Shahi Food Product Vs Commissioner of CGST & Central Excise (CESTAT Delhi)
CESTAT Delhi held that M/s. Parle Biscuits Pvt. Ltd. can distribute credits on input services attributable to the final product on a pro rata basis proportionate to the turnover between the manufacturing plants of Parle and its contract manufacturing units
Facts- The issue involved is to whether input service credit distributed by M/s. Parle Biscuits Pvt. Ltd. to M/s. Shahi Food Product (appellant) can be denied on the ground that credit could be distributed by Parle only to its own manufacturing unit under rule 7 of the CENVAT Credit Rules, 2004 and not to the appellant which is not a manufacturing unit of Parle.
Notably, the appellant is engaged in the manufacture of Poppins and Kismi Toffee exclusively for Parle as a contract manufacturing unit.
Conclusion- Held that Parle was justified in distributing credits on input services attributable to the final product on a pro rata basis proportionate to the turnover between the manufacturing plants of Parle and its contract manufacturing units under rule 7(d) of the CENVAT Rules in view of the decision of the Larger Bench of the Tribunal in M/s. Krishna Food Products vs. the Additional Commissioner of CGST and Central Excise, Indore Commissionerate.
FULL TEXT OF THE CESTAT DELHI ORDER
The issue involved is to whether input service credit distributed by M/s. Parle Biscuits Pvt. Ltd.1 to M/s. Shahi Food Product2 can be denied on the ground that credit could be distributed by Parle only to its own manufacturing unit under rule 7 of the CENVAT Credit Rules, 20043 and not to the appellant which is not a manufacturing unit of Parle.
2. The Commissioner (Appeals), by order dated 25.03.2019, held that the appellant would be eligible for taking CENVAT credit w.e.f. 01.04.2016 in view of the amendment made in rule 7 on 01.04.2016 but has denied CENVAT credit to the appellant for the period prior to 01.04.2016 from April 2013 to 31.03.2016. The said order passed by the Commissioner (Appeals), to the extent that it is denied CENVAT credit for the period prior to 01.04.2016, has been assailed in this appeal.
3. The appellant is engaged in the manufacture of Poppins and Kismi Toffee4 exclusively for Parle as a contract manufacturing unit. The authorization submitted by Parle through letter dated 03.12.2010 is reproduced below:
“AUTHORISATION
We M/s. Parle Biscuits Pvt. Ltd., Vile Parle (East), Mumbai – 400057, hereby authorize M/s. Shahi Food Product, Bagol Road, Mali Colony, Nathdwara, 1 holding Central Excise Registration No. AAGHB0739REM001 to manufacture on our behalf “Confectioneries” falling under Central Excise Tariff No. 1704 90 20 and to comply on our behalf all the procedural formalities under the Central Excise Act 1944 and RULE made there under in respect of goods manufactured on our behalf and also to furnish information relating to the price at which M/s. Parle Biscuits Pvt. Ltd., sell the said Confectioneries products in order to enable determination of value of the said goods under Section 4A of the said Act.
This will remain enforce till it is cancelled or another such authorization is filled.
For PARLE BISCUITS PVT. LIMITED,
(Authorised Signatory)
Place: Mumbai – 400057
Date: 3/12/2010
(Manufacturers who gets his goods manufactured From any other person or his authorized Agent)
We M/s. Shahi Food Products, holding Central Excise Registration AAGHB0739REM001 of Nathdwara hereby accept the above authorization and agree to discharge all liabilities under the Central Excise Act 1944 and Rules made there under in the respect the said goods manufactured from time to time by us on behalf of the above mentioned manufacturer.
For SHAHI FOOD PRODCU.
(Authorised Signatory)
Place: Nathdwara
Date: 3/12/2010
(Actual manufacturer or his authorized signatory)
Cont…2/-”
4. It has been stated that the inputs required for manufacture of the products were procured by Parle and supplied directly to the factory of the appellant on payment of excise duty. Parle pays for the inputs but the appellant takes credit of the same and utilizes the credit for payment of duty on the products cleared on account of Parle. The appellant also claims that it availed and utilized input services used in relation to the manufacture of products for Parle in accordance with the provision of the CENVAT Rules.
5. As the said product was manufactured not only in the factory of Parle but also in other factories of contract manufacturing units such as the appellant, the advertisement, market research, sales promotion and marketing were centralized and were being handled by the Corporate Office of Parle. Service tax paid on input services was subsequently distributed to these contract manufacturing units.
6. However, a show cause notice dated 06.09.2019 was issued to the appellant proposing the deny credit on following allegations:
(i) The credit of Rs. 12,13,159/- was wrongly taken on Goods and Transport Agency service for outward transportation from factory to the depot of Parle;
(ii) Credit of Rs. 10,92,349/- was irregularly taken on Input Service Distributor by Parle to the appellant as Parle could distribute as an Input Service Distributor only to its own manufacturing units.
(iii) The appellant had willfully suppressed facts of irregular availment of credit with intent to evade payment of duty and so the extended period of limitation could be invoked.
7. The appellant filed a reply to the aforesaid show cause notice but the Assistant Commissioner, by order dated 11.01.2018, confirmed the CENVAT credit amounting to Rs. 23,05,508/- with interest and penalty.
8. Feeling aggrieved, the appellant filed an appeal before the Commissioner (Appeals), who by order dated 25.03.2019, upheld the confirmation of credit on Input Service Distributor but allowed the appellant to take credit relating to service tax paid on Goods and Transport Agency service on outward transportation of the final product. It is this order of the Commissioner (Appeal) that has been assailed in the present appeal.
9. Shri J.M. Sharma, learned consultant for the appellant submitted that Parle was justified in distributing credits on input services attributable to the final product on a pro rata basis proportionate to the turnover between the manufacturing plants of Parle and its contract manufacturing units under rule 7(d) of the CENVAT Rules in view of the decision of the Larger Bench of the Tribunal in M/s. Krishna Food Products vs. the Additional Commissioner of CGST and Central Excise, Indore Commissionerate5.
10. Shri Rakesh Agarwal learned authorized representative appearing for the Department, however, supported the impugned order.
11. The submissions advanced by the learned consultant for the appellant and the learned authorized representative appearing for the Department have been considered.
12. In order to appreciate the submissions, it would be pertinent to refer to the relevant provisions of the CENVAT Rules.
13. The provisions of rule 2(m) of the CENVAT Rules, before the amendment and after the amendment and that of rule 7 before the substitution and after the substitution w.e.f. 01.04.2016 are reproduced below:
“PRIOR TO 01.04.2016
Rule 2(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;
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) ******
(b) ******
(c) ******
(d) credit of service tax attributable to service used by more than one unit shall be distributed 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;”
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.”
AFTER 1.04.2016
Rule 2(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, or an outsourced manufacturing unit as the case may be;”
(bold portion added after amendment)
Rule 7. “Manner of distribution of credit by input service distributor.- The input service distributor shall distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or unit providing output service or an outsourced manufacturing units, as defined in Explanation 4, subject to the following conditions, namely:-
(a) *****
(b) *****
(c) *****
(d) The credit of service tax attributable as input service to all the units shall be distributed to all the units pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all the units, which are operational in the current year, during the said relevant period;
(e) Outsourced manufacturing unit shall maintain separate account for input service credit received from each of the input service distributors and shall use it only for payment of duty on goods manufactured for the input service distributor concerned;
(f) Credit of service tax paid on input services, available with the input service distributor, as on the 31st of March, 2016, shall not be transferred to any outsourced manufacturing unit and such credit shall be distributed amongst the units excluding the outsourced manufacturing units. Explanation 1.- For the purposes for this rule, “unit” includes the premises of a provider of output service or the premises of a manufacturer including the factory, whether registered or otherwise or the premises of an outsourced manufacturing unit.
Explanation 2. *****
Explanation 3. *****
Explanation 4. For the purposes of this rule, “outsourced manufacturing unit” means a job-worker who is liable to pay duty on the value determined under rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 on the goods manufactured for the input service distributor or a manufacturer who manufactures goods, for the input service distributor under a contract, bearing the brand name of such input service distributor and is liable to pay duty on the value determined under section 4A of the Excise Act.”
14. The only issue that arises for consideration in this appeal is as to whether the appellant was entitled to take CENVAT credit prior to 01.04.2016 since credit for the period w.e.f. 01.04.2016 has been granted by the Commissioner (Appeals).
15. The submission that was advanced on behalf of the appellant before the Larger Bench was that rule 7 of CENVAT Rules allowed distribution of credit even prior for the period to 01.04.2016 and, in any case, substitution of rule 7 of the CENVAT Rules would have retrospective application. After noticing the provisions of the CENVAT Rules and the Authorization submitted by Parle, which was accepted by the appellant, the Larger Bench observed:
“25. The office of Parle at Bahadurgarh is registered as a “input service distributor” under rule 2(m) of the CENVAT Rules. Biscuits were manufactured not only in the factories of Parle, but also in the factories of other contract manufacturers. It is stated that the quantity of biscuits manufactured by the appellant is reflected in the balance sheet of Parle as goods manufactured on behalf of Parle and sold and marketed by Parle. The excise duty paid on the biscuits cleared from the factory of the appellant is also accounted for in the balance sheet of Parle as duties paid by them. It has also been stated that as a business strategy advertisement, market research, sales promotion and marketing was centralised and handled by the office of Parle at Bahadurgarh. Such Credit availed on input services attributable to the final product was distributed by Parle on a pro-rata basis proportionate to the turnover of each unit between its own manufacturing plants and its contract manufacturing units, including the appellant, under rule 7 (d) of the CENVAT Rules.
26. What is also important to notice is that rule 7 of the CENVAT Rules allows distribution of credit to its manufacturing units. It does not use the words its own manufactures units. It can, therefore, safely be presumed that the term its manufacturing units should include a contract manufacturer, who manufactures in accordance with the provisions of the Registration Exemption Notification.
*****
42. Thus, even in terms of the provisions of rule 2(m) and rule 7 of the CENVAT Rules, as they stood prior to 01.04.2016, the appellant could distribute CENVAT credit in respect of the service tax paid on inputs services to its manufacturing units, including a job workers.
43. Such being the position, we also find substance in the contention advanced by learned counsel appearing for the appellant that the amended provisions of rule 2(m) and rule 7 of the CENVAT Rules, after the 01.04.2016, merely seek to rectify the lacuna in the unamended rules and, therefore, would have effect from the inception of the rules.”
16. In view of the aforesaid decision of the Larger Bench of Tribunal in Krishna Food Products, it has to be held that the Commissioner (Appeals) was not justified in denying CENVAT credit distributed by Parle prior to 01.04.2016.
17. The order dated 25.03.2019 passed by the Commissioner (Appeals) to the extent is has denied such benefit is, therefore, set aside and the appeal is allowed.
(Order dictated and pronounced in open Court)
Notes:-
