Input service distributor is not required to be a manufacturer or output service provider to avail Cenvat credit

Moser Bear India Ltd. Vs. CCE, Noida [TS­368-Tribunal-2014(DEL)]

The head office of Moser Bear India Ltd. (the Appellant), located at Delhi is registered as an input service distributer (ISD) in terms of Rule 2(m) of the Cenvat Credit Rules, 2004 (the Credit Rules). The head office was discharging Service tax liability under Reverse Charge for the various services received by them from foreign country. The Service tax so paid by them on the various services, were actually being utilized by the Appellant in their factory located at Noida, which was distributed by the head office to the Appellant’s factory at Noida. The Appellant was utilizing the same for discharge of their Service tax liability.

The Department contended that in as much as the Service tax was being paid by the head office which was neither engaged in the manufacture of any excisable goods nor providing any output services, were not entitled to avail the said credit and in turn not entitled to pass on the said credit to the Appellant’s factory located at Noida.

The Hon’ble CESTAT, Delhi held that:

• In the light of Rule 7 of the Credit Rules which provides the manner of distribution of credit by ISD, the basic requisite condition for the distribution of the said credit is that the ISD receives the invoices towards purchase of input services and pays the Service tax. There is nothing in the said Rule to suggest that the head office or the office of the manufacturer should be himself in a position to provide any output service or to manufacture any excisable goods.
•  Further, Cenvat Credit on the input services    is not dependent upon the  actual receipt of the services in the factory unlike the credit of the duty paid on the inputs, which is dependent upon the actual receipt of the inputs or the capital goods in their factory. As such, when the services were first received by the head office and then transferred to the factory for further utilization, it cannot be made a ground for denial of the credit.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)