By TIOL News Service

MUMBAI, AUG 26, 2017: THE  appellants are manufacturers of Motor Vehicle Parts. They have another manufacturing unit at Wagholi. Their Head Office is registered as an Input Service Distributor. It was noticed that their Head Office had distributed input Service Tax amounting to Rs.1,21,497/- to the Kanhe unit in respect of services rendered to their unit at Wagholi.

Inasmuch as since the services were not availed by the Kanhe unit, a SCN dated 1.10.2009 was issued to the appellant for recovery of the CENVAT Credit of Rs.1,21,497/- wrongly availed by them and also proposing penal and interest provisions.

The lower authorities confirmed the demand and imposed equivalent penalty and also interest.

In the matter of the Stay application filed by the appellant, the CESTAT had inter alia observed thus while ordering pre-deposit of the entire credit availed –

"…In the instant case, there is no dispute about the fact that the services rendered at Wagholi unit were completely utilized there and they had no nexus or connection with the activities which were taking place at the Kanhe unit, where the credit has been availed. Therefore, such services cannot be treated as "input service" at the Kanhe unit for the purpose of availing credit. The input service distributor can distribute the Service Tax paid on input services amongst its various units only if such services are used among the units where the credit is taken. First of all the service has to qualify as an input service and thereafter, the tax can be distributed. The purpose of providing input service tax distribution is in the context of common services availed by various units of a single corporate entity. It is not mechanism for transfer of credit from one unit to another. If the appellant wanted such facility, then they should registered themselves as a Large Tax Payer unit and only when they register as a Large Tax Payer unit, they could transfer credit from one unit to another. .."

We reported the stay order as 2011-TIOL-1581-CESTAT-MUM .

The appeal was heard recently.

The appellant adverted to rule 7 of CCR and submitted that the credit distributed does not exceed the input credit availed and that the services were not received by a unit manufacturing exempted goods and, therefore, credit has been rightly availed.

The AR cited the decision in Manikgarh Cement - 2010-TIOL-720-HC-MUM-ST wherein the services of repair, maintenance and civil construction used in residential colony of respondent-assessee were not considered to be input services under rule 2(l) of CCR, 2004.

The Bench observed that the ruling cited by the AR was of no help to further the case of the department.

Noting so, the CESTAT further held -

"7. …In the present appeal, the Revenue have not disputed the taking of Cenvat Credit under Rule 2(l) read with Rule 3 of CCR, 2004 in the Wagholi Unit of the assessee. What is being disputed is the transfer of credit, and as such I find that the Commissioner (Appeals) is in error in his observation that there is lack of nexus in the cenvat credit taken, which is not made out in the show cause notice. Even otherwise, on the admitted facts I hold that the credit was rightly taken in the Wagholi unit. Further, as none of the restrictions under rule 7 is attracted, I hold that the appellant is entitled to transfer the credit from their Wagholi unit to their Kanhe unit. Thus, the appeal is allowed with consequential benefit and the impugned order is set aside…"

It was also directed that the cash amount deposited by the appellant-assessee by way of pre-deposit during the appellate proceedings should be refunded within a period of 45 days along with interest .

In passing:  One gives nothing so freely as advice – La Rochefoucauld

(See 2017-TIOL-3106-CESTAT-MUM)