Case Law Details
Commissioner Of Central Tax Vs Lenovo (India) Pvt Ltd (CESTAT Bangalore)
Conclusion: Service Tax demand was quashed as inclusion of turnover of Manufacturing unit for quantification of amount for reversal of CENVAT Credit was appropriate since for the entire remaining activities of the Puducherry manufacturing unit, the centralized service tax registration at Bangalore was applicable, which was as a SERVICE PROVIDER as well as an INPUT SERVICE DISTRIBUTOR.
Held: Assessee was providing both taxable and exempted services (trading) and was availing cenvat credit on input services common to both services. During audit, it was observed that there was short payment, in terms of Rule 6(3A) of CCR,2004; the department issued a Show Cause Notice, dated 23.04.2016, to assessee, proposing to demand and recover an amount of Rs. 47,00,31,471, for the period during October 2010 to March 2010, alleging incorrect determination of the amount to be reversed proportionately under Rule 6(3A)(c)(iii) of the Cenvat Credit Rules, 2004; Department further proposed to demand credit of Rs. 19,92,836/- availed for the period during October 2010 to March 2015; during the course of Audit department reversed credit of Rs 28,04,34,114. The adjudicating authority dropped the demand for the period prior 1.4.2011 (Rs.3,17,17,271) on the ground that trading was classified as an exempted service only from 1.4.2011 and observed that since assessee had reversed Rs.67,04,088/- voluntarily, the relevant statutory provisions of Rule 6(2) prevalent during the material point of time, had been satisfied. With regard to the remaining demand of Rs.43, 83,14,200, for the period from 04/2011 to 03/2015; the objection in the SCN was against inclusion of turnover of the Puducherry manufacturing unit, for quantification of total turnover under Rule 6(3). It was the case of the department that as the Puducherry unit was separately registered under the provisions of Central Excise and Service Tax, the turnover of Puducherry unit should not be considered while computing the tax credit reversable by the head office of the respondents who were also registered as Input Service Distributors. It was the claim of assessee that assessee was an ISD and accordingly issue invoice for distributing the credit of service tax to all manufacturing/service units; they had to distribute credit as per the mechanism set out in Rule 7 of the CCR, 2004. It was held that on scrutiny of the service tax registration certificate issued for Puducherry unit was seen that the registration for service tax at Puducherry was only for payment of service tax under reverse charge mechanism on GTA services and on import of taxable services from abroad, which were meant exclusively for the Puducherry manufacturing unit. With regard to the entire remaining activities of the said Puducherry manufacturing unit, the centralized service tax registration No.AABC13372HST001 at Bangalore was applicable, which was as a SERVICE PROVIDER as well as an INPUT SERVICE DISTRIBUTOR. Thereby, inclusion of the turnover of the Puducherry manufacturing unit for the purpose of quantification of amount under the said Rule 6(3) was appropriate. As such, the proposed demand failed on merit.
FULL TEXT OF THE CESTAT BANGALORE ORDER
Heard both sides and perused the records of the case
2. Brief facts of the case are that the respondent assessee is providing both taxable and exempted services (trading) and are availing Cenvat credit on input services common to both services. During audit, it was observed that there was short payment, in terms of Rule 6(3A) of CCR,2004; the appellant department issued a Show Cause Notice, dated 23.04.2016, to the appellants, proposing to demand and recover an amount of Rs. 47,00,31,471, for the period during October 2010 to March 2010, alleging incorrect determination of the amount to be reversed proportionately under Rule 6(3A)(c)(iii) of the Cenvat Credit Rules, 2004; appellants further proposed to demand credit of Rs. 19,92,836/- availed for the period during October 2010 to March 2015; during the course of Audit the appellants reversed credit of Rs 28,04,34,114. The adjudicating authority dropped the demand for the period prior 1.4.2011 (Rs.3,17,17,271) on the ground that trading is classified as an exempted service only from 1.4.2011 and observed that since assessee has reversed Rs.67,04,088/- voluntarily, the relevant statutory provisions of Rule 6(2) prevalent during the material point of time, have been satisfied. With regard to the remaining demand of Rs.43, 83,14,200, for the period from 04/2011 to 03/2015; the objection in the SCN was against inclusion of turnover of the Puducherry manufacturing unit, for quantification of total turnover under Rule 6(3). The adjudicating authority dropped the demand holding that the inclusion of turnover of Puducherry manufacturing unit for the purpose of quantification of amount under Rule 6(3A) is appropriate. Being aggrieved, the Appellants i.e., the Department have filed Appeal Nos. ST/21317/2018 on the grounds of appeal mentioned therein.
3. Rama Holla, Superintendent, Authorised Representative for the appellant/ Revenue, reiterates the grounds of appeal and submits, inter alia, that:
(i). as regards the issue relating to the period prior to 1.4.2011, the decision of adjudicating authority to drop the demand and uphold the reversal of part amount of Rs.67,04,088/- instead of Rs3,84,21,359, appears to be not legal and proper; though trading was not exempted service prior to 1.4.2011, it is clear that trading was not a taxable service either; the condition of allowing Cenvat Credit only in respect of taxable service is to be adhered to during the period prior to 1.4.2011 also; the ineligible cenvat has been calculated on proportionate basis as Rs.3,17,17,271 after duly adjusting the amount of Rs.67,04,088/-voluntarily paid by the assessee and has been demanded; the proportionate credit has been calculated as Trading turnover/total turnover *the total Cenvat Credit availed; in the case of Maruti Suzuki India Vs CCE, Delhi-III reported in 2009(240) ELT 641 (S.C), it has been held that the assessee is entitled to credit on the eligible inputs utilised in the generation of electricity to the extent to which they are using the produced electricity within their factory(for captive consumption) and they are not entitled to Cenvat Credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors etc which is sold at a price; the ratio of this decision is to be applied for the services which were used in trading activity and the extent of availability of credit is to be determined; further, in a similar issue, in the case of Mehsana District Co-Operative Milk Producers Union Ltd Vs CCE & ST, Ahmedabad-III 2019 (31) GSTL 484 (Tri – Ahmd), Hon‟ble tribunal held that the appellants are not entitled to the credit of Furnace oil which is used in manufacture of exempted goods. the finding of the adjudicating authority that the amount already paid by the assessee, being proportionate to the trading turnover for the period 10/2010 to 03/2011, satisfied provisions under Rule 6(2), is factually incorrect; there is no mention in OIO as to how the amount to be reversed proportionately is calculated as Rs.67,04,088, and not as Rs 3,84,21,359; in the absence of clear cut findings on the correctness of amount paid by the assessee, the dropping of demand to the extent of Rs.3,17,17,271, is not legal and proper.
(ii). with regard to remaining demand of Rs.43,83,14,200/- under Rule 6(3A)(c)(ii) when trading stood clearly defined as exempted service for the period 4/2011 to 3/2015, the demand was raised on the grounds that the assessee has wrongly included the turnover of manufacturing unit. Puducherry manufacturing unit has separate Central Excise and Service Tax Registration and hence is a separate assessee in terms of the provisions of Central Excise as well as Service Tax; moreover, the manufacturing unit at Puducherry has no connection whatsoever with the exempted service i.e. trading provided by various premises of the assessee which a have a centralised registration for the payment of service tax; hence, the turnover of the said manufacturing unit cannot be taken into account for determination of amount for reversal under Rule 6(3A)(c)(ii) of CCR,2004 at Bangalore;
4. Shri Ravi Raghavan, Advocate, appearing for the Respondent submits, in respect of period prior to 1.4.2011, that the Respondents have reversed the proportionate credit of Rs. 67, 04,088 attributable to trading for the period 2010-11 under Rule 6(3A) of the Cenvat Credit Rules, 2004 and the same has been accepted by the Department (Para 2.1.3 of the Show Cause Notice and Para 22.2 of the Order-in-Original); the issue of availment of proportionate credit on common input services attributable to trading for the period prior to April-2011; CESTAT in the case of Mercedes Benz India Pvt Ltd Vs CCE 2014-TIOL-476-CESTAT-MUM, held that trading is not an exempted service prior to 01.04.2011, as Explanation to Rule 2(e) inserted vide Notification dated 01.03.2011 w.e.f. 01.04.2011 providing trading is an exempted service is not applicable retrospectively; trading not being an exempted service, the provisions of Rule 6 requiring reversal of 6% of the trading turnover is not applicable; trading is not service prior to 1-4-2011, hence, not exempted service and credit is therefore not entirely allowed and Credit should be apportioned with reference to turnover of manufactured goods and traded goods. Tribunal, in the case of M/s TFL Quinn India Pvt Ltd Vs CC & CE, Hyderabad-IV, 2016-TIOL-856-CESTAT-HYD held that for determining the quantum of proportionate credit the method prescribed under Rule 6 of the Cenvat Credit Rules may be applied for the period prior to 01.04.2011 also; accordingly, the Respondents have adopted the following calculation for reversal of credit for the period October 2010 to March 2011: Rs. 67,04,088 has been correctly and voluntarily reversed by the Respondent for the period October 2010 to March 2011 as against the appellants claim for Rs. 3,17,17,271; department has not included the turnover of the manufacturing unit of the Respondent at Puducherry in the total turnover on the ground that manufacturing unit at Puducherry is having a separate Central Excise Registration and is therefore a separate assessee.
4.1. Learned Counsel submits, as regards the period post 1.4.2011, that demand of credit of Rs. 43, 83,14,200, for the period April 2011 to March 2015, has been wrongly dropped and that inclusion of turnover of the manufacturing unit of the Respondent at Puducherry in the total turnover for the purpose of quantification of the amount payable under Rule 6(3A) of the Cenvat Credit Rules is incorrect as the manufacturing unit at Puducherry is having a separate Central Excise Registration and hence is a separate assessee. He submits that the Respondents have reversed a total credit, of Rs 27, 37, 30,026, on proportionate basis as per Rule 6(3A) of the Cenvat Credit Rules, 2004 for the period April 2011 to October 2015: exclusion of turnover of the Puducherry Unit is incorrect as the Respondent being an ISD is required to follow the procedure under Rule 7 of the CCR, 2004 and Puducherry Unit is not a separate assessee.
4.2. Learned Counsel submits that the services on which the impugned credit has been taken are common to all the activities of the Respondent. Some of the common services are Advertisement service, Commercial Training and Coaching Services, Courier charges, Event Management charges, Manpower Recruitment, Supply Agency Service, Market Research Charges, Office Rent and Maintenance, Repairs and Maintenance, Security Services and Telecommunication Services; the Respondent is an ISD required to distribute credit as per Rule 7 of Cenvat Credit Rules, 2004; Department has taken into consideration only the corporate office / service unit of the Respondent as an assessee without considering the fact that the Respondent is an Input Service Distributor as defined in Rule 2(m) of the Cenvat Credit Rules, 2004; turnover of all the units has to be taken for reversal and distribution of credit as per mechanism provided under Rule 7 of the Cenvat Credit Rules, 2004; corporate office of the Respondent which is situated in Bangalore receives invoices issued under Rule 4A of the Service Tax Rules, 1994 by service providers and issues „ISD invoices‟ for distributing the credit of service tax on the said services to the manufacturing unit/service unit; the credit of service tax paid on the services received which are common to Puducherry manufacturing unit, service unit in the headquarters and the trading unit in the headquarters are taken at the corporate office which has a centralized registration as a service provider / recipient and as an ISD; since the Respondents are an ISD, remainder of the credit after reversal gets distributed by way of ISD invoices; in the Respondent’s Puducherry factory, only dutiable goods are manufactured; the taxable service and trading is carried on from various other places located across the country; since the accounts of the Respondent are maintained in Bangalore, registration as an ISD has been obtained in Bangalore; entire activities including those relating to manufacture in Puducherry and providing services / trading is controlled and monitored by the Corporate office in Bangalore; it is evident from Explanation I that Rule 7 itself contemplates transfer of credit to another unit of the Respondent which may or may not have separate registration; in fact, the provisions envisage that even when there is no registration, the premises would be considered as a „unit’; thus, when credit is distributed to a unit, the turnover of such unit has to be taken into consideration while computing the eligible credit transferable under Rule 6(3A) of the CCR, 2004; explanation II to Rule 7 states that the “total turnover” shall be determined in the same manner as under Rule 5 of the CCR, 2004, which provides that the „total turnover’ means sum total of value of’ all excisable goods (exempted goods, dutiable goods and excisable goods exported), export turnover of services and value of all other services and all inputs removed as such; assuming without admitting that a particular service was not used in relation to manufacturing activity, in the ISD scheme envisaged by Rule 7 of the CCR, 2004 prior to 2015-16, there was no restriction in such credit being distributed to a unit, in which the said service was not used; credit could be distributed to all the units of an assessee on proportionate basis based on the turnover of each of the said units; he relies on
(i) Circular No. 178/4/2014-ST in F. No. 334/15/2014-TRU, dated 11.07.2014
(ii) Moser Baer India Limited Vs CCE, Noida, 2014 (36) STR 815 (Tri-Del)
(iii) Ecof Industries Pvt. Ltd. v. CCE: 2010 (17) S.T.R. 515 (Tri.-Bang.) affirmed by Hon’ble Karnataka High Court 2011 (271) E.L.T.58 (Kar.)
Hon’ble High Court has held that there are only two limitations imposed under Rule 7 of the Rules, for distribution of credit by a 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.
4.3. Learned Counsel for the respondents submits that the contention of the Appellant Puducherry Unit is a separate assesse as it has separate registration both as a manufacturer and for Service tax purposes is not legally tenable and misplaced; Notification No.35/2001-CE (NT) read with Rule 9 of Central Excise Rules, 2002 and Section 6 of the Central Excise Act, 1944, makes it clear that „if the person has more than one premises, separate registration shall be obtained for each of such premises.’; similarly, Rule 4 (3A) of the Service Tax Rules, 1994 requires separate registrations for each of the premises from where taxable services are provided; Respondent’s factory discharges service tax only on GTA services and on reverse charge basis on import of certain services which are directly related only to the Respondent’s manufacturing activities for which bills are also directly raised by the service providers in the factory’s name; the factory unit of the Respondent does not discharge service tax which relate to services that are common in nature; the argument of the appellant that every factory and every premises from where services are provided which are registered with the Department should be treated as a separate entity, the scheme of Input Service (tax) distribution in terms of Rule 2(m) read with Rule 7 of the CENVAT Credit Rules, 2004 would become redundant; the manufacturing unit of the Respondent falls within the same control as of the other units of the Respondent and form one single entity and accordingly, the Respondent has factored the turnover of the factory while appropriating the credit attributable to trading and distributing; even if a separate registration is taken by the factory unit at Puducherry, when credit is distributed to the said unit, the turnover pertaining to that unit also has to be taken in to account while reversing proportionate credit in terms of Rule 6(3A) of the Cenvat Credit Rules and arriving at the credit to be distributed through ISD; Hon’ble high Court of Karnataka, in the case of CCE, Bangalore Vs CCE, Bangalore-IV Vs M/s ITC Ltd 2021-TIOL-1105-HC-KAR-CX, on similar set of facts, held that the Company is registered as Input Service Distributor under the CCR for its Indian Leaf Tobacco Division (ILTD) in Guntur and the aforesaid registration enables distribution of service tax paid input credits to manufacturing activities carried on in the factories. Therefore, it was held that the ILTD is not a separate legal entity and controls the supply chain of un-manufactured tobacco to the factories.
4.4. Learned Counsel submits that invocation of extended period of limitation is not sustainable in the facts and circumstances of the instant case; the demand in the notice beyond the period of one and a half year can survive only where the ingredients mentioned in the proviso to Section 73(1) i.e. fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of this chapter or of the rules made there under with intent to evade payment of service tax; the option of proportionate reversal was exercised as early as 2011 and accordingly department was aware of the fact of the reversal of credit; further, the Respondents have voluntarily reversed proportionate credit and the distribution of credit has been disclosed in the returns regularly; the insertion of the explanation under Rule 2(e) of CCR w.e.f. 01.04.2011 itself is indicative of the legislative recognition of existence of doubt regarding trading being an exempted service and consequent applicability of Rule 6 of the Cenvat Credit Rules, 2004; this further shows that the issue relates to bona fide interpretation of legal provision; the issue whether trading is an exempted service and whether the obligation to maintain separate books and to reverse proportionate credit provided in Rule 6 of the Cenvat Credit Rules is attracted in respect of common input services used in providing trading is a contentious issue considered in many cases. Therefore, by the above reasons extended period cannot be invoked; when the proposal to demand itself is based on the audit objection, there cannot be any suppression on the part of the Respondent. In such a situation, the Respondent submits that the extended period cannot be invoked.
4.5. He relies on the following cases to support above claims.
(i) Pushpam Pharmaceuticals Company Vs CCE, Bombay, 1995 Supp. (3) SCC 462;
(ii) Cosmic Dye Chemical Vs CCE, Bombay, (1995) 6 SCC 117;
(iii) Easland Combines, Coimbatore Vs CCE, Coimbatore, (2003) 3 SCC 410;
(iv) Anand Nishikawa & Continental Foundation Joint Venture Vs Commissioner, 2007 (216) ELT 177 (SC);
(v) CCE, Bangalore-III v. Mac Charles (India) Ltd., 2010 (254) ELT 59 (Kar.)
(vi) Krishna Auto Sales Vs CCE – 2015-TIOL-2994-CESTAT-DEL
(vii) M/s. TFL Quinn India Pvt Ltd Vs CCE, Hyderabad reported in 2016-TIOL-856-CESTAT-HYD
(viii) Mahindra & Mahindra Ltd Vs CCE, Mumbai 2018 (364) ELT 1006 (Tri – Mumbai)
(ix) ABB India Ltd Vs CCE, Bangalore Final Order No. 2005620057/2018 dated 12.01.2018
He further submits that there is no finding on extended period of limitation in the Order-in-Original and the Department in their also have not challenged the impugned order on the ground of limitation; Department‟s appeal to pertaining to the period barred by limitation ought to be dismissed on this ground alone.
4.6. Learned Counsel submits that the demand was raised on the basis of an audit objection; interest is not payable and the circumstances of the case do not attract penal provisions as the Respondents have rightly reversed the proportionate credit; Respondent has taken only eligible credit; it was duly reversed as well when the audit party had pointed out an alleged defect; respondent had credit balance lying unutilized in their books of accounts; therefore, the question of levy of interest does not arise. Learned Counsel submits that penalty is also not imposable as the Respondent has not contravened any of the provisions of the Act or Rules; Respondent was under bona fide belief that they have taken credit in a lawful manner in accordance with the provisions of the law; it is also evident from the Commissioner dropping the proposals in the impugned order; the Respondents have not suppressed any information from the department; they have been providing the department with all the details through the various letters mentioned above; the fact that the Department has actually conducted adjudication proceedings on the same issue for the earlier period; the periods covered are October 2010 to March 2015 i.e. the period specified in the proviso to Section 78(1); amended provisions are to be considered in case penalty is imposed on the Respondent; department cannot impose penalty in terms of Section 78 of the Finance Act, 1994 as well as under Section 76 ibid.
5. The brief issue before us in the instant case is to decide whether the turnover of a particular unit should be taken into consideration for arriving at the amount of tax credit to be reversed in terms of Rule 6(3A) of CENVAT Credit Rules, 2004. It is the case of the appellant department that as the Puducherry unit is separately registered under the provisions of Central Excise and Service Tax, the turnover of Puducherry unit should not be considered while computing the tax credit reversable by the head office of the respondents who are also registered as Input Service Distributors. It is the claim of the respondent/assessee that the respondent is an ISD and accordingly issue invoices for distributing the credit of service tax to all manufacturing/service units; they have to distribute credit as per the mechanism set out in Rule 7 of the CCR, 2004. He further submits that in terms of Notification No.35/2001-CE (NT) read with Rule 9 of Central Excise Rules, 2002 and Section 6 of Central Excise Act, 1944 “if the person has more than one premises, separate registration shall be obtained for each such premises; similarly Rule 4(3A) of Service Tax Rules, 1994 requires separate registration for each of the premises from which taxable services are provided”.
6. Learned Counsel for the respondents submits that in terms of Rule 7 of CCR, 2004, it is essential that the turnover of all the units be taken into consideration while computing the credit to be transferred as laid down in Rule 7 (d) of CCR, 2004; in terms of Explanation 2 to Rule 7 “Turnover” shall be determined in the same manner as under Rule 5 of CCR, 2004 which states that “Total Turnover” means some total of value of all excisable goods (exempted goods, dutiable goods and excisable goods exported), export turnover of services and value of all the services and all inputs removed as such. The learned Counsel for the respondent submits that the respondent‟s unit at Puducherry is registered under Service Tax only for the purposes of payment of service tax on GTA on reverse charge mechanism and the same credit is not transferred or utilized in the other units. The head office i.e., ISD take credit of common services such as Advertisement service, Commercial Training and Coaching Services, Courier charges, Event Management charges, Manpower Recruitment, Supply Agency Service, Market Research Charges, Office Rent and Maintenance, Repairs and Maintenance, Security Services and Telecommunication Services and distributes the same to other manufacturing and service units. He further submits that prior to 2015-16, in terms of Rule 7 of CCR, 2004, there is no restriction on such credit being distributed a unit in which the said service was not used; credit should be distributed to all the units of an assessee on proportionate basis based on the turnover of each of the said units; the same is clarified vide Circular No.178/2014-ST issued vide F.No.334/15/2014-TRU dated 11.07.2014.
7. We find that for the period 01.04.2011, the issue stands decided in the case of Mercedes Benz India Pvt. Ltd. (supra) wherein it was held that trading is not an exempted service prior to 01.04.2011; provisions of Rule 6 requiring reversal of 6% of trading turnover is not applicable. We also find that the matter prescribed under Rule 6 of CCR, 2004, can be applied for the period before 01.04.2011 also as held by the Tribunal in the case of M/s TFL Quinn India Pvt. Ltd. (supra). We further find that for the period prior to 01.04.2011. We also find that the respondent‟s Puducherry Unit was issued a SCN No.52/2014 dated 24.09.2014 proposing to deny and recover the credit of Rs.6,61,48,983/- for the period May 2011 to September 2013 availed on the basis of ISD invoices on the ground that the services are not input services in terms of Rule 2(l) of CCR, 2004; Commissioner vide OIO No.12/2016 dated 05.02.2016 accepted the correctness of the method followed by the respondent for distribution of credit in terms of CCR, 2004. It is not coming forth from the records of the case as to whether the Department has appealed against such order and if so, the outcome of the same. While holding that the Department is not precluded from issuing SCN to the head office of the Respondents as res judicata would not apply to taxation matters, we find that there is a dichotomy in the approach of the appellant department. We find that the benefit of doubt should go the appellants.
8. Coming to the period subsequent to 01.04.2011 when trading came to be considered as an exempted service, we find that the appellants have reversed credit, of Rs.27,37,30,026/- for the period 2011-12 to 2014-15, in terms of Rule 6(3A) of CCR, 2004, on proportionate basis. We find that Rule 7 of Cenvat Credit Rules, 2004 prior to 1.04.2012 and after 01.04.2012 reads as:
Prior to 01.04.2012
“Manner of distribution of credit by Input Services 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
(b) credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.”
After 01.04.2012 inserted Notification No. 18/2012 CE (NT) dated 17.03.2012 substituted Rule 7 of Cenvat Credit Rules, 2004
‘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;
(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;
(c) credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and
(d) credit of service tax attributable to service used in more than one unit shall be distributed pro-rata on the basis of the turnover of the concerned unit to the sum total of the turnover of all the units to which the service relates.
Explanation 1.- For the purposes of this rule, ―unit‖ includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise.
Explanation 2.- For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5.’
Ongoing through the above, we find that while after 01.04.2012, there is a clear provision that credit of service tax distributed should be pro rata to the basis of the turnover of the unit concerned. Before 01.04.2012, the only restriction was that credit is not distributable to a unit wholly engaged in provision of exempted service or production of exempted goods.
9. We find that Hon’ble Karnataka High Court has dealt with the very same issue in the case of ITC Ltd. (supra) and the Hon’ble High Court has held relying on the Division Bench decision in the case of Ecof Industries Pvt. Ltd. 2011 (271) ELT 58 held that there are only two limitations imposed under Rule 7 of the Rules, for 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. The manufacturer is therefore, requires registering himself as Input Service Distributor and thereafter is entitled to distribution of credit of such input in the manner prescribed under the law.
10. We find that the learned Commissioner finds that:
“in this connection, on scrutiny of the service tax registration certificate issued for Puducherry unit is seen that the registration for service tax at Puducherry is only for payment of service tax under reverse charge mechanism on GTA services and on import of taxable services from abroad, which are meant exclusively for the Puducherry manufacturing unit. With regard to the entire remaining activities of the said Puducherry manufacturing unit, the centralized service tax registration No.AABC13372HST001 at Bangalore is applicable, which is as a SERVIVE PROVIDER as well as an INPUT SERVICE DISTRIBUTOR. Thereby, inclusion of the turnover of the Puducherry manufacturing unit for the purpose of quantification of amount under the said Rule 6(3) is appropriate. As such, the proposed demand fails on merit.”
11. In view of our discussion above, we find that learned Commissioner’s order is legal and proper and as such does not require any interference.
Therefore, we are of the considered opinion that the appeal preferred by the Department does not require any intervention.
12. In the result, the appeal is dismissed.
(Order pronounced in the Open Court on 23/11/2021)
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