There is no restrictions under rule 7 of Cenvat Credit Rules in limiting distribution of service tax credit made in respect of one unit solely on ground that services are used in respect of another unit

HIGH COURT OF KARNATAKA

Commissioner of Central Excise, Bangalore- I Commissioner-ate

Vs

Ecof Industries (P.) Ltd.

N. KUMAR AND RAVI MALIMATH, JJ.

CEA NO. 51 OF 2010

APRIL 8, 2011

JUDGEMENT

Ravi Malimath, J.- This appeal is by the revenue, being aggrieved by the order of the Tribunal, holding that there are no restrictions in. the Cenvat Credit Rules, as applied by the Department, in limiting the distribution of service tax credit made in one unit and availed of in another unit.

2. The assessee are holders of Central Excise Registration being manufacturers of excisable goods. During the course of audit, it was found that the assessee had availed service fax credit based on the invoices issued by their Chennai, Head Office indicating that the amount of service tax credit is to be taken by their unit at Malur. Accordingly, a show cause notice dated 06.12.2007 was issued to show cause as to why the irregular service tax credit availed on input services for the period November 2006 should not be demanded along with interest and penalty. The assessee replied to the same. The Assessing Authority thereafter dropped the proceedings. Aggrieved by the same, the revenue preferred an appeal before the Commissioner of Central Excise, (Appeals I), Bangalore, wherein the appeal was allowed by setting aside the order in original by confirming the demand, interest and penalty. Aggrieved by the same, the assessee preferred an appeal to the Tribunal. The Tribunal on a combined reading of Rule 7 and the clarificatory circular dated 23.08.2007 held that there are only two restrictions regarding the distribution of the credit. That the first restriction is that the (‘credit should not exceed the amount of service tax paid and the second restriction is that the credit should not be attributable to service used in the manufacture of exempted goods or providing of exempted services. Consequently, it was of the view that there are/no restrictions under the said rules as sought to be made out by the revenue in limiting the distribution of the service tax credit made in respect of the Malur Unit solely on the ground that the services were used in respect of the Cuttack Unit.