By TIOL News Service

MUMBAI, JULY 30, 2015: THE appellants Uran factory is engaged in the manufacture and sale of petroleum products like Naphtha, Lean Gas, Propane, LPG, C2C3 etc. The crude oil required for the production of the above said products are produced from the oil fields of Mumbai offshore. The production platforms at Mumbai offshore are integrated with the Uran factory through a network of oil trunk pipelines. There are different divisions of the appellants looking after different aspects relating to the production platforms at Mumbai offshore. The input service providers raise invoices at the office of these divisions. These divisions receive invoices raised by various service providers in relation to services like drilling, logistics, manpower supply, consulting, etc. in relation to production of crude oil at the production platforms at Mumbai offshore. The administrative divisions of the appellants [referred to as ONGC - Mumbai High Asset, Regional Office, Offshore Logistics, Neelam Heera, Drilling Services, Engineering Services] have registered themselves [from January 2009 onwards] as Input Services Distributor (ISD) in terms of CCR, 2004 read with Service tax (Registration of Special Category of Persons) Rules, 2005.

After obtaining the registration,these divisions have distributed the credit of service tax paid on input services to Uran factory of the appellants. All the ISDs of the appellants before distributing the credit to Uran Factory have intimated the Superintendent having jurisdiction over the ISD premises about the fact of distribution of credit and nexus of the services with the manufacture of goods.

A Show Cause Notice dated 8.4.2010 was issued to the Appellants proposing to demand Cenvat credit of Rs.40,57,15,829/- availed by Appellant on the basis of invoices issued by the ISD. The credit was sought to be denied on two grounds namely:

++ The Cenvat Credit distributed by the ISD pertains to input services availed and used exclusively at the oil fields of Mumbai offshore to produce exempted crude oil. Hence, credit of input services used for the production of crude oil cannot be availed at Uran factory of appellants.

++ The Uran factory of the appellants are not entitled to Cenvat credit of service tax paid on the input services received by the administrative divisions prior to the registration as ISD but distributed by the ISD after taking registration.

The CCE, Raigad did not bat an eyelid while disallowingthe Cenvat Credit. It is also held that an amount of Rs.27.79 crores (out of Rs.40.57 crores) was availed even before the registration of ISD. Penalties and interest are also imposed in ample measure.

The Tribunal vide its order - 2013-TIOL-451-CESTAT-MUM affirmed the Order-in-Original against the appellants and imposed penalties. However, the Tribunal set aside the penalties imposed on the ISDs. The Tribunal held that the input services are used exclusively at the Mumbai offshore to produce exempted crude oil. Hence, credit of input services used for the production of crude oil cannot be availed at Uran factory of appellants. No separate finding was given on the credit of service tax on input services received prior to the registration as ISD.

The High Court of Bombay - 2013-TIOL-202-HC-MUM-ST allowed the Cenvat credit of service tax paid on input services received at the offshore platforms in relation to extraction of crude oil. However, the High Court remanded the matter to the Tribunal to decide whether the appellants are entitled to Cenvat credit of service tax paid on the input services received by the administrative divisions prior to the registration as ISD but distributed by the ISD after taking registration.

And this is how the matter is before the CESTAT in the second round albeit restricted to the eligibility or otherwise of credit distributed in respect of services received before registration as ISD.

Basing their arguments on a plethora of case laws the appellant submitted that non-registration of the divisions as an ISD cannot come in the way of taking of input service credit by the ISD before registration and distributing the same after registration.

The AR summed up his submissions by emphasizing that prior to registration whatsoever services were received are not governed by the provision of input service distributor, therefore, registration obtained after date of receipt of services cannot be given retrospective effect and, therefore, services received prior to date of registration cannot be regularized by registration. It is further submitted that if it is allowed, that distribution of the credit and availment thereof for the service tax paid on the services received prior to the registration, whole purpose of statutory provisions for distribution of service shall become redundant, this is not the intention of the law. A couple of case laws were also adverted to press upon the fact that for providing any benefit, terms and conditions provided therefor are required to be complied with and in absence of compliance, benefit cannot be extended.

The Bench extracted passages from the Tribunal order passed earlier - 2013-TIOL-451-CESTAT-MUM, the order passed by the Bombay High Court - 2013-TIOL-202-HC-MUM-ST, the definition of ISD as defined in rule 2(m) of CCR, 2004, rule 3(1) of CCR, 2004, rule 9 of CCR, 2004 and a host of case laws relied by the appellant and there after observed -

+ Definition (rule 2(m)) provides that the input service distributor should receive invoices under Rule 4(a) of the Service Tax Rules, 1994 towards purchase of inputs services and issue invoices for the purpose of distribution of credit of service tax paid on the said service to such manufacturer or producer or provider, as the case may be. The Rule 2(m) does not stipulates any condition that the invoices issued under Rule 4(a) in respect of purchase of input service should pertain to period prior to the registration or after registration. Therefore it is clear that the purchase of input service by the office of the manufacturer maybe for the period prior to the registration and because of this reason there is no prohibition in the above Rule 2(m) for distributing services and issuance of input service distribution invoices.

+ In view of above, a manufacturer of final product shall be allowed, credit of duty paid on inputs and capital goods as well as service tax paid on input service received by him. In the present case, services on which the Cenvat Credit was taken by the appellant have been admittedly received and used in or in relation to the manufacture of the dutiable final product which has been observed by the Hon'ble High Court also. Therefore, foremost condition is, input should be received by the appellant and same should be used in or in relation to the manufacture of their dutiable final product is not under dispute. Rule 9(1) of Cenvat Credit Rules provides documents on which the Cenvat Credit can be availed…

+ It is observed that the appellant being manufacturer can avail the Cenvat credit on the, amongst documents, invoices issued by input service distributors under Rule 4A of Service Tax Rules, 1994. In the present case the appellant has availed credit on invoices issued by the input service distributors under Rule 4A, therefore the documents on which credit was taken is the documents covered under the above rule therefore invoices received by the appellant is not under dispute. As regard the input service distributor they are supposed to take credit on invoices issued by provider of input service. In the present case this is also not under dispute that the input service distributor has taken credit on the invoices issued by the service provider. Therefore the documents i.e. invoices issued by input service distributor could not be said to have been issued illegally. Above provisions also does not provide any restriction clause that the credit is not allowed in respect of invoices issued by input service distributors in respect of service received by them prior to registration as input service distributor, therefore, we are of the view that documents issued by input service distributors and availment of cenvat credit by the appellant on such documents cannot be found fault.

+ On the part of the appellant there is no contravention or violation of availment of Cenvat Credit for the reason that invoices on which Cenvat Credit was availed is valid and has not been held invalid. Input service was received by the appellant, input service covered by the said invoices has been used in or in relation to the manufacture of dutiable final product. In these facts, we find no fault or contravention of the provisions on the part of the appellant therefore Cenvat credit, irrespective any discrepancy, if any found on the part of the input service distributor, Cenvat Credit to the appellant cannot be denied on the ground that input service distributor have received services prior to the obtaining registration as input service distributors.

Noting that identical issue has been dealt in the judgment of M/s. Dagger Forst Tools Ltd - 2012-TIOL-2121-CESTAT-MUM wherein although the ISD were registered on 04/10/2008 the tax paid by appellant on services received from February 2008 and distributed after October 2008 was held to be proper and legal, the Bench also referred to a catena of cases wherein CENVAT credit availed on invoices that were in the name of the HO which is not registered as ISD was also allowed on the reasoning that there is no dispute about the payment of service tax, receipt of service and use therof.

The Bench also agreed to the submission of the appellant that if at all there is any lapse on the part of the input service distributors or even on the part of the appellant it is only procedural lapse and for which Cenvat credit cannot be denied.

The CESTAT crystallised the ratio of various decisions cited by the appellant by observing thus –

+ Important aspect for availing the credit is that service which has been provided by the service provider, it should have service tax paid character, invoices as against sale of service should be tax paid.

+ The registration and issuance of input service distributor invoices is merely a procedural requirement. In this procedure neither input service distributor makes any payment of service tax nor utilized credit for payment of any duty.

+ Procedure for input service distributor is only, in order to maintain co-relation between the purchase of service and distribution thereof to the unit of the registered person who are under same entity.

+ As per the facts of the present case, the case of the appellant is on better footing for the reason that they have availed cenvat credit on the valid invoices issued by input service distributors.

+ Since in our view there is not even procedural lapse on the part of the appellant, Cenvat credit taken on the invoices issued by registered input service distributor is correct and legal, hence the judgments cited by the A.R. are not relevant in the facts of the present case.

Holding that the appellant has correctly availed the Cenvat Credit on the strength of invoices issued by Input Service Distributors the order was set aside and the appeal was allowed.

In passing: Hope this is the end of the road for the case!

(See 2015-TIOL-1571-CESTAT-MUM)