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2015 (3) TMI 1186 - CESTAT CHENNAI

2015 (3) TMI 1186 - CESTAT, CHENNAI - tmi - Input service distributor (ISD) - The basic principle of Cenvat credit being to avoid cascading effect, genuine credit earned by one unit is not disallowed for set off against liability of other in absence of any prohibition thereto by law. This can be appreciated from the ratio laid down by Hon'ble High Court of Karnataka in ECOF Industries Pvt. Ltd. However, a word of caution may be stated that the manner of distribution of credit should not be contr .....

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company. Following the decision of the Hon'ble High Court of Karnataka in the case of Commissioner of Central Excise, Bangalore-I Vs ECOF Industries Pvt. Ltd. reported in 2011 (23) S.T.R. 337 (Kar.), it is further submitted that transfer of credit by ISD from one unit to another is genuine. Therefore, there cannot be denial of credit on the ground that the input services were not used to provide any output service or manufacture of any excisable goods. 2. Revenue supports the order of the au .....

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ary to Rule 7 of the Cenvat Credit Rules, 2004. Therefore it would be proper to reproduce relevant portion of the judgment as under to appreciate the principle of set off:- "3. The learned Counsel for the Revenue assailing the impugned order contends that admittedly the service tax is paid in respect of the unit at Cuttack and it is sought to be availed by the unit at Malur. As the said tax has not been paid in connection with the input used in manufacture of products at Malur unit or in th .....

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the requirement of law, that the unit, which has paid the tax alone, is entitled to the benefit of the credit under the scheme. If a manufacturer has several units and has paid input tax, he is expected to register himself as a input service distributor, collect all these taxes paid and thereafter distribute the same to its various units except to two conditions which are mentioned in Rule 7. Therefore, he submits that there is no reason for interfering with the order passed by the tribunal, whi .....

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t service distributor, which are defined at Rule 2(k) - 'Input', Rule 2(l) - 'Input service' and Rule 2 (m) - 'Input service provider' as under:- "Rule 2(k) "input" means - (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, c .....

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e" means any service :- (i) used by a provider of taxable service for providing an output service, or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sale .....

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vider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;" 7. Rule 3(1) has been defined as under :- "A manufacturer or producer of final products or a provider of taxable service shall be allowed to tak .....

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ules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be. Therefore, the law mandates that the manufacturer who wants to avail the benefit of this service tax if he has more than one unit he should also get registered himself as a service provider and then, he would be able to collect all the input ser .....

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ollowing conditions, namely :- (a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon, or (b) credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed." Therefore, only two limitations are put for the distribution of credit by an input service distributor. Firstly, it cannot exceed the amount of service tax pai .....

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