The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed service tax demand holding no wilful intent to evade tax as there was regular mention of utilization of amount in ER returns.
M/s. India Cements Limited and all its units, the appellants are engaged in the manufacture of cement and clinker. They are availing Cenvat credit of excise duty paid on the inputs, service tax paid on input services used in relation to the manufacture of cement and clinker and also of excise duty paid on capital goods.
The Department alleged that the credit availed on quantity-based distribution is in violation of amended Rule 7 of Cenvat Credit Rules, 2004 (CCR, 2004). The show cause notices were served upon the appellants alleging the credit availed on quantity basis to be irregular.
The Counsel mentioned that violation of Rule 7 of CCR, 2004 has wrongly been held as the provision gives an option to the assessee whether to distribute input services tax available to it amongst its other manufacturing units which are providing output services also and that it is evident from the use of word “may distribute the Cenvat credit” as found in Rule 7 both prior and also post its amendment in 2012.
While rebutting these submissions, learned DR has submitted that Rule 7 of CCR, 2004 was amended w.e.f. 01.04.2012 by a Notification No.18/2012-CE(NT) dated 17.03.2012 prescribing 4 conditions to be observed by the ISD while distributing the Cenvat credit in respect of service tax paid on the input service to its manufacturing units or units providing the output service.
The Coram consisting of PV Subba Rao, Technical Member and Dr Rachna Gupta, Judicial Member observed that “Except that in few of the statements by ISD invoices in one of the columns, the credit was distributed by specifying turnover as “quantity based” and in some other it was on “allocation weight”. We observe in terms of Circular No. 178/4/2004-S.T. dated 11.07.2014 as relied upon by the department, the distribution as per allocation weight is also based on turnover, hence, apparently such distribution is also in compliance of Rule 7(d) of CCR, 2004.”
“The question of suppression or evasion does at all arise in such a case at least against the appellants who were the receivers of the distributed Cenvat credit. They otherwise were regularly mentioning the availment/utilized amount in their ER returns” the Tribunal concluded.
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