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TMI Blog2023 (11) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... les 2004 (CCR,2004). 2. On scrutiny of the ER-1 returns filed by appellant for the different periods, it was noticed by the department that the appellant had availed input service tax credit based on the ISD invoices issued by their Head office at Bangalore. The Head office at Bangalore has obtained registration as Input Service Distributor (ISD) for distribution of credit in terms of Rule 7 of CCR, 2004. 3. On verification, it appeared that the input service credit distributed through ISD invoices pertains to various services viz; advertising charges, business auxiliary services, commission charges, courier charges, consultancy fees, freight charges, insurance premium, IT software charges, maintenance charges, professional charges, recruitment charges, rental charges, telephone charges, training charges, warranty charges, etc., and these services according to department did not qualify as input services in terms of definition of 'input services' under Rule 2(l) of CCR, 2004. The department was of the view that input services on which credit was availed were not integrally connected with the manufacture of final product and did not have nexus with the process of manufacture of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of credit availed on input services as per the Cenvat Credit Rules, 2004 (CCR). 6.2 The Manufacturing unit of the Appellant receives certain input services directly and takes credit of service tax paid on such input services. Apart from this, the Manufacturing unit also takes credit on the basis of ISD invoices issued by the corporate office. 6.3 In this background, Periodical Show Cause Notices were issued to the Manufacturing Unit in Puducherry, proposing to deny input services credit taken by the manufacturing unit on the basis of ISD invoices issued by the head office in Bengaluru alleging that the input services lack nexus to manufacturing activity, and that credit has been availed on service tax paid on common services consumed for trading also. 6.4 It is submitted that the Appellant denies all the allegations made by the Department. The eligibility of credit taken and distributed by the Input Service Distributor has to be decided by the formation having jurisdiction over the corporate office and not over the manufacturing unit of the Appellant situated at Puducherry. It is submitted that the eligibility of input services is not to be ascertained at the factory level both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E.L.T. 3 (S.C.). Therefore, the eligibility of credit distributed has to be determined at the end of the ISD distributor or else, it would lead to multiple proceedings initiated by different officers having jurisdiction over each recipient's unit. 6.9 The Service tax invoices and details of services received at Bengaluru would only be available with the corporate office and not with the manufacturing unit. The Manufacturing unit at Puducherry cannot be compelled to do the impossible act of justifying the eligibility of credit taken and the manner of distribution adopted by the corporate office in Bengaluru. The proper officer having jurisdiction over the corporate office/ ISD would be best suited to determine the eligibility of such credit as the necessary details would only be available with the corporate office. Therefore, requiring the recipient of distributed credit to prove the eligibility of credit taken by the distributor goes against the doctrine of impossibility (Lex non Cogit Ad impossibilia) which stipulates that law does not compel someone to do a thing which is impossible. 6.10 Therefore, on the basis of principle of comity and doctrine of impossibility, it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utive cannot be denied the prerogative to propose an interpretation, it must subordinate itself to judicial decisions The fastening of liability that flies in the face of decided interpretation is certainly beyond the pale of legality In Hansraj Gordhandas v. HH Dave, Asst Collector of Central Excise [AIR 1970 SC 755], the scope for interpretation has been restricted thus "It is an application of this principle that a statutory notification may not be extended so as to meet a casus omissus. As appears in the judgment of the Privy Council in Crawford Spooner "...we cannot and the Legislature & defective phrasing of the Act, we cannot add and mend, and by construction, make up deficiencies which are left there." But the operation of the notifications has to be judged not by the object which the rule making authority had in mind but by the words which it has employed to effectuate the legislative intent." 13. Furthermore even if the proposition in the circular were to be considered as kindergarten steps in yet to be tried in the crucible of judicial interpretation, it lacks the rigour of jurisprudential interpretation as laid down by Kelsen, which was taken note of by the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self to filling that gap. The consequence of short-payment, if any. is not enforceable in the light of this unfilled gap [Emphasis supplied] 6.13 In light of the above, the Ld. Counsel submitted that Impugned Orders lack jurisdiction in as much as it seeks to recover credit taken by the recipient manufacturing unit at Puducherry, based on invoices issued by the Input Service Distributor at Bengaluru. 7. Submission on Merits : - Without prejudice to the arguments advanced on the jurisdiction of the department to issue Show Cause Notice against the appellant manufacturing unit situated at Puducherry, alleging that the credit availed and distributed by the ISD (Head office) at Bengaluru is without jurisdiction, the Ld. Counsel put forward argument contending that the credit availed on the various input services is legal, proper and eligible. The Submissions on eligibility of input services are split into three parts as mentioned herein below: (i) Credit availed on input services disputed by the Department only on the ground of alleged lack of nexus to manufacture. [Appeal Nos. E/410/2012 & E/41384/2013] (ii) Credit availed on input services disputed by the Department on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Tribunal in Reliance Industries Ltd. v. Commr. Of C.Ex. & ST (LTU), Mumbai - 2022 (60) G.S.T.L. 442 (Tri.- LB). * Furthermore, during the disputed period, the definition of input services under Rule 2(l) of CCR contained the term 'activities in relation to business'. Therefore, the disputed services are eligible input services as per Rule 2(l) of the CCR. Further, the disputed input services have been allowed/not disputed in the subsequent period orders passed. * In light of the above, the Impugned Order merits to be set aside. E/41384/2013 The allegation is that the input services have no nexus with manufacturing activity and therefore can only relate to trading. As there was no nexus with manufacturing activity, it was held that the services are not input services in terms of Rule 2(l) of CCR. For this, the Impugned Order relies on the decision of the Hon'ble Supreme Court in Maruti Suzuki (2009 (240) E.L.T. 641 (S.C.). * The test of nexus with manufacturing is not applicable for determining eligibility of input services under Rule 2(l) of CCR. * The submissions made with respect to Appeal No. 410/2012 in relation to applicability of nexus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 (5) G.S.T.L 225 (Mad.) that the formula prescribed under Rule 6(3) is applicable even for the period prior to 01.04.2011. Thereby, the credit cannot be denied in entirety under Rule 3 of CCR, 2004. The demand is raised under Rule 3 of the CCR and not under Rule 6 of the CCR. On this ground alone, the Impugned Order merits to be set aside. B.4 Without prejudice, even going by the workings relied by the Department while issuing the SCN, out of the total credit of Rs.7,93,09,911/- only Rs. 2,46,13,872/- pertains to trading activity. Therefore, a sum of Rs.5,44,68,961/- (excluding credit pertaining to other income) is available to the corporate office for distribution. Hence, the Impugned Order merits to be set aside on this account as well. (Annexure - II to SCN at pg. no. 215 of Volume-II to Typedset of Annexure to Appeal No. E/411/2012] 10. Category 3: Credit availed on input services which have been disputed by the Department in the initial years but allowed in the subsequent years. [Appeal Nos.E/41478, 41479/2015, E/42303/2015, E/41132, 41133, 41134/2016, E/41662/2016, E/41852/2017] A. The allegation in the SCNs is that the disputed services are not eligible input services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the threshold itself, the Department had accepted that the service is an eligible input service and had not disputed the same. [Please refer to pg. 53 of Appeal No. E/41852/2017] Therefore, credit pertaining to Training services merits to be allowed. In any case, Coaching & Training services is one of the services mentioned expressly in the inclusive portion of the definition of input services under Rule 2(l) of CCR. 6 Courier services Held to be ineligible input service in Impugned Orders in Appeal Nos. E/41478, 41479/2015 & E/42303/2015. However, held to be eligible in subsequent period orders in Appeal Nos. E/41132, 41133, 41134/2016 & E/41662/2016. [Para No. 17.4 at Page No. 94 of Appeal No. E/41662/2016] 7 Credit Rating services Disputed in Impugned Order in Appeal No. E/41852/2017 and held to be an eligible input service in the same order. [Para No. 20 at pg. no. 79 of Appeal No. E/41852/2017] 8 Custom House Agent services Held to be an eligible input service in Impugned Orders in all the Appeals. [Para No. 17.3 at Page No. 93 of Appeal No. E/41662/2016] 9 Factory expenses Disputed in Impugned Order in Appeal No. E/41478, 41479/2015 and held to be an eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 and held to be an eligible input service in the same order. [Para No. 17.14 at Page No. 94 of Appeal No. E/41132, 41133, 41134/2016] 19 Research charges Held to be ineligible input services in Impugned Order in Appeal Nos. E/41478, 41479/2015. However, held to be eligible in subsequent period orders in Appeal Nos. E/41132, 41133, 41134/2016 & E/41662/2016. [Para No. 17.15 at Page No. 105 of Appeal No. E/41662/2016] 20 Sales commission Held to be ineligible input services in Impugned Order in Appeal Nos. E/41478, 41479/2015 & E/42303/2015. However, held to be eligible in subsequent period orders in Appeal Nos. E/41132, 41133, 41134/2016 & E/41852/2017. [Para No. 18.5 at pg. no. 75 of Appeal No. E/41852/2017] 21 Sales promotion services Held to be ineligible input services in Impugned Order in Appeal Nos. E/41478, 41479/2015 & E/42303/2015. However, held to be eligible in subsequent period orders in Appeal Nos. E/41132, 41133, 41134/2016 & E/41662/2016. [Para No. 17.12 at Page No. 100 of Appeal No. E/41662/2016] 22 Security services Disputed in Impugned Order in Appeal Nos. E/41478, 41479/2015 and held to be an eligible input service in the same order. [P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2015, E/42303/2015, E/41132, 41133, 41134/2016, E/41662/2016, E/41852/2017] A. Housekeeping Services: [Para no. 11.17 at page no. 94 of Appeal Nos. E/41132, 41133, 41134/2016] A.1 It is submitted that housekeeping services are eligible input services under Rule 2(l) of the CCR and credit ought to be allowed on the same. Housekeeping services of both factory and office have been held to be an eligible input service. A.2 In the case of M/s. Indian Additives Limited v. Commissioner of GST and Central Excise, Chennai North Commissionerate - 2022 (11) TMI 338- CESTAT Chennai, the Hon'ble Tribunal held housekeeping services in relation to office to be eligible stating that office is an integral part of the Appellant's business and engages in administrative work in respect of the factory. A.3 Further, reliance is placed on the following cases wherein housekeeping was held to be an eligible service: (i) Orient Bell Limited v. Commissioner of Central Excise, Noida- 2017 (52) S.T.R. 56 (Tri. - All.) (ii) Temenos India Private Limited v. Commissioner of Service Tax, Chennai - 2020 (2) TMI 354 A.4 Without prejudice, it is submitted that with respect to Appeal No. E/41162/2016, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The demand has been raised invoking Rule 14 of CCR, 2004 read with subsection (1)/proviso to subsection (1) of Section 11(A) of Central Excise Act, 1944. It is submitted that as per Rule 14 of CCR, 2004, the demand can be raised against the assessee who has wrongly taken and utilized the credit. The Bangalore Head office is not able to utilise the credit. It is the appellant -manufacturing unit situated at Puducherry which has utilized the in eligible credit for payment of duty/tax. This being so, the demand raised against the appellant is with proper jurisdiction. To support this argument the Ld. Counsel relied on the decision rendered by Tribunal in the case of Clariant Chemicals India Ltd vs. Commissioner of Central Excise [2015-TIOL-2510 Cestat (Mum)]. 13.2 On merits, the Ld. Authorized Representative submitted as under:- A. The appellant accumulated CENVAT credit in their Bangalore office, which was doing both trading as well as rendering services. In Bangalore they were availing credit on certain input services which were used in manufacturing activity at other unit. Their Bangalore office had transferred by a single invoice an amount of Rs.4.12 crores to their factory at P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting, auditing, financing recruitment and quality control, coaching and training computer networking. credit rating, share registry, security, business exhibition, legal services, Inward transportation of inputs or capital goods and outward transportation up to the place of removal, but excludes services." E. From the above, it is very clear that to qualify as input services, input service should be used in or in relation to the manufacture of the final product and the input services must be integrally connected with the manufacture of the final product. Further there should be a nexus between the input service and the goods manufactured. F. The argument of the appellant that the ISD office distributed the credit and hence, the input tax which is distributed has already acquired the nature of credit at the ISD level itself and therefore the eligibility of such CENVAT Credit can be questioned only by the tax authorities under whose jurisdiction the input service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the services pertaining to trading activity is not in order as per Rule 3 of CCR, 2004 and liable to be recovered. As the appellant had availed wrong credit by suppressing the fact with intention to evade payment of duty equal penalty was imposed for contravention of Rule 15(1) of Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. 13.3 It is submitted that the appeals may be dismissed. 14. Heard both sides and perused the records carefully. 15. The first point argued by the Ld. Counsel for appellant is that Show cause notices issued to the appellant- manufacturing unit at Puducherry is without jurisdiction. The Head office situated at Bangalore is registered as ISD and thus distributed the credit to the appellant in terms of Rule 7 of CCR, 2004. The definition of input service Distributor in Rule 2 (m) of CCR reads as under: "m) input service distributor" means an office of the manufacturer or producer of final products or provider 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 distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CENVAT credit wrongly taken or erroneously refunded. - (1) (i) Where the CENVAT credit has been taken wrongly but not utilised, the same shall be recovered from the manufacturer or the provider of output service, as the case may be, and the provisions of section 11A of the Excise Act or section 73 of the Finance Act, 1994 (32 of 1994), as the case may be, shall apply mutatis mutandis for effecting such recoveries; (ii) Where the CENVAT credit has been taken and utilised wrongly or has been erroneously refunded, the same shall be recovered along with interest from the manufacturer or the provider of output service, as the case may be, and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, 1994, as the case may be, shall apply mutatis mutandis for effecting such recoveries." 15.4 From Rule 14, as above it is clear that the wrongly availed credit is to be recovered from the manufacturer/ service provider. Rule 14 uses the words 'taken and utilised wrongly'. Later, in 2008, the word 'and' was substituted with 'or'. It has to be stated that, whether be it 'AND' or 'OR' the demand can be made against the appellant-manufacturer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficulty of the trade, the concept of input service distributor was envisaged wherein a person having various manufacturing units or branch offices etc. would receive the invoices pertaining to services at one place i.e. offices and thereafter distribute the credit of service tax to various manufacturing units. Thus legally ISD as also its manufacturing unit is single legal entity. To our mind, the learned counsel is unnecessarily trying to bifurcate the ISD office and the manufacturing unit as two different distinct and legal entities. The situation is like the brain of a human being controlling different parts of the body, say hand. Similarly, here the head office would normally be controlling different manufacturing units or branch offices. Thus the distinction between the location of ISD and that of manufacturing unit itself is immaterial. Credit is finally availed and utilized by the manufacturing unit. What learned counsel is trying to say is that show cause notice should be issued to head as hand has acted as per the direction of head. In our view, as rightly pointed out by learned AR, cause of action stands with availment and utilization of credit at the manufacturing unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod after 01.04.2011 it can be seen that in the appellant's own case the credit availed on all services, except Housekeeping services and AMC/warranty services have been allowed. The department having allowed the credit for certain period cannot deny credit for other subsequent/different periods. 17.1 It is submitted by the appellant that Housekeeping services were availed for the Housekeeping of both factory and office premises. These services are availed to keep the premises in a clean and hygienic manner. The Tribunal in the case of M/s Indian Additives Limited (supra) 2022(11) TMI 338 -CESTAT Chennai, held that the services availed for cleaning the office/ factory premises is eligible for credit. 17.2 The reason for denying the credit on warranty charges is that, the invoice does not separately show the service tax component. There can be no denial of the fact that service is involved while discharging warranty service. The warranty and AMC are provided by common service provider Authorised Sales Provider (ASPs) and would be an eligible input service. 17.3 Another allegation is that the credit is availed on exempted services (trading). The case of the department is that ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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