Case Law Details
Nalco Water India Limited Vs Commissioner of CGST & Excise, Howrah (CESTAT Kolkata)
Introduction: The case of Nalco Water India Limited versus the Commissioner of CGST & Excise, Howrah, adjudicated by the CESTAT Kolkata, revolves around the distribution of input service credit by an Input Service Distributor (ISD) to the appellant’s manufacturing unit. The dispute primarily centers on the eligibility of various input services for availing cenvat credit under Rule 7 and Rule 9 of the Cenvat Credit Rules, 2004.
The Hon’ble CESTAT, Kolkata sets aside orders and allowed appeals.
It is held:
(i) distribution of input service credit is on a pro rata basis in terms of Rule 7 and ISD invoice is a proper document for taking credit in terms of Rule 9.
The appellant is a manufacturer. It has manufacturing units/plants located at various parts of the country. Its head office is located at Pune. The head office is registered as “input service distributor” in terms of Rule 2(m) of the Cenvat Credit Rules, 2004. It distributed pro rata credit to the appellant unit at Kolkata in terms of Rule 7 of the rules. The said credit was sought to be denied on the ground that: (i) services such as manpower supply, maintenance and repair etc are not related to manufacture of the final product and hence, not “input services” as per Rule 2(l) of the Rules; and (ii) services are not received at the unit at Kolkata. Periodical Show cause notices were issued and demands were confirmed. Hence, the present appeals.
The Hon’ble CESTAT, Kolkata sets aside orders and allowed appeals. It is held: (i) distribution of input service credit is on a pro rata basis in terms of Rule 7 and ISD invoice is a proper document for taking credit in terms of Rule 9; (ii) no jurisdiction vests with the Kolkata Commissionerate to propose “recovery” without verification at the end of the ISD at Pune who has “availed” the input tax credit; (iii) distinguishes decisions relied upon by the Ld. departmental representative in the case of Acer and Mahindra and Mahindra; (iv) follows decision in the case of Balkrishna Industries and in the case of Nestle India.
The matter was argued by Ld. Counsel Bharat Raichandani
FULL TEXT OF THE CESTAT KOLKATA ORDER
All the appeals are having a common issue, therefore, all the appeals are disposed off by a common order.
2. The facts of the case are that the appellant is engaged in the manufacture of water treatment chemicals and processed chemicals.
The appellant is registered with the Department and availing cenvat credit on input and capital goods.
2.1 The appellant’s Head Office is located at Pune and is registered with the Service Tax Department as Input Service Distributors (ISD) under Rule 7 of the Cenvat Credit Rules, 2004. The Head Office distributed the input service credit to the appellant on pro rata basis.
2.2 During the disputed period, the appellants were availing service tax credit on the basis of various ISD invoices issued by the Head Office being ISD.
2.3 For distribution of credit, ISD issued proper invoices in the name of the appellants and ISD invoices issued by the Head Office of the appellants are valid documents for availing cenvat credit in terms of Rule 9 of the Cenvat Credit Rules, 2004.
2.4 The present dispute is with regard to the period 2011-12 to 2017-18 (Upto June, 2017).
2.5 During the period of dispute, the Revenue is of the view that the appellants have availed cenvat credit on the following input services, namely,
(1) Man Power Supply,
(2) Technical Inspection Service/Technical Testing Charges
(3) Management Consultancy
(4) Rental of Immovable Property
(5) Maintenance and Repair Service
(6) Business Auxiliary Service
(7) Packing Charges Service
(8) Consulting Engineering Service
(9) Tour Operator Service
(10) Erection & Commissioning
(11) Commissioner Agent Service
(12) Real Estate Agent Service
(13) Supply of Tangible Goods
(14) Chartered Accountant Service
(15) Safety Training Programme
(16) Coaching Session
(17) Online Database access Service
(18) Legal Consultancy Services/labour law compliance services
(19) Cleaning charge
(20) Printing charges
(21) Clearing Agent
(22) Advertising Expenses
(23) Record Keeping/payroll processing and
(24) Business support service
on the strength of ISD invoices.
2.6 It is alleged that the appellant availing cenvat credit on input service credit on different input services during the impugned period was not eligible for taking cenvat credit as these services are known as the activity of manufacture by the appellant.
2.7 In these set of facts, various periodical show-cause notices were issued to the appellants to deny the cenvat credit on input service credit availed by the appellant on the strength of invoices issued by the input service distributor i.e. Head Office.
2.8 The appellants contested the show-cause notices, but the authorities below confirmed the demand against the appellants.
2.9 The matters were adjudicated and the demands were confirmed against the appellants by denying the cenvat credit on input service credit distributor by ISD.
2.10 Against the said order, the appellants filed the appeals before this Tribunal and this Tribunal vide Final Order No.FO/76667-76671/2017 dated 22.08.2017, remanded the matter back to the adjudicating authority for the period April, 2008 to August, 2014, observed as under:
“5. After hearing both sides and on perusal of the material available on record, we are of the view that the impugned orders which have been passed without considering the earlier Orders-in-Original, are required to be set aside. Therefore, we remand the matter to the adjudicating authority with the direction to consider these orders and pass order afresh regarding admissibility of the cenvat credit by providing reasonable opportunity to the assessee-appellants to present their case with a liberty to file additional documents to support their contention, if any, as per law. However, he is directed to keep in kind the fact that there is no dispute regarding payment of service tax by the assessee-Appellants before taking such cenvat credit.”
2.11 In remand proceedings for the further period upto June, 2017, the matter was again adjudicated and the cenvat credit was denied.
2.12 Against the said order, the appellants are in appeals before us.
3. The ld.Counsel for the appellants submits that the ISD issued invoices in the name of Head Office and the Head Office distributed the cenvat credit to the units. It is his submission that the eligibility of input service i.e. where the input service is covered by the definition of “input service” is to be seen by ISD only and the appellant have no role as they are receiving invoices issued by ISD showing their proportionate cenvat credit eligible for cenvat credit issued by ISD. It is further submitted that the jurisdictional authority is only to say whether the documents on the basis that the appellant has taken the cenvat credit is correct or proper. The adjudicating authority has no jurisdiction and decide that the credit issued by ISD is incorrect and not eligible. Therefore, the observations of the adjudicating authority in the impugned order are beyond the jurisdiction where the service on which ISD taken the credit is eligible for cenvat credit is not correct in the jurisdiction of ISD.
3.1 In alternative, it is his submission that the services for which the appellants are used in relation to manufacture of clearance of final product, hence the same is covered by the definition of input, therefore, the appellants have correctly taken the cenvat credit. To support his contentions, he relies on the following decisions :
(1) 2009 (15) STR 657 (Bom) [ Coca Cola India Private Limited Vs. Commissioner Central Excise, Pune III]
(2) 2010 (260) ELT 369 (Bom.) [ Commissioner of Central Excise, Nagpur Vs. Ultratech Cement Limited]
(3) 2013 (291) ELT 469 (Tri.-Ahd.) [ Castrol India Limited Vs. Commissioner of Central Excise, Vapi]
(4) 2018 (10) GSTL 550 (Tri.-Mumbai) [ Pudumjee Pulp & Paper Mills Limited Vs. Commissioner of Central Excise, Mumbai II]
(5) 2021 (45) GSTL 184 (Tri.-Del.) [ Rajender Kumar & Associtates Vs. Commissioner of Service Tax, Delhi II]
(6) 2023 (72) GSTL 251 (Tri.-Del.) [ Delhi Metro Rail Corporation Limited Vs. Principal Commissioner, Service Tax, Delhi I]
(7) 2017 (5) GSTL 294 (Tri.-Mumbai) [Nestle India Limited Vs. Commissioner of Customs & Central Excise, Goa]
(8) 2015 (39) STR 861 (Tri.-Del) [ Balkrishna Industries Limited Vs. Commissioner of Central Excise, Jaipur]
4. On the other hand, the ld.A.R. for the Revenue opposes the contention of the ld.Counsel for the appellants and submits that as alleged against the appellants that the services on which ISD distributed the input service credit to the appellants are not input services, therefore, the appellants are not entitled to take the cenvat credit and with regard to the distribution by ISD, the ld.A.R. for the Revenue relies on the decisions of this Tribunal in the case of Mahindra & Mahindra Limited Vs. Commissioner of Service Tax, Mumbai reported in 2017 (7) TMI 167-CESTAT Mumbai and ACER India Private Limited Vs. Commissioner of Central Excise reported in 2023 (11) TMI 720 – CESTAT Chennai.
5. Heard both sides and considered the submissions.
6. On going through the submissions and on perusal of records, we find that the issue before us is that whether the appellant is entitled to take the cenvat credit on input service credit distributed by ISD under Rule 7 of the Cenvat Credit Rules, 2004, or not ?
7. Admittedly, in this case, the appellants are having different manufacturing unit and their Head Office is located in Pune and and is registered as the Input Service Distributors (ISD). The Head Office distributed the input service credit to their manufacturing unit in proportionate of their clearance during the particular period. It cannot be said that on which service, the appellant has entitled to take the cenvat credit as the same cannot be available with the appellants. It is proper, the invoices issued by ISD is to be taken into consideration and one of the samples is extracted below :
As the Head Office of the appellant is registered as ISD and distributed the cenvat credit in proportionate to the appellant i.e. 54.51% is valid documents to avail the cenvat credit in terms of Rule 9 of the Cenvat Credit Rules, 2004. If the Revenue wants to deny the availament of cenvat credit i.e to be only to the Head Office, who is registered as ISD. As no investigation has done at the end of the ISD for distributing ineligible cenvat credit to the appellant, the cenvat credit cannot be recovered from the appellants.
9. During the course of argument, the ld.A.R. for the Revenue relied on the decision of M/s ACER India Private Limited (supra), in that case also, the facts are not similar to the case in hand as in that case it was the issue before the Tribunal that whether the Revenue can issue the show-cause notice for recovery of inadmissible cenvat credit taken by the assessee, who has ultimately taken the cenvat credit or not ? It is not the case in hand as in this case, the cenvat credit was availed by the Head Office, who is ISD and the same has not been held that ISD has availed ineligible cenvat credit, therefore, the said decision is not of any help to the Revenue. Further, in the case of Mahindra & Mahindra Limited (supra), we find that there is a case of distribution of cenvat credit to all the units ,whereas one of the unit was exempted from payment of duty. Therefore, it was held that the ISD cannot distribute the cenvat credit to the unit, which is exempted from payment of excise duty. This is not the case in hand with us.
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.”
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.
(Operative part of the order was pronounced in the open court)
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