No requirement to follow Procedure under Rule 4A of Service Tax Rules in Absence of Head Office-Branch Office Basis: CESTAT [Read Order]

The Hyderabad bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that there is no requirement to follow the procedure under Rule 4A of the Service Tax Rules, 1994, since, there was no head office branch office basis relation between the appellant company and its other units.  

During the course of the audit and scrutiny of records of the appellate IVAX Paper Chemicals Ltd, it was observed that they had availed input service tax credit on the basis of invoices and bank payment vouchers issued in the name of their head office located at Banjara Hills, Hyderabad.

In further verification, it was revealed that the appellants are having units which were located at Gumpur, Kathua, and Kovai and the expenses pertaining to two or more units have been incurred by their head office, and the entire service tax involved therein is completely passed on to the assessee located at Gumpam only.

The Department relied on the provisions under Rule 9(1)(g) as also on Rule 7 of CENVAT Credit Rules, 2004, and came to the conclusion that the expenses incurred by the head office can be distributed only by way of a bill or challan issued under Rule 4A of Service Tax Rules, 1994 and in accordance with the provisions for distribution as stipulated in Rule 7 of Cenvat Credit Rules, 2004.

The counsel for the appellant argued that there is no head office in Hyderabad and it is merely having a central bank account, which makes the payments for all locations for ease of business.

It was observed that admittedly they were importing the raw materials in the name of their Gumpam plant and later on a part of that is also stock transferred to their other units as such, on payment of central excise duty apparently under Rule 3(5) of Central Excise Rules.

Since all the imports are taking place in the name of the appellant’s Gumpam unit, the bank charges paid are in relation to such imports of inputs, even though the debit advice/ invoice issued by the bank mentioning their Hyderabad office, has been taken by them.

The single bench member comprising of A.K. Jyotishi (Technical member) held that the Hyderabad office is not required to act as an input service distributor (ISD) since they are not the office required to act as input service distributor (ISD) and therefore there was also no requirement on their part to follow any procedure like registration or distribution in accordance with the procedure prescribed under the respective rules.

The unit Gumpam is eligible to take credit on the strength of the debit advice/invoices issued by the banks clearly showing the payment of service tax in respect of the Bill of Entry, under which the inputs were received at their Gumpam unit and the service i.e. “banking charges” on the import of raw material, which is an eligible service for taking credit.

The co-relation of the invoice/challans issued by the bank and the Bill of Entries under which the inputs have been received by the Gumpam unit needs to be done in detail as per the Appellants provide all the relevant documents to Original Authority.

Thereafter, to the extent to which such inputs, not having been consumed in the Gumpam unit, the credit has to be denied on account of their having not been used in relation to the manufacture of the final product. The remaining credit is to be allowed.

Further, the interest and penalty applicable under section 15(2) of CCR 2004 read with Section 11AC (1)(c) of Central Excise Act 1944 would also be applicable on such ineligible credit.

The case is remanded back to the Original Authority for re-determination of the eligible credit in view of my observations in the foregoing paras, after going through all the documents to be submitted by the appellants within a period of 3 months.

The appeal was partly allowed by way of remand for redetermination of the amount of eligible credit out of total demand and for recovery of the remaining amount, levy of interest applicable, and imposition of a penalty with reference to such ineligible credit, so determined.

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