In a ruling in favour of Berger Paints India ltd, the Allahabad bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) held that proceedings must be initiated on Input Service Distributer ( ISD ) in the allegation of wrong distribution of Cenvat credit by ISD.
The appellant, is engaged in the manufacture of paints and his manufacturing units are situated at Sikandrabad, Surajpur & Jammu. Appellant is registered with the Department and they were availing Cenvat credit facility including credit of service tax on input services received by them either directly or through the headquarter and utilized the same for payment of duty of their final products.
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The Head Office of the appellant is situated at New Delhi and the same is registered as ISD and was distributing the credit in terms of Rule 7 of Cenvat Credit Rules. AGUP audited the records of the appellant for the period 2006-07 and 2007-08 during December, 2008 and objected that the credit received from their Headquarter as input service distributer was in respect of different services pertaining to their manufacturing facilities at Sikandrabad and Jammu but the entire credit was distributed to Sikandrabad unit only.
After making inquiries and investigations a show cause notice dated 04.08.2011 was issued to the appellant for the period 2006-07 to 2010-11 alleging contravention of Rule 7 of Cenvat Credit Rules.All these show cause notices and statement of demands have been adjudicated as per the impugned order referred in para-1 above. Without prejudice, determination of the correctness of distribution of cenvat credit by the ISD cannot be done at the end of recipient unit availing credit – impugned order passed by the Commissioner is without jurisdiction.
The only allegation in the show cause notice is that Cenvat credit has been distributed in violation of Rule 7(b). Rule 7(b) prescribes the manner of distribution of the input service credit by the ISD and is not applicable to the present case. The jurisdictional officer whose jurisdiction where the Head Office is registered as ISD, he never objected to the manner of distribution. The impugned order has been passed in gross violation of the principles of natural justice and the Show cause notices are perverse and illegal.
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Credit distributed could not have been altered or questioned by any of the recipient. Even their unit at Jammu is not a exempted unit but is availing the benefit of Notification No.56/2002-CE whereby they are required to pay the duty first and subsequently claimed the amount so paid in case by way of refund. Appellant’s jammu unit operating under notification no. 56/2002- ce dated 14.11.2002 is not engaged in manufacture of exempted goods – provisions of rule 7 not applicable in the present case.
Appellant was asked by the Adjudicating Authority to submit all the information for the period of dispute from 2006-07 to November, 2015 (10 years) within a weeks time, appellant sought for further time which was not allowed and proceeded to decide the case. Denial of whole credit distributed by ISD to the appellant on the ground that some part of the credit was distributed to unit is perverse as even if all when have been stated in the show cause notice as demanded then also they were entitled to credit which were attributable to the manufacturing unit at Sikanderabad. Appellant has maintained all the documents required in respect of the Cenvat credit distributed by ISD and thus complied with the provisions of Rule 9(6) of the Cenvat Credit Rules, for this reason also the impugned order cannot be upheld.
Cenvat credit in question has been disallowed and demand confirmed against the appellant on the basis that Cenvat credit pertaining to the services used by the Jammu unit has been distributed to the appellant, the said basis is factually incorrect. For the period from April, 2012 onwards, the ISD has distributed Cenvat credit proportionately, based on total turnover of all the units and no credit attributable to the Jammu unit has been distributed to their Sikandrabad unit.
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The fact of the distribution of credit by the input service distributor to all the units have been duly certified by the Chartered Accountant as is evident from the Certificate dated 08..08.2018. Thus the month wise figure provided by the appellant at the time of hearing do not exactly tally with those indicated in the chartered accountant certificate, still the fact remains that the credit was distributed proportionately by the Input Service Distributor proportionately to all the units. The Chartered Accountant certificate produced at the time of filling the appeal is reproduced below:
A two member bench of P.K. Choudhary, Member (Judicial) and Sanjiv Srivastava, Member (Technical) viewed that it is interesting to note that appellant was asked by the Adjudicating Authority to submit the information within a week time in respect of distribution of the credit. Information pertaining to ten years was asked to be provided within a week and without receipt of the said information, he proceeded to adjudicate the case. It is not understood as to what was such hurry. If he would have waited for said information appellant could have produced the reconciliation before him. Appellants have made available to us reconciliation for the period from April, 2012 onwards. Taking note of the above reconciliation submitted, we do not find any merits in the impugned order for the period from April, 2012 onwards. As we find that appellant has not availed any credit after April, 2012 which is not due the demand for this period is also set aside.
It is settled law that in such cases of alleged wrong distribution of Cenvat credit by ISD, the proceeding should have been initiated at the end of ISD, it is not the case that the credit was wrongly availed by ISD. It is only alleged that the credit has been wrongly distributed to the appellant’s unit, if credit could not have been wrongly distributed to the appellant’s unit at Sikandrabad, the same would have been available to the unit of the ISD elsewhere.
The Tribunal set aside the demand of credit alleged to be wrongly availed and the demand of interest and penalties imposed on the appellant.
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