Relief to Lenovo: CESTAT quashes Service Tax demand as inclusion of Turnover of Manufacturing Unit for Quantification of Amount for Reversal of CENVAT Credit was appropriate

In a major relief to Lenovo, the Banglore Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed Service Tax demand as inclusion of turnover of Manufacturing unit for quantification of amount for reversal of CENVAT Credit was appropriate.

The respondent assessee, M/s. Lenovo (India) Pvt Ltd has been providing both taxable and exempted services (trading) and are availing Cenvat credit on input services common to both services. During audit, it was observed that there was short payment, in terms of Rule 6(3A) of CCR, 2004.

The appellant department issued a Show Cause Notice to the appellants, proposing to demand and recover an amount for the period alleging incorrect determination of the amount to be reversed proportionately under Rule 6(3A)(c)(iii) of the Cenvat Credit Rules, 2004. The appellants further proposed to demand credit availed for the period during the course of Audit the appellants reversed credit. The adjudicating authority dropped the demand for the period prior 1.4.2011 on the ground that trading is classified as an exempted service only from 1.4.2011 and observed that since assessee has reversed Rs.67,04,088/- voluntarily, the relevant statutory provisions of Rule 6(2) prevalent during the material point of time, have been satisfied.

With regard to the remaining demand of Rs.43, 83,14,200, for the period from 04/2011 to 03/2015; the objection in the SCN was against inclusion of turnover of the Puducherry manufacturing unit, for quantification of total turnover under Rule 6(3). The adjudicating authority dropped the demand holding that the inclusion of turnover of Puducherry manufacturing unit for the purpose of quantification of amount under Rule 6(3A) is appropriate.

The coarm of Judicial Member, S.K.Mohanty and Technical Member, P.Anjani Kumar ruled that there are only two limitations imposed under Rule 7 of the Rules, for distribution of credit by an Input Service Distributor. Firstly, it cannot exceed the amount of service tax paid and secondly, the credit of service tax attributable to service used shall not be distributed in a unit exclusively engaged in the manufacture of exempted goods or providing of exempted services. The manufacturer is therefore, requires registering himself as Input Service Distributor and thereafter is entitled to distribution of credit of such input in the manner prescribed under the law.

The Tribunal while upholding the impugned order ruled that on scrutiny of the service tax registration certificate issued for Puducherry unit is seen that the registration for service tax at Puducherry is only for payment of service tax under reverse charge mechanism on GTA services and on import of taxable services from abroad, which are meant exclusively for the Puducherry manufacturing unit. With regard to the entire remaining activities of the said Puducherry manufacturing unit, the centralized service tax registration No.AABC13372HST001 at Bangalore is applicable, which is as a SERVICE PROVIDER as well as an INPUT SERVICE DISTRIBUTOR. Thereby, inclusion of the turnover of the Puducherry manufacturing unit for the purpose of quantification of amount under the said Rule 6(3) is appropriate. As such, the proposed demand fails on merit.

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