Win for Coca-Cola: CESTAT Rules ISD-Distributed CENVAT Credit Cannot Be Denied for Lack of Nexus with Manufacturing Activity [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that CENVAT credit distributed by an Input Service Distributor (ISD) cannot be denied to a manufacturing unit on the ground that the underlying services lack direct nexus with the manufacturing activity.

Hindustan Coca-Cola Beverages Pvt. Ltd. (HCCB), the appellant, is a manufacturer of aerated beverages operating from its Verna Industrial Estate unit in Goa. The appellant received input service credit from its corporate office, registered as an ISD in Raigad, Maharashtra. The credit related to various services received at the head office was distributed to the appellant's manufacturing unit for the period June 2015 to March 2017.

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A show cause notice was issued alleging wrongful availment of input service credit, and an order was passed by the adjudicating authority confirming the demand of Rs. 24,12,510. On appeal, the Commissioner (Appeals) reduced the confirmed demand to Rs. 6,09,116 on the ground that the input services, such as outward GTA, repair and maintenance, and real estate service,s did not have sufficient nexus with the manufacturing operations of the Goa unit.

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Aggrieved by the Commissioner’s order, HCCB approached the CESTAT, arguing that it was not required to verify the eligibility of each input service once the credit was distributed by the ISD in accordance with Rule 7 of the CENVAT Credit Rules, 2004.

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They submitted that the responsibility for determining the nature and admissibility of credit lies with the ISD and not with the recipient unit. The appellant’s counsel also relied on earlier decisions of the tribunal in its own case, where similar credit was held to be admissible.

The revenue counsel argued that the services in question did not have a direct nexus with the manufacture of excisable goods and were therefore ineligible for credit. It supported the appellate authority’s conclusion and defended the disallowance of credit.

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The single-member bench comprising C.J. Mathew (Technical Member) observed that under Rule 7 of the CENVAT Credit Rules, a manufacturer is entitled to use credit lawfully distributed by an ISD, and it is not the role of the recipient to re-examine the nexus or character of such services.  The tribunal explained that any challenge regarding the admissibility of the credit must be made at the ISD level, not against the recipient who has received the credit through statutory distribution.

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The tribunal also observed that the revenue had accepted the tribunal’s earlier decision in favour of the appellant in an identical matter and had not appealed it. Following the principles of judicial consistency, the tribunal found the current demand unsustainable. The appeal was allowed.

To Read the full text of the Order CLICK HERE

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