Case Law Details
Piramal Glass Pvt Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)
The case concerns the eligibility of Cenvat credit on common input services availed by a company operating two manufacturing units, one at Koshamba and the other at Jambusar. The appellant had availed Cenvat credit amounting to ₹81,19,072 during February to March 2013 at its Koshamba unit for common input services used across both units. The department contended that since the services were common to both units, the Koshamba unit was not entitled to claim the entire credit and could only avail proportionate credit attributable to its own operations. Consequently, the department denied the proportionate credit attributable to the Jambusar unit, leading to the present appeal.
The appellant argued that the denial of credit was based on Rule 7(d) of the Cenvat Credit Rules, 2004, but submitted that judicial precedents had consistently interpreted the rule to allow flexibility. It was contended that, prior to the 2016 amendment, the rule used the term “may distribute,” indicating that distribution of credit among units was optional rather than mandatory. Therefore, the appellant maintained that it was permissible to avail the entire credit in one unit without distributing it proportionately.
The appellant relied on several judicial decisions, including those of the Bombay High Court and various Tribunal rulings, which interpreted Rule 7(d). These judgments emphasized that both before and after the 2012 amendment, the wording of the rule provided discretion to the assessee regarding distribution of input service credit. The use of the word “may” indicated that distribution was not compulsory. It was also highlighted that the rule was amended with effect from 1 April 2016, replacing the word “may” with “shall,” thereby making distribution mandatory only from that date onward.
The Tribunal examined the facts and noted that there was no dispute regarding the use of common input services by both units and the availment of credit at a single unit. The central issue was whether the appellant was required to distribute the credit proportionately under Rule 7(d) during the relevant period or whether it could lawfully avail the entire credit in one unit.
In analyzing the legal position, the Tribunal referred to the Bombay High Court’s interpretation of Rule 7, which clearly distinguished between the pre-2016 and post-2016 positions. The High Court had held that the rule, as it existed prior to the amendment, provided an option to the assessee either to distribute the credit among units or to retain it in one unit. The Tribunal also referred to other decisions that followed the same interpretation, reiterating that the use of the term “may” indicated discretion rather than compulsion.
Further reliance was placed on Tribunal decisions which held that if an assessee chose to distribute credit, it must follow the prescribed conditions, including proportionate distribution. However, if the assessee chose not to distribute the credit, there was no violation of the rules as they stood during the relevant period. It was also observed that the amendment in 2016, which replaced “may” with “shall,” clearly demonstrated that the earlier provision was not mandatory.
Based on these judicial interpretations, the Tribunal concluded that during the relevant period, the appellant had the option to either distribute the credit among its units or to avail the entire credit in one unit. Therefore, availing the entire Cenvat credit at the Koshamba unit was not illegal or incorrect.
In light of the settled legal position and consistent judicial precedents, the Tribunal held that the denial of proportionate credit by the department was not sustainable. Accordingly, the impugned order was set aside, and the appeal filed by the appellant was allowed with consequential relief.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the appellant have two units, one at Koshamba and other at Jambusar (Bharuch). The appellant has taken the Cenvat Credit of Rs. 81,19,072/- for a period of February to March-2013 in respect of common input service in their factory at Koshamba Unit. The case of the department is that since the common input service is used for both the units, the Koshamba Unit is not entitle for Cenvat Credit in respect of portion of the service attributed to Jambushar Unit. Accordingly, the proportionate credit was denied, therefore, the present appeal filed by the appellant.
2. Shri. Mehul Jiwani, learned Chartered Accountant appearing on behalf of the appellant submits that the credit was denied invoking rule 7(d) of Cenvat Credit Rules, 2004. He submits that this issue has been settled in various judgments wherein, it was interpreted that till 2016 amendment it was the option of the assessee either to avail entire credit in one unit or to distribute in their different units therefore, taking credit in one unit is not illegal or wrong. Therefore, credit was wrongly denied. He placed reliance on the following judgments:-
- Oerlikon Balzers Coating India Pvt Ltd- 2019 (366) ELT 624 (Bom.)
- Gloster Cables Ltd- 2018 (363) ELT 1197 (Tri.HYD)
- Doshion Ltd- 2013 (288) ELT 291(Tri.Ahd)
- Dashion Ltd -2016 (41) STR 884 (Guj)
- Greaves Cotton Ltd- 2015(37) STR 395 (Tri. Chennai)
- Raymond Ltd-2017 (47) STR 142 (Tri-Del.)
- Rajasthan Patrika Pvt. Ltd-2020 (34) GSTL 226 (Tri-Del.)
- Indeos ABS Ltd-2010 (254) ELT 628 (Guj.)
- Hindustan Zinc Ltd-2019 (370) ELT 1582 (Tri.-Del)
- Mahindra & Mahindra Ltd.-2019 (368) ELT 105 (Tri. Mum.)
- Nirlon Ltd-2015 (320) ELT 22 (SC.)
- Continental Foundation JT. Venture-2007 (216) ELT 177 (SC.)
3. Shri J.A. Patel, learned Superintendent (Authorized Representative) appearing on behalf of the revenue reiterates the finding of the impugned order.
4. I have carefully considered the submissions made by both the sides and perused the records. There is no dispute in the facts of the case that the common input service is attributed to both the units Koshamba Unit as well as Jambusar Unit and credit was taken in one unit i.e. at Koshamba Unit. The issue to be decided is that whether the appellant in their Koshamba Unit is eligible for credit only proportion of the common input service attributed to the said unit only and they are not entitle for the Cenvat credit to the proportion attributed to Jambusar Unit in terms of Rule 7(d) of Cenvat Credit Rules, 2004. In this regard, I have gone through the judgments cited by the appellant. The judgments and its relevant orders are reproduced below.
In the case of Oerlikon Balzers Coating India Pvt Ltd (supra) The Hon’ble Bombay High Court interpreting rule 7 (d) passed the following order:-
“8. It would be appropriate that we reproduce Rule 7 as existing prior to 2012 and post 2012 which is as under :-
Rule 7 as Existing Prior to 2012 :-
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
(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.
Rule 7 Post 2012 – amendment
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
(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 to the unit; and
(d) credit of service tax attributable to service used in more than one unit shall be distributed pro rate on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period.
9. From reading of the above Rules both pre and post amendment, it would be noticed that both provisions give an option to the assessee concerned whether to distribute input services tax available to it amongst its other manufacturing units which are providing output services. This is evident from the use of word “may distribute the Cenvat credit” is found in Rule 7 both prior and also post 2012. Thus, from the reading of the Rules, the option was available to the assessee whether to distribute the Cenvat credit or not. In fact, our attention is invited to Rule 7 of the Cenvat Credit Rules, 2004 as substituted w.e.f. 1-4-2016 which has made it mandatory for distribution of input services to the various units providing output services. This is evidence by the use of words “shall distribute the Cenvat credit” in the substituted Rule 7 as Cenvat Credit Rules 2004 w.e.f. 1-4-2016. Therefore, on plain reading of Rule 7 as existing both pre and post amendment 2012 covering period involved in these proceedings, the respondent – assessee was entitled to utilize the Cenvat credit available at its Pune unit.”
The aforesaid judgment was followed by the tribunal in the judgment-Hindustan Zinc Ltd-2019 (370) ELT 1582 (Tri.-Del) wherein the following order was passed:-
“6. We find force in the appellant’s submission that a similar dispute has been decided in its favour through Final Order No. 50405/2019, dated 28-2-2019 passed in the appellant’s own case, Hindustan Zinc Limited v. C.C.E. by following the ratio of the Hon’ble Bombay High Court’s decision in C.C.E. v. M/s. Oerlikon Blazers Coating India Pvt. Limited (supra). The relevant part of the order dated 28-2-2019 is reproduced below :
“4. Having considered the rival contentions and following the decision by the Bombay High Court in the case of M/s. Oerlikon Blazers Coating India Pvt. Limited (supra) I hold that the unit has not done any illegality in distributing more credit to a particular unit, as Rule 7 provides ‘may’ which has been amended subsequently w.e.f. 1-4-2016 to the effect ‘shall’ distribute. Further, I find that on the issue of revenue neutrality also, the show cause notice is bad in law. I accordingly, set aside the impugned order and allow the appeal with consequential benefit, in accordance with law”.
7. In view of the aforesaid orders, the impugned order dated 111-2017 is not sustainable”.
In the case of Gloster Cables Ltd- 2018 (363) ELT 1197 (Tri.HYD). Considering the same issue Tribunal passed the following order:-
“6. I find that Rule 7 of CENVAT Credit Rules as it existed during the relevant period reads as follows :
“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;
(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 during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period.”
7. It is evident from the plain reading of Rule 7 that the service distributor may distribute the CENVAT credit in respect of service tax paid on the input service to its manufacturing units subject to certain conditions. If he chooses to distribute, he will have to follow all the conditions laid down therein including clause (d) which mandates that such distribution be done on pro rata basis. In 2016 the word “may” was changed to “shall” thereby making it mandatory for an assessee to distribute the credit between Units. I, therefore, find that the assessee has not violated the CENVAT Credit Rules as they existed during the period by not distributing the credit of Service Tax for common services between two Units.
Consequently neither the demand nor the penalty sustain. The appeal is allowed accordingly”.
5. In view of the above judgements and as per the interpretation of Rule 7(d) made therein, it is settled that even though there is a provision for proportionate distribution of Cenvat Credit Rule 7(d) of Cenvat Credit Rule, 2004 during the relevant period but as per the interpretation it was held that since the word “may” was there in the Rule which was substituted with word “shall” from the amendment in 2006, it was option for the Assessee either to avail the entire credit in one unit or distribute the same proportionately to different unit, therefore even if the appellant have availed the Cenvat Credit in respect of common input service in one unit only, the same is not in correct or illegal in view of the above judgments.
6. Accordingly the impugned order is set aside, appeal is allowed.
(Dictated and Pronounced in the open court)
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