2021 (9) TMI 1198 - AT - Central Excise

CENVAT Credit - input services - common input service for taxable as well as exempt units - whether the appellant in their Koshamba Unit is eligible for credit only proportion of the common input service attributed to the said unit only and they are not entitle for the Cenvat credit to the proportion attributed to Jambusar Unit? - Rule 7(d) of Cenvat Credit Rules, 2004 - HELD THAT - Reliance placed in the case of GLOSTER CABLES LTD. UNIT I VERSUS COMMISSIONER OF CENTRAL TAX, MEDCHAL COMMISSIONERATE, 2018 (5) TMI 660 - CESTAT HYDERABAD where it was held that the assessee has not violated the CENVAT Credit Rules as they existed during the period by not distributing the credit of Service Tax for common services between two Units. It is settled that even though there is a provision for proportionate distribution of Cenvat Credit Rule 7(d) of Cenvat Credit Rule, 2004 during the relevant period but as per the interpretation it was held that since the word may was there in the Rule which was substituted with word shall from the amendment in 2006, it was option for the Assessee either to avail the entire credit in one unit or distribute the same proportionately to different unit, therefore even if the appellant have availed the Cenvat Credit in respect of common input service in one unit only, the same is not in correct or illegal. The credit is allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Rule 7(d) of Cenvat Credit Rules, 2004 on the denial of Cenvat Credit.
2. Interpretation of Rule 7 for distribution of credit among multiple units.
3. Eligibility of the appellant for Cenvat Credit in one unit only.

Analysis:
1. The case involved the denial of Cenvat Credit amounting to ?81,19,072/- for a period from February to March-2013, concerning common input services used in two units owned by the appellant. The department contended that as the service was utilized for both units, the appellant was not entitled to claim the full credit for the Koshamba Unit. The issue centered around the application of Rule 7(d) of the Cenvat Credit Rules, 2004.

2. The appellant argued through their Chartered Accountant that until the 2016 amendment, the assessee had the discretion to avail the entire credit in one unit or distribute it among different units. They cited various judgments, including Oerlikon Balzers Coating India Pvt Ltd and Gloster Cables Ltd, to support their claim that taking credit in one unit was not illegal or incorrect. The judgments highlighted the language of Rule 7, emphasizing the use of "may" rather than "shall" regarding credit distribution.

3. The tribunal, after considering the submissions and relevant judgments, analyzed the provisions of Rule 7 both pre and post the 2012 amendment. The tribunal referred to the Oerlikon Balzers Coating India Pvt Ltd case to illustrate the interpretation of Rule 7(d) and the option available to the assessee for credit distribution. The Hindustan Zinc Ltd case further supported the appellant's argument that distributing more credit to a particular unit was not illegal, especially before the 2016 amendment that made distribution mandatory.

4. In light of the precedents and the interpretation of Rule 7(d), the tribunal concluded that even though there was a provision for proportionate distribution of Cenvat Credit, the appellant's decision to avail the credit in one unit only was not incorrect or illegal. The tribunal set aside the impugned order and allowed the appeal, emphasizing the discretionary nature of credit distribution before the 2016 amendment.

5. The tribunal's decision highlighted the importance of understanding the language and intent behind legal provisions like Rule 7 in determining the eligibility of entities for Cenvat Credit. The judgments cited provided clarity on the flexibility available to assesses in choosing how to distribute credits among their units, emphasizing the option rather than obligation aspect before the specific amendment in 2016.