Tata Steel Limited Vs Central Goods and Services Tax and Central Excise (CESTAT Kolkata)
Summary: The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal allowed two appeals filed by Tata Steel Limited against the denial of CENVAT credit on intellectual property services. The services, comprising drawings and designs for its new Kalinga Nagar plant, had been paid for through its Kolkata regional head office, registered as an Input Service Distributor (ISD). The Kolkata office distributed service tax credit to the company’s Jamshedpur steel works. Revenue disputed the credit at the recipient unit on the ground that the services related to Kalinga Nagar rather than Jamshedpur.
Tata Steel argued that Revenue had not challenged the underlying credit taken by the Kolkata ISD and therefore could not disallow the distributed credit at the recipient unit. It relied on Nalco Water India Ltd., United Phosphorus Ltd. and Hinduja Global Solutions Ltd. The Tribunal examined the reasoning in Nalco Water, which in turn discussed Balkrishna Industries, ECOF Industries and Nestle India on the manner of distribution of input service credit under Rule 7 of the CENVAT Credit Rules, 2004.
The Tribunal found that Revenue had not disputed the availment of credit on intellectual property services at the Kolkata ISD. Consequently, the credit distributed through ISD invoices could not be treated as inadmissible at the Jamshedpur unit merely on the stated basis. It held that no reversal was required, set aside the impugned common order and allowed both appeals with consequential relief, if any.
Cases Discussed:
- Nalco Water India Ltd. v. Commissioner of CGST & Excise, Howrah, Final Order Nos. 75477–75484/2024, dated 08.03.2024
- United Phosphorus Ltd. v. Commissioner of Central Excise, Surat-II, 2013 (30) S.T.R. 509 (Tri.–Ahmd.)
- Hinduja Global Solutions Ltd. v. Commissioner of Central Excise, Service Tax & Customs, Bangalore-II, 2016 (42) S.T.R. 932 (Tri.–Bang.)
- Balkrishna Industries Limited (cited within Nalco Water India Ltd.)
- Commissioner of Central Excise v. ECOF Industries Pvt. Ltd., 2011 (271) E.L.T. 58 (Kar.)
- Nestle India Limited (cited within Nalco Water India Ltd.)
FULL TEXT OF THE CESTAT KOLKATA ORDER
Both the appeals are having a common issue and therefore, both are disposed of by this common order. 2. The facts of the case are that the appellant is a manufacturer of iron and steel products and have their manufacturing units at Jamshedpur in the State of Jharkhand and in Kalinga Nagar in the State of Odisha. During the material period, the Kalinga Nagar unit of M/s. Tata Steel Limited Jamshedpur – 831 001 : Appellant VERSUS Commissioner of C.G.S.T. & C.X., Jamshedpur, Outer Circle Road, Bistupur, Jamshedpur – 831 001 : Respondent the appellant, which is a green field project, received intellectual property services (drawing and designs) for setting up its new plant. The regional head office of the appellant-company is at Kolkata and has been registered as an Input Service Distributor (ISD) under the provisions of the Finance Act, 1994 as amended. The payments of Service Tax for the said services were effected by the Kolkata office of the appellant (hereinafter referred to as ‘TSL, Kolkata’).
2.1. Since the steel works at Jamshedpur was also registered as the unit, for which TSL, Kolkata was the Input Service Distributor under the Act, CENVAT Credit of Service Tax paid on input services by TSL, Kolkata was distributed to its steel works at Jamshedpur under ISD invoices. 3. Show Cause Notices were issued inter alia alleging that the appellant had wrongly availed CENVAT Credit of the Service Tax paid on intellectual property service pertaining to their Kalinga Nagar unit during the material period although the same did not allegedly qualify as ‘input service’ on account of the service not being used by the steel works at Jamshedpur directly or indirectly, in or in relation to the manufacture of final product and towards clearance thereof up to the place of removal. Therefore, it was alleged that the appellant had contravened the provisions of the CENVAT Credit Rules, 2004 and were required to reverse the CENVAT Credit availed on intellectual property service distributed by TSL, Kolkata being the ISD. 4. The matters were adjudicated and demands of Service Tax were confirmed vide the impugned order by denying the CENVAT Credit availed on intellectual property service.
4.1. Aggrieved from the said order, the appellant is before us.
5. The Ld. Counsel appearing on behalf of the appellant submits that the availment of CENVAT Credit by the Input Service Distributor viz. TSL, Kolkata has not been disputed by the Revenue. Therefore, it is his contention that the CENVAT Credit availed by the appellant cannot be denied at this stage. To support this contention, the appellant relied on the decisions in the following cases: –
i. Nalco Water India Ltd. v. Commissioner of C.G.S.T. & Excise, Howrah vide Final Order No. 75477-75484 of 2024 dated 08.03.2024 in Excise Appeal No. 76050 of 2023 & ors. [CESTAT, Kolkata] [2024 (3) TMI 751 – CESTAT, Kolkata]
ii. United Phosphorus Ltd. v. Commissioner of C.Ex., Surat-II [2013 (30) S.T.R. 509 (Tri. – Ahmd.)]
iii. Hinduja Global Solutions Ltd. v. Commissioner of C.Ex., S.T. & Cus., Bangalore-II [2016 (42) S.T.R. 932 (Tri. – Bang.)]
6. On the other hand, the Ld. Authorized Representative of the Revenue supported the impugned order.
7. Heard the parties and considered their submissions.
8. We find that the short issue involved in the matter is whether the CENVAT Credit availed by the appellant on intellectual property service can be denied, when the Input Service Distributor (ISD) i.e., TSL, Kolkata has availed CENVAT Credit and distributed the credit to the appellant as an ISD and the availment of CENVAT Credit at the end of TSL, Kolkata has not been disputed by the Revenue, or not.
9. We find that the said issue was dealt with by this Tribunal in the case of M/s. Nalco Water India Ltd. (supra) wherein this Tribunal has held as under: –
“10. Further, we find that all the services in question, on which the Head Office has availed cenvat credit and distributed to the appellants in proportionate in terms of Rule 7 of the Cenvat Credit Rules, 2004, the cenvat credit cannot be denied to the appellant as held by this Tribunal in the case of Balkrishna Industries Limited (supra), wherein this Tribunal has held as under :
“4. 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.”
5. 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.”
6. There is no allegation against the appellant that the provisions of Rule 7 has been violated. Further, I 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.
8. 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 :
8. 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.”
7. As the services has been availed at the head office and same is a part of the appellant itself as a manufacturer. Therefore, I 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.”
11. Further, in the case of Nestle India Limited (supra), this Tribunal again has examined the issue and has observed as under :
“4. I have carefully considered the submissions made by both the sides, I find that the fact is not under dispute that though input service on which the credit was disputed was not used in the factory of the appellant but it is related to the product Nescafe and Maggie Noodles which are manufactured in the appellant company’s different factory. As regards the provision for distribution of the credit, there is no condition of one-to-one correlation between the credit distributed and the quantum of service received and used by a particular factory. Though the service is related to the product which is manufactured in the appellant’s company in other factories. But all the factories belonging to one company and in the absence of any provision of one-to- one correlation the credit can be distributed to any factory of one company. This issue has been considered by the Hon’ble Karnataka High Court in the case of Ecof Industries Pvt. Ltd. (supra) wherein it was held as under :
4. The assessee had availed the Service Tax credit based on the invoices issued by the Chennai office indicating that the Service Tax are taken by their unit at Malur. That the Service Tax paid by the Chennai unit pertains to advertisement of their product ‘Sabena Dish Wash Bar’ which was manufactured by their Cuttack Unit and not by the unit at Malur. Therefore, the assessee was dealing with the very same product. Rule 7 of the Cenvat Credit Rules governs procedure/manner of distribution of credit by input service distributor by imposing two conditions therein, which are as follows :
“a. Credit distributed under the invoice of ISD does not exceed the amount of Service Tax paid.
b. Credit of service exclusively used for exempted goods or exempt service is not distributed.”
5. Therefore, the assessee is entitled to distribute the Cenvat credit on the input services on its manufacturing unit or other units providing the output services. The view taken in the order-in-appeal that the distribution of credit is for the advertisement of the product, which is not at all manufactured at Malur unit, therefore, cannot be accepted. The finding recorded by the Appellate Authority that the assessee is entitled to take credit only in the unit where the product is manufactured, is therefore not the mandate of Rule 7 of the Cenvat Credit Rules.
6. Under these circumstances, we confirm the view taken by the Tribunal. We do not see any substantial question of law that arises for consideration in this appeal. Accordingly, the appeal, being devoid of merits, is dismissed.
In view of the above judgment even though the service is not used in the appellant factory, but received and used in different factory of the same company, credit cannot be denied. Following the ratio of the above decision and the discussion made hereinabove, I am of the considered view that the appellant is legally entitled for the Cenvat credit. The impugned order is set aside, the appeal is allowed.”
12. In view of the above discussions, as it has not been questioned that ISD has taken inadmissible cenvat credit, in that circumstances, the cenvat credit cannot be recovered from the appellants holding that the appellant has availed inadmissible cenvat credit. In fact, the appellant has availed cenvat credit on the invoices issued by ISD under Rule 7 of the Cenvat Credit Rules, 2004, which is eligible to avail the cenvat credit under Rule 9 of the Cenvat Credit Rules, 2004.
13. Therefore, we do not find any merit in the impugned orders and the same are set aside.
14. In the result, the appeals are allowed with consequential relief, if any.”
9.1. As it is an admitted fact that the availment of CENVAT Credit on intellectual property service was not disputed at the end of the ISD/TSL, Kolkata, the CENVAT Credit cannot be declared as inadmissible CENVAT Credit to the appellant who has taken the CENVAT Credit on the strength of the invoices issued by the ISD. In these circumstances, we hold that the appellant is entitled to take CENVAT Credit and accordingly, there is no requirement of reversal of CENVAT Credit by the appellant.
9.2. Therefore, the impugned order deserves no merit and thus, the same is set aside.
10. In the result, the appeals are allowed, with consequential relief, if any.
(Operative part of the order was pronounced in open court)
