Cenvat credit not deniable as services settled to be eligible input service

Indo Alusys Industries Ltd. Vs Commissioner of Central Goods and Service Tax (CESTAT Delhi)

CESTAT Delhi held that once the services in question have already been settled to be the eligible input services, the Cenvat credit thereof cannot be denied to the assessee.

Facts- Two show cause notices, alleged that M/s. IAIL, Bhiwadi had wrongly availed Cenvat credit of Rs.53,58,845/- during November 2006 to June 2009 and Rs.23,73,986/- during the period August 2009 to June 2010 on the strength of irregular input service distribution invoices. Appellants were also alleged to have utilized the said irregular credit for payment of central excise duty payable on clearance of their final products which resulted into short payment of duty to the extent of the use of said irregular input service credit. The various services mentioned in both the show cause notices are erection, commission & installation service; advertisement service; clearing & forwarding services; etc.

Conclusion- We hold that the adjudicating authority below has not observed the judicial protocol while denying credit on the ground that the services are not eligible Input Services. Once the services in question have already been settled to be the eligible input services, the Cenvat credit thereof cannot be denied to the assessee. There remains no necessity to invoke Rule 9(6) of Cenvat Credit Rules, 2004. Hence, we hold that the adjudicating authority has wrongly held the impugned services to be ineligible input services while disallowing the Cenvat credit of the service tax paid on the said services.

We hold that the adjudicating authority below has failed to appreciate the catena of decisions not only of this Tribunal but also of their own department with respect to the impugned services and even with the decisions passed by departmental authorities in favour of the present appellant themselves permitting them to avail Cenvat credit distributed by their ISD. The order under challenge is therefore hereby set aside. Consequent thereto, the appeal stands allowed.

FULL TEXT OF THE CESTAT DELHI ORDER

Present appeal has been filed to assail the Order-in-Original No. 26-27/17-18 dated 11.12.2017 vide which the Cenvat credit as was distributed by the appellant’s Input Service Credit Distributor (ISD) has been disallowed. Denial of Cenvat credit was proposed vide two separate show cause notices as mentioned below:

1.1 The facts in brief relevant for the present adjudication are as follows:

That the appellants (M/s. IAIL) were engaged in manufacture of Aluminium Alloy Extruded Products at their Bhiwadi Unit. They were also having one APP Division with centralized registration in the category of ‘Commercial & Industrial Construction Services’ at Delhi. The later was also having Input Service Credit Distributor Registration (ISD Registration). During the course of audit of appellant’s record, department observed that appellant was taking Cenvat credit on the strength of invoices as were raised by the ISD. The activity of ISD was observed to be nothing more than fixing of door and windows which were manufactured by the Bhiwadi unit/the appellant. Thus, the doors and windows were manufactured by the appellant at their Bhiwadi factory and were cleared to their APP Division at Delhi. From the scrutiny of invoices issued from the Head Office/ISD, department observed that Head Office/ISD has raised invoices for credit of whole of service tax paid by them in respect of various services including the services used for providing output services and other activities. It appeared to the department that the Head Office of the appellant had distributed whole of the input service credit to M/s. IAIL, Bhiwadi.

1.2 Pursuant to a clarification being sought by the department that on 20.05.2008, the appellant reversed the excess credit of Rs.97,218/- as was taken by them during the period from November, 2006 to October, 2007. Similarly on 20.01.2009, excess credit of Rs.41,053/- as was taken during the period from November, 2007 to March, 2008 was reversed along with the interest. The Range Officer had also requested the appellant to produce the record from which ratio of value of clearances of manufactured goods and services provided by APP Division, Delhi had been worked out, but the appellant, as per the department, failed to produce those records. Accordingly, vide the aforesaid two show cause notices, it was alleged that M/s. IAIL, Bhiwadi had wrongly availed Cenvat credit of Rs.53,58,845/- during November 2006 to June 2009 and Rs.23,73,986/- during the period August

2009 to June 2010 on the strength of irregular input service distribution invoices. Appellants were also alleged to have utilized the said irregular credit for payment of central excise duty payable on clearance of their final products which resulted into short payment of duty to the extent of the use of said irregular input service credit. The various services mentioned in both the show cause notices are as follows:

(i) Erection, Commissioning & Installation Service

(ii) Advertisement Services

(iii) Cargo Handling Services (Only in SCN dated 27.08.2009)

(iv) Clearing & Forwarding Services

(v) Telephone Service, Courier Services, Banking Services, Online Information & Data Services, Professional Services, Management Consultant Services, Chartered Accountant Services

(vi) Construction Services (only in SCN dated 27.08.2009)

(vii) Tour Operator Services

(viii) Air Travel Agency Services (only in SCN dated 27.08.2009)

(ix) Test, Inspection, Certification Services Job/Engineering Services (only in SCN dated 27.08.2009)

(x) Commission Services and Cleaning Services (only in SCN dated 27.08.2009)

(xi) Business Auxiliary Services

(xii) Manpower Recruitment Agency Services (only in SCN dated 27.08.2009)

(xiii) General Insurance Business Services

(xiv) Renting of immovable Property (only in SCN dated 09.2010)

Accordingly, both the aforesaid amounts were proposed to be disallowed.

1.3 The proposal was initially confirmed vide Order-in-Original No. 43 & 44/2012-CE dated 19.07.2012 when the order was appealed before this Tribunal, vide Final Order No. 52603-52604/2017 dated 27.03.2017, the matter was remanded back to the original adjudicating authority for denovo adjudication after providing a reasonable opportunity to the appellants to present their case with liberty to file the additional documents. Pursuant to said remand that the order under challenge has been passed still confirming the disallowance of the Cenvat credit availed/utilized by the appellants. Still being aggrieved, the appellant is again before this Tribunal.

2. We have heard Shri B.L. Yadav, learned Advocate for the appellant and Shri O.P. Bisht, learned Authorized Representative for the department.

3. Learned Counsel for the appellant has mentioned that all the services alleged in the show cause notice had already been held to be the eligible input services under catena of decisions. Hence, it has wrongly been alleged and held that the appellant as well as its APP Division were not entitled for the Cenvat credit in respect of all taxable services being provided by both the units. It is mentioned that even in the appellant’s own cases, the Cenvat credit in respect of same services but for the subsequent period has been allowed by the departmental adjudicating officers themselves and their decisions have already been upheld by this Tribunal. It was mentioned that no credit was taken in respect of the service exclusively used by the service provider unit and that the credit attributable to the ratio of service provider unit was reversed along with interest or was foregone/not taken. It is impressed upon that all the services were used in or in relation to the manufacture of their final product and/or used in the business of manufacture. The cost of impugned services was very much included in the cost/expenditure of the company which includes both the units. Finally submitting that the appellant had not taken credit of any service received in service providing unit or of any service exclusively used in service providing unit, the demand confirmed is mentioned to be absolutely unreasonable and unjustified.

3.1 The show cause notices have also been objected as being time barred. Learned Counsel mentioned that the appellant was under the bona fide belief on the basis of various decisions of this Tribunal, that they are entitled to take credit of the amount of credit distributed to them by the Input Service Distributor. Hence, there arises no question of any intent to evade payment of duty. The extended period has wrongly been invoked by the department. The findings are liable to be set aside on this score also. With these submissions, learned counsel has prayed for the order under challenge to be set aside and appeal to be allowed. To support his submissions learned counsel has relied upon the following decisions:

(i) Indo Alusys Industries Limited Vs. C. C. E., Alwar reported in 2016 (7) TMI 363 – CESTAT, New Delhi

(ii) Indo Alusys Industries Ltd. Vs. C.C.E., Alwar reported in 2017 (9) TMI 1766 – CESTAT, New Delhi

(iii) Indo Alusys Industries Ltd. Vs. C.G.S.T., C. & C.E., Alwar reported in 2018 (12) TMI 1238 – CESTAT, New Delhi

(iv) Central Excise Vs. Inductotherm India Pvt. Ltd. reported in 2014 (36) S.T.R. 994 (Guj.)

(v) Ispat Industries Ltd. Vs. Commissioner of C. Ex., Nagpur reported in 2015 (40) S.T.R. 693 (Tri.-Mumbai)

(vi) Pepsico India Holdings (Pvt.) Ltd. Vs. Commr. Of Central Tax, GST Commissionerate, Tirupati reported in 2022 (56) GSTL 22 (Tri. -Hyd.)

(vii) Ramco Cements Ltd. Vs. Commissioner of Central Excise, Puducherry reported in 2017 (5) GSTL 105 (Tri. – Chennai)

(viii) Dalmia Cements (Bharat) Ltd. Vs. Commr. of C. Ex. & T. (LTU), New Delhi reported in 2017 (3) GSTL 81 (Tri. – Del.)

(ix) Unitech Machines Ltd. Vs. Commissioner of Central Excise, Meerut-I reported in 2018 (9) GSTL 401 (Tri. -All.)

(x) RMZ Infotech Pvt. Ltd. Vs. Commr. Of Central Tax, Ben galuru East reported in 2022 (64) GSTL 599 (Tri. -Bang.)

(xi) Commissioner of Customs, Delhi-III Vs. Mark Exhaust Systems Ltd. reported in 2015 (39) STR 351 (Tri.- Del.)

(xii) Carrier Airconditioning & Refrigeration Ltd. Vs. C.C.E., Delhi-IV reported in 2016 (41) STR 824 (Tri. -Chan.)

(xiii) Commissioner of C.Ex., Cus. & S.T., Vadodara Vs. Transpek Industry Ltd. reported in 2018 (12) GSTL 29 (Guj.)

4. While rebutting, learned DR submitted that the whole input service credit is found to have been passed to the appellant in violation of Rule 7 of Cenvat Credit Rules, 2004. It is impressed upon that as per the said rule ISD may distribute the service tax paid on input services to its manufacturing units or unit providing output services subject to 4 conditions that credit of service tax attributable as input service to all units shall be distributed to more than one unit pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period. It is further mentioned that to avail the Cenvat credit, the input service must have the nexus with the process of manufacture inasmuch as the input service is used in or in relation to the manufacture of the final product. However, in the present matter the said nexus could not have been established by the appellant despite the additional documents were submitted. Hence, there is no infirmity in the findings denying the Cenvat credit as availed by the appellant with respect to such services. Appeal is accordingly prayed to be dismissed. To support his submissions learned Authorized Representative has relied upon the following decisions:

(i) Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi-III reported in 2009 (240) E.L. T. 641 (S.C.)

(ii) Commissioner of C.Ex., Chennai Vs. Sundaram Brake Linings reported in 2010 (19) S.T.R. 172 (Tri. -Chennai)

5. Having heard the rival contentions of the parties, perusing the record of the appeal, the written submissions and the decisions relied upon by the parties. We observe and hold as follows:

5.1 There is no denial to the fact that M/s. IAIL, Bhiwadi was engaged in manufacture of aluminium doors and windows and their APP Division, Delhi was engaged in fixing, installation etc. of manufactured aluminium doors and windows at the premises of their customers. There is also no denial to the fact that for these purposes the appellants were admittedly procuring composite order from their customers i.e. the cost of goods and post delivery services in respect of the manufactured goods. Admittedly, both the premises were registered with Central Excise for their individual activities i.e. for manufacturing activity by Bhiwadi unit and for Commercial & Industrial Construction Services activity by APP Division. We also observe that there is no categorical denial to the fact that APP Divison was ISD which used to issue invoices for distribution of Cenvat credit by adopting the turnover ratio instead of actual basis of availment of service. Despite these admissions still violation of Rule 2(m), Rule 3 and Rule 7 of Cenvat Credit Rules, 2004 has been alleged and the services herein are denied to be the input services in terms of Rule 2(l) of said Cenval Credit Rules, 2004. It is therefore foremost necessary to look into these rules:

Rule 2(m)-Cenvat Credit Rules, 2004 defines ISD as:

“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.

Rule 7-Cen vat Credit Rules, 2004 – prescribes Manner of distribution of credit by input service distributor as:

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 used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.

6. A conjoint reading of Rule 2(m) and Rule 7 of the Cenvat Credit Rules, 2004 reveals that the “input service distributor” is an office of the manufacturer of producer of final products or provider of output service who distributes the credit of the service tax paid on the input services to his manufacturing units or service providing units, as the case may be. During the relevant period there have been only two explicit conditions for the purposes:

(i) credit distributed against a prescribed document should not exceed the amount of service tax paid.

(ii) the credit of service tax cannot be distributed in respect of services exclusively used in manufacture of exempted goods or providing of exempted services.

7. We also find that Rule 3 of Cenvat Credit Rules, 2004 provides a facility to the manufacturer or output service provider to avail cenvat credit of the specified taxes and duties paid on the input services with a condition that such input service should be received for use in, or in relation to the manufacture of final Further, the input service has been defined under Rule 2(l) of the Rules ibid, which covers all the services used by the manufacturer which have direct or indirect nexus in or in relation to the manufacture of final products and clearance of final products upto the place of removal.

8. A combined reading of Rule 3 with Rule 7 makes it clear that the head office of the assessee registered as an ISD can distribute credit to its manufacturing units/service provider units only in respect of services received in respective units, which should also qualify for eligible ‘input service’ in terms of the definition of the same given in the Cenvat Credit Rules, 2004. Rule 3 of Cenvat Credit Rules, 2004 is the substantial rule for taking Cenvat credit and is not subordinate to rule 7 thereof which only provides a If Rule 7 shall be impressed upon over and above Rule 3, it would become redundant. This in any case would not be the intention of the legislature.

9. Further, in terms of Rule 2(l) “input Service” means – any service,

(i) used by a provider of taxable service for providing an output service; or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

(iii) and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.

10. As per this definition, those services which are used in or in relation to manufacture of finished goods qualify as input service (including those mentioned in the inclusive part of the definition) and must have nexus with manufacture of final product. The specified input service would become eligible for credit the moment it is used in or in relation to the manufacture of final product.

11. We further observe that the services, in the present case, on which Cenvat credit is denied are all covered by the various decisions of this Tribunal holding those services to be the eligible input services. The decisions are as follows:

a) Commission Agent Service – 2013 (293) ELT 385 (Tri-Del.)

b) Advertising Agency Service – 2009 (242) ELT 168 (Bom)

c) Courier Agency Service – 2015 (317) ELT 586 (Tri-Del.)

d) Information Technology Service – 2015 (38) ELT STR 35 (Tri­Mum)

e) Business Consultant Service – 2010 (19) STR 68 (Tri­Chennai)

f) Manpower Agency for Recruitment Service – 2015 (39) STR 85 (Tri-Del.)

g) Office Maintenance Service – 2013 (31) STR 588 (Tri-Del.)

h) Membership and Subscription Service – 2014 (34) STR 752 (Tri-Bang.)

i) Professional Service – 2014 (34) STR 752 (Tri-Bang.)

j)Telephone Service in office or factory of a manufacturer – 2012 (277) ELT 202 (Tri-Chennai)

Thus, we hold that the adjudicating authority below has not observed the judicial protocol while denying credit on the ground that the services are not eligible Input Services. Once the services in question have already been settled to be the eligible input services, the Cenvat credit thereof cannot be denied to the assessee. There remains no necessity to invoke Rule 9(6) of Cenvat Credit Rules, 2004. Hence, we hold that the adjudicating authority has wrongly held the impugned services to be ineligible input services while disallowing the Cenvat credit of the service tax paid on the said services.

12. Coming to the issue of distribution of proportionate Cenvat credit:

As already observed above that during the period in question i.e. period prior Year 2012, only two conditions were to be met with while distributing credit in terms of Rule 7 of Cenvat Credit Rules, 2004. We observe that in the present case there is no allegation that the credit distributed against any documents referred to in Rule 9 of Cenvat Credit Rules, 2004 exceeded the amount of service tax paid thereon. Neither of the unit of appellant is exclusively engaged in manufacture of exempted goods or in providing the exempted services. Thus, we hold that there appears no restriction in said Rule 7 of Cenvat Credit Rules, 2004 for distributing even the whole credit by ISD to any one of the units. However, in the present case the entire credit has been distributed based on the turnover ratio formula. We observe that post order of remand by this Tribunal, the appellant provided additional documents in the form of balance sheets and invoices. The balance sheets contain the details of total turnover of the company, turnover from service providing unit and hence, the ratio of turnovers intimated were quite verifiable but the order under challenge is absolutely silent about verifying those details from the documents provided.

13. We further hold that the adjudicating authority despite admitting that the service providing unit only fixes the anodized aluminium doors and windows with extruded build up aluminium section which are being manufactured by the appellant’s Bhiwadi unit, has still failed to appreciate that the services in question could not be exclusively used by the service providing unit only. No specific document has been discussed by the adjudicating authority which shows that the appellant has taken credit of any service received in service providing unit or of any service exclusively used in service providing unit. Disallowing the Cenvat credit is therefore held to be without any logical and legal basis.

14. We further observe that there have been several decisions not only of this Tribunal but also of the adjudicating authorities in appellant’s own case on the same issue but for the different period. Few of them are as follows:

(i) Indo Alusys Industries Limited Vs. C. C.E., Alwar reported in 2016 (7) TMI 363 – CESTAT, New Delhi

(ii) Indo Alusys Industries Ltd. Vs. C.C.E., Alwar reported in 2017 (9) TMI 1766 – CESTAT, New Delhi

(iii) Indo Alusys Industries Ltd. Vs. C.G.S.T., C. & C.E., Alwar reported in 2018 (12) TMI 1238 – CESTAT, New Delhi

(iv) ALW-EXCUS-000-Com-26-27-1 7-18 dated 11.12.2017 Passed by Pr. Commissioner Central Excise, Alwar

(v) ALW – EXCUS – O-I-O – COM – 15 – 15 – 16 dated 07.2015/04.08.2015 Passed by Pr. Commissioner Central Excise, Alwar and CESTAT Final Order No. A/52164/2016- SM[BR] dated 22.06.2016

(vi) AL W-EXCUS-000-COM-005-1 5-16 dated 08.06.2015 passed by Pr. Commissioner Central Excise, Alwar

(vii) 40/2017 dated 15.12.2017 passed by Assistant Commissioner Central Excise, Alwar

15. We further observe that show cause notice of 27.08.2009 has invoked the extended period of limitation. As already mentioned above that the appellants had reversed the excess credit taken by them prior the said show cause notice was issued, the question of mala fide intent with the appellants to evade their duty liability does not at all arise. Though the department has contended that the amount was reversed only after it was pointed out by the audit team and as such the act amounts to the suppression on the part of the appellant which entitles the department to invoke the extended period of limitation.

16. The extended period is invocable only when suppression, fraud, etc. with an intent to evade payment of duty is established. The initial burden to prove that both these ingredients exist lies upon the department. Except the act of reversal of excess credit subsequent to audit of the appellant, there is no other evidence produced by the department to prove a positive act on the part of the appellant to have an intention to evade the duty. Nothing has been brought on record to falsify the plea of bona fide belief with the appellant about their entitlement to take the entire credit whatever being transferred by their ISD. The various case laws about the impugned services to be held as eligible input services, the case law holding that ISD could distribute the whole credit to any unit before 2012, that the input service need not be used in the same factory wherein credit was taken prior to 2012, the whole credit could be distributed to any unit by ISD have not been considered by the adjudicating authority below nor once there are ample judicial precedents supporting appellants their plea of bona fide belief cannot be brushed aside. Hence all requisite documents despite having been filed. We hold that there cannot be an intent to evade payment of duty and thus the extended period is therefore held not invocable. The penal provisions also do not sustain. We rely upon the decision of Hon’ble Apex Court in the case of Continental Foundation Jt. Venture Vs. Commr. Of C.Ex., Chandigarh-I reported in 2007 (216) E.L.T. 177 (S.C.)

17. In light of entire above discussion, we hold that the adjudicating authority below has failed to appreciate the catena of decisions not only of this Tribunal but also of their own department with respect to the impugned services and even with the decisions passed by departmental authorities in favour of the present appellant themselves permitting them to avail Cenvat credit distributed by their ISD. The order under challenge is therefore hereby set aside. Consequent thereto, the appeal stands allowed.