligible.

Respondent’s contention:- The respondent submitted that the credit was taken in unit-1 whereas service was received in unit-2 and therefore it has been  rightly denied. Further, since the credit was not admissible, extended period has been correctly invoked.

Reasoning judgment:- After considering the submissions made by the both sides, it is explained that according to the definition of “input service” under Rule 2 (l) of the Cenvat credit  Rules, 2004, a manufacturer is eligible to take Cenvat credit of service tax paid on input services used by a manufacturer in or in relation to manufacture of final products and the definition of “input service” includes services used in relation to setting up , modernization, renovation or repairs of a factory. It may be seen from the definition that credit is available to manufacturer for setting up of a factory also. In this case, the appellant utilized the services for setting up unit-2, the appellant could have easily and correctly taken credit in unit-1 also, being a manufacturer having one factory and setting up the second factory. The original authority denied credit on the ground that service was not received in the factory. It is not at all a requirement as per the definition. The learned Commissioner (Appeals) however, held that the service was not utilized for manufacturer of final product or for construction of factory of the appellant. On merits both the lower authorities have not considered the issue in proper perspective. This is a situation where the assessee has two factories with two registrations and even though, as a manufacturer, he is eligible for the credit since the same has to be used in or in relation to manufacture, the credit has to be taken in unit-2.
Nevertheless the question arises whether show cause notice could have been issued by invoking extended period, as already discussed, the definition of ‘input service’ definitely provides for availment of credit by the manufacturer. Further, if credit could not be taken in unit-1, it could have been taken in unit-2 in any case. Moreover, even after taking the credit in unit-1, as submitted by the appellant, throughout period till the credit was reversed, the proceedings initiated. Under these circumstances, invocation of extended period on the ground of misdeclaration with intention to evade duty or suppression of facts cannot be sustained. In any case it cannot be said that there was suppression of facts since the assessee was not required to intimate these details.  As regards misdeclaration, there is no intention to evade duty as emerging from the facts and circumstance of the case. Unfortunately the extended period has been upheld only on the ground that the credit has been availed wrongly by the Commissioner (Appeals) and service was not received in the factory by the original authority. In this case show cause notice was issued on    9-3-2010 whereas credits were taken in June 2008 and October, 2008. Therefore show cause notice is clearly time barred.
In view of the above discussion, on the ground of limitation, the demand for cenvat credit cannot be sustained and consequently, the impugned order also cannot be sustained. Accordingly, the impugned order is set aside with consequential relief to the appellants. Before parting, it is necessary to clarify with regard to submissions, credit was reversed subsequently and in view of the decision that original principal amount could not have been demanded, the question of demand of interest does not arise. Therefore if the credit has been reversed in unit-1 and taken in unit-2, no further action on the part of revenue would be necessary.

Decision:-Appeal allowed.

Comment:-The crux of the case is that an assessee cannot take Cenvat credit of Unit-X in Unit-Y because for the availment of Cenvat credit of input service, the service has to be useful for the purposes as specified in the definition  of “Input service”  for the same unit. And on the other hand, as there was no willful suppression of the facts or representation, extended period couldn’t be invoked..

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