CENVAT Credit cannot be denied for Common Input Services Across Units: CESTAT Rules in Favour of Kirloskar Toyota [Read Order]

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that CENVAT credit on common input services cannot be denied merely because such services were used across multiple units of the same assessee.

Kirloskar Toyota Textile Machinery Pvt. Ltd., the appellant, is engaged in manufacturing textile machinery in its DTA unit and also operates a 100% EOU manufacturing automobile parts, along with a trading unit, all located in the same premises. The appellant was availing CENVAT credit on input services which were commonly used for all these units.

The department issued show cause notices alleging that the appellant wrongly availed credit on services used for EOU and trading activities in its DTA unit, which do not qualify as input services under the CENVAT Credit Rules. The adjudicating authority disallowed the credit, confirmed demand, and imposed penalty. On appeal, the Commissioner (Appeals) upheld the order. Aggrieved by this, the appellant approached the Tribunal.

The appellant argued that it had adopted centralized billing and accounting system and had obtained centralized registration, which was informed to the department. It explained that credit was consolidated and used for payment of duty and service tax.

The appellant pointed out that as per Rule 3 and Rule 7 of the CENVAT Credit Rules, credit is available to the manufacturer as a whole and is not restricted to a specific unit. It relied on the decision in ECOF Industries to support its case.

The appellant also argued that there are only limited restrictions under the rules and the department cannot impose additional conditions. It explained that the services on which credit was availed are related to business activities and are eligible input services.

The revenue counsel argued that centralized registration is only for payment of service tax and does not permit taking credit in one unit for services used in another unit. It argued that each unit must separately avail and use credit. The revenue also argued that credit can be taken only by the unit which actually receives and uses the service.

The two-member bench comprising P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) examined the matter. The Tribunal observed that as per earlier decision in ECOF Industries, there are only two restrictions on distribution of credit, and no other limitation is provided under the rules.

The tribunal observed that the appellant had obtained centralized registration and had informed the department about the method of availing and utilizing credit. It pointed out that the restrictions applied by the department are not supported by the rules.

The tribunal also observed that the issues relating to eligibility of credit on various services are covered by judicial decisions relied upon by the appellant. The tribunal set aside the impugned order and allowed the appeal filed by Kirloskar Toyota Textile Machinery Pvt. Ltd. with consequential relief.

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