Whether ISD registration necessary for distributing credit to another units?

PJ/CASE LAW/2015-16/2839

Case:-C.C.E., CHANDIGARH VERSUS TAURUS AGILE TECHNOLOGY CORPORATION (P) LTD.

Citation:- 2015 (39) S.T.R. 880 (Tri. - Del.)

Brief Facts:-The facts of the case are that the respondent is a manufacturer of excisable goods and having three offices at various places namely, Chandigarh, Mumbai and Bangalore. They have availed Cenvat credit on various services namely, service tax paid on lending of DLF office Chandigarh, maintenance charges Mumbai office, brokerage and commission paid to the agent for obtaining office building at Bombay, insurance, security charges of Chandigarh office, housekeeping charges at Chandigarh, Medical and accident insurance of employees, maintenance/rent charges of Bangalore office, insurance of office at Chandigarh and Mumbai. Revenue is of the view that as these services have been received at various offices, therefore they are required to be registered with Central Excise Department as input service distributor. As per Rule 2(l) of the Cenvat Credit Rules, 2004 these services have no nexus with manufacturing activity of the respondents, therefore, they are not entitled to take inputs service credit. As per Rule 2(l) of Cenvat Credit Rules, 2004, the proceedings were initiated and show cause notice was issued and same was adjudicated.
During the course of audit, it was also found that respondents has availed the Cenvat credit amounting to Rs. 2,01,198/- without invoice. Therefore, by issuance of show cause notice, Cenvat credit availed by the respondents was sought to be denied along with interest and imposition of penalty was also proposed. The show cause notice was adjudicated and the amount of Rs. 2,01,198/- which was paid by the appellant before issuance of show cause notice was appropriated but other demands were confirmed against the respondents along with interest and penalties were also imposed. The said order was challenged by the respondents before Commissioner (Appeals) who set aside the demands confirmed by the adjudicating authority along with interest but confirmed the penalty of Rs. 2,000/- on the appellant for taking Cenvat credit without invoice. Revenue is in appeal against the impugned order and the respondent has also filed cross-objection.

Appellants Contention:-Learned AR appearing on behalf of the Revenue submits that the services on which the respondent has taken input service credit has no nexus to their manufacturing activity as the services have been availed by the respondents at their office premises. Therefore, Cenvat credit is not available as held by the Hon’ble Apex Court in the case of Maruti Suzuki [2009 (240) E.L.T. 641 (S.C.)]. She further submits that learned Commissioner (Appeals) without discussing the nexus of the impugned services with the manufacturing activity of the respondent, has allowed the Cenvat credit. Therefore, impugned order is cryptic order and it has to be remanded to the Commissioner (Appeals) to give finding in detail. She further submits that in terms of Rule 2(l) of Cenvat Credit Rules, 2004, input service credit has been availed by the head office of the respondent, therefore they are required to be registered as input service distributor and the respondents has not registered themselves as Input Service Distributor, therefore, the said credit is not available. She also submits that learned Commissioner (Appeals) has relied upon the decision of the Tribunal in the case of Durferrit Asea Pvt. Ltd.v. CCE, Guntur[2010 (258) E.L.T. 414 (Tri-Bang.)] which is not applicable to the facts of the present case. As in that case, there was only one office of the appellant and this Tribunal held that there is no requirement of registration as input service distributor. Therefore, impugned order is to be set aside.

Respondents Contention:-On the other hand, learned Counsel for the respondent submits that all the above services have been availed by the respondent being a manufacturer in the course of their business of manufacturing of excisable goods. Therefore, as per the decision of the Hon’ble High Court of Bombay in the case of Ultratech Cement[2010 (260) E.L.T. 369 (Bom.)], the respondent are entitled to take Cenvat credit. It is further submitted that nature of service on which the inputs credit service has been taken are in relation to the business of respondents only. Therefore, they are entitled to take Cenvat credit and by nature of services mentioned hereinabove, it clearly shows that these services have been availed by the respondent in the course of business of their manufacturing. In these circumstances, impugned order is to be upheld. It is further submitted that they are not required to be registered as per Rule 2(m) of the Cenvat Credit Rule as Input Service Distributor. It is also submitted that as per Rule 7 of the said Rules, the only requirement is that when the assessee having more than one manufacturing units, the assessee may opt for registration as Input Service Distributor. Admittedly, in this case, the respondent is having only one manufacturing unit. Therefore as held by this Tribunal, in the cases of Durferrit Asea Pvt. Ltd.(supra), Valco Industries Ltd.v. CCE, Chandigarh[2012 (286) E.L.T. 54 (Tri-Del)] and CC, Vapi v. DNH Spinners [2009 (244) E.L.T. 65 (Tri-Ahmd)], the respondents are not required to be registered as Input Service Distributor. It is further submitted that as the respondent has shown the nexus of the service availed by the assessee during business of manufacturing and there is no infirmity in the impugned order, same is required to be upheld. She further submits that as the respondent has reversed the credit availed in the absence of inputs which were not available at the time of audit, amounting to Rs. 2,01,198/-, the penalties are not imposable as they have paid the duty along with interest before issuance of show cause notice. Therefore, penalty may be waived.

Reasoning of Judgement:-Heard both sides. Considered the submissions. In this case, there are two issues.
(a) Whether the respondents are required to be registered as Input Service Distributor as per Rule 2(m) of the Cenvat Credit Rules, 2004 or not?
(b) Whether the inputs service availed by the respondent in question have nexus in the business of manufacturing of final product of respondent or not?
Issue No. 1. As per Rule 7 of Cenvat Credit Rules, 2004 which is reproduced herein 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 condition, namely :-
(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon, or “
The assessee is required to be registered as input service distributor, if the assessee is having more than one manufacturing units. Admittedly, in this case the respondent is having only one manufacturing unit. Therefore, relying on the decision of Durferrit Asea Pvt. Ltd. (supra), the tribunal hold that respondent is not required to be registered as Input Service Distributor under Rule 2(m) of the Cenvat Credit Rules, 2004.For the nexus of the services impugned, tribunal find that the respondent paid Service tax on lending of DLF office Chandigarh, maintenance charges Mumbai office, brokerage and commission paid to the agent for obtaining office building at Bombay, insurance, plant and machinery, security charges of Chandigarh office, house keeping charges at Chandigarh, Medical and accident insurance of employees, maintenance/rent charges of Bangalore office, insurance of office at Chandigarh and Mumbai. As these service has been availed by the respondents in the course of their business of manufacturing. In these circumstances, as held by the Hon’ble Bombay High Court in the case of Ultratech Cement(supra), they also hold that appellant are entitled to take Cenvat credit.
With regard to penalty, tribunal find that although they have taken the Cenvat credit in the absence of invoices which were not found during the course of audit, but thereafter no efforts have been made by the appellant to produce original invoice. In these circumstances, they do not find infirmity in the order of imposition of penalty on the respondent. In these circumstances, and do not find any infirmity in the impugned order, same is upheld. Appeal filed by the Revenue is dismissed. Cross-objection is also disposed of in the above terms.

Decision:- Appeal disposed off

Comment:- The crux of the case is that according to Rule 7 of CCR, 2004 the assessee is required to get registered as input service distributor for the services received at various offices if it has more than one manufacturing units. Furthermore, it was held that as the services availed by the assessee are in the course of their business of manufacturing, it was concluded that input service credit of such services would be clearly admissible. However, for credit taken without invoices, penalty was imposed.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2839

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