Whether the cenvat credit can be denied on distribution of input service credit by regional offices?

PJ/CASE LAW/2015-16/2975

Case-INDIA CEMENTS LTD. VersusCOMMISSIONER OF C. EX., TIRUNELVELI

Citation-2015 (40) S.T.R. 497 (Tri. - Chennai)

Brief Facts-The appellant situated in Shankarnagar, Tirunelveli is a manufacturer of cement thereat. It had consumed input service credit of Rs. 13,89,596/- during the period Jan.’05 and Feb.’05 and Rs. 83,87,222/- for Mar.’05 to Jul.’05. The credits so consumed were distributed by its Head Office in Chennai and Regional Offices in Tamil Nadu as well as in Kerala. Interpreting the definition under Rule 2(m) of the Cenvat Credit Rules, 2004, Revenue’s allegation was that the credit distributed by Head Office is only permissible to the manufacturer/appellant but not the credit distributed by its Regional Offices. Since the term “an office” used in the said Rule which came into force with effect from 10-9-2004 does not include a place beyond head office. The period of dispute in the instant case is covered by the above definition.

Appelants Contention-According to the appellant, adjudicating authority without making an allegation in the show cause notice as to confirming the credit distribution by head office only, dealt with that aspect for the first time in adjudication order. Therefore, both on the principle of violation of natural justice as well as on merit, the appeal may be allowed following the ratio laid down by Hon’ble High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore-I v. ECOF Industries Pvt. Ltd. reported in 2013 (29)S.T.R.107 (Kar.) = 2012 (277)E.L.T.317 (Kar.).There is clear finding in the case of appellant that its Head Office is registered as ISD. Its Kerala Regional Office was registered under the Finance Act, 1994 under the category of GTA and their Tamil Nadu Regional Office was not so registered.

Respondents Contention-On the other hand, Revenue contends that if credit is distributed by “an office” only and that too the “Head Office” that is permissible to allow Cenvat credit. Learned Commissioner rightly held that whosoever grants credit does not become ISD. Rule 7 along with Rule 2(m) of Cenvat Credit Rules, 2004 being regulatory measure that protects the interests of Revenue preventing abuse of Cenvat credit.

Reasoning Of Judgement-Heard both sides and perused the records. The tribunal do not find any answer as to the reason why the appellant was not given opportunity of defence through show cause notice to defend on the concept of “an office” dealt with in adjudication. More specifically, that is dealt with in para 7 thereof. This ground alone is enough to strike down the adjudication order on the ground of violation of natural justice.
No doubt, the definition of input service distributor using the term “an office” is applicable to the appellant, but the term “an office” cannot be limited to a physical boundary but shall be interpreted as different boundaries which are offices and distribute the credit. The requirement is that credit distributing agency should be “an office” only but not a confined boundary. The reason is probably “an office” maintains record to verify the credit distributed.
The term “an office” used in Rule 2(m) of Cenvat Credit Rules, 2004 is to be read in plurality in the context in which that is used and any narrow meaning given to the term “an office” would defeat the spirit of the provisions in Section 13(2) of General Clauses Act, 1897.
The tribunal may further add that the assessee is not merely entitled to take credit of the unit where the products is manufactured, but it may also get credit of input tax paid by its head office to arrest cascading effect which is the mandate of Rule 7 of Cenvat Credit Rules, 2004. That Rule governs the procedure/manner of distribution of credit by a input service distributor prescribing two conditions. Those are as follows:-
(a) Credit distributed under the invoice of ISD not exceeding the amount of Service Tax paid; and
(b) Credit of service exclusively used for exempted goods or exempt service is not distributed.
There is no finding by the adjudicating authority of any violation of the above conditions. Therefore, there cannot be denial of Cenvat credit distributed to the appellant for its consumption. In view of the above, appeal is allowed.

Decision-Appeal allowed

Comment-The gist of the case is that thedefinition of Input Service Distributorusing term “an office” in Rule 2(m) of Cenvat Credit Rules, 2004 is not only confined to a physical boundary but it is to be interpreted to include the offices which distribute the credit. Rule 7 of Cenvat Credit Rules, 2004 deals with the manner of distribution of credit by ISD credit which prescribes the condition that the credit distributed under the invoice of ISD should not exceed the amount of Service Tax paid and the credit of service exclusively used for exempted goods or exempt service is not distributed. And, since there is no finding regarding the violation of these conditions the denial of input service credit distributed by the regional office is not tenable. And the order passed by the department regarding the denial of input service credit on distribution of credit by regional offices is also not sustainable because no allegations regarding such are made in SCN. Therefore it can be said that the Principal of natural justice has been violated.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2975

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