Whether credit of services used by head office situated outside factory as input service distributor is available?

PJ/CASE LAW/2016-17/3044

Case:BALKRISHNA INDUSTRIES LTD. Vs COMMISSIONER OF C. EX., JAIPUR

Citation: 2015 (39) S.T.R. 861 (Tri. - Del.)

Brief Facts: The appellants is in appeal against the impugned order wherein the Cenvat credit of rent paid for the head office premises disbursed by ISD has been denied on the ground that services availed outside factory and not availed by the appellant itself.
In this case Cenvat credit sought to be denied to the appellant on the premise that services has been availed beyond the place of removal. Moreover, the services has not been availed by the appellant itself. Therefore, they are not entitled to avail Cenvat credit.

Reasoning of Judgement:From the facts, it emerges that appellant is having its office in Mumbai and as per definition of ‘input services’ distributor as per Rule 2(m) which is reproduced herein as under:
“(m) “input service distributor” means an 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.”
From the above provision, it is coming out that the inputs service distributor is the office of manufacturer or producer of final product. Therefore, it cannot be said that input service distributor is not the manufacturer. It merely means office of the manufacturer and as per Rule 7 of the Cenvat Credit Rules which provides manner of distribution of Cenvat credit which is reproduced hereunder as :
“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 used 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.”
There is no allegation against the appellant that the provisions of Rule 7 has been violated. Further, they find that issue came up before this Tribunal in the case of ECOF Industries Pvt. Ltd. [2010 (17)S.T.R. 515 (Tri.-Bang.)] wherein this Tribunal relied on paras 5 and 8 which is reproduced hereunder :
“5. After hearing both sides, we find that the Rule 3 merely says that a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of any input services received by the manufacturer of such final product or provider of output services. The availability of credit therefore is related to the manufacturer of goods or provider of output services as a whole and not restricted to any particular unit of the manufacturer/service provider.
The combined reading of the 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 first restriction is that the credit should not exceed the amount of Service Tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules. The restrictions sought to be applied by the Department in this case in limiting the distribution of the Service Tax credit 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. As such, restricting the distribution of Service Tax credit in a manner as has been done by the impugned order of the lower appellate authority (original authority had approved of such distribution) cannot be upheld. In case the Department wants to place such restriction as is sought to be placed in the case, the rule is required to be amended”
Said order was challenged by the Revenue before the Hon’ble High Court of Karnataka as reported in [2011 (271)E.L.T. 58 (Kar.)] wherein the Hon’ble High Court has observed as under :
“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 used 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.”
As the services has been availed at the head office and same is a part of the appellant itself as a manufacturer. Therefore, they hold that appellant has availed the input service credit correctly. Consequently, the impugned order is set aside. Appeal is allowed with consequential relief, if any.

Decision:Appeal Allowed

Comment:In this case, credit of the rent paid for head office premises disbursed by ISD was denied on the ground that services availed outside factory and not availed by appellant itself. The CESTAT held that the head office which is a part of appellant itself as a manufacturer and therefore credit of services availed at head office can’t be denied.

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PJ/CASE LAW/2016-17/3044

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