Custom, Excise & Service Tax Tribunal
Kirloskar Toyota Textile Machinery Pvt ... vs Bangalore-I on 12 March, 2026
Central Excise Appeal No. E/20051/2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 2
Central Excise Appeal No. 20051 of 2015
(Arising out of Order-in-Original No. 33&34/2014 dated 30.09.2014 passed
by the Commissioner of Central Excise, Bangalore.)
M/s. Kirloskar Toyota Textile
Machinery Pvt. Ltd.
Plot Nos. 10-13, Phase 2,
Jigani Industrial Area,
Anekal Taluk,
Bangalore - 562 106. ..........Appellant(s)
Versus
Commissioner of Central Excise
Bangalore - I Commissionerate,
C.R. Building, Queen's Road,
Post Box No. 5400,
Bangalore - 560 001. ........Respondent(s)
APPEARANCE:
Mr. T. Suryanarayana, Sr. Advocate for the Appellant. Mr. M. A. Jithendra, Asst. Commr. (AR) for the Respondent.
CORAM:
HON'BLE MR. P.A. AUGUSTIAN, MEMBER (JUDICIAL) HON'BLE MR. PULLELA NAGESWARA RAO, MEMBER (TECHNICAL) Final Order No. 20284 /2026 Date of Hearing: 19.09.2025 Date of Decision: 12.03.2026 PER: P.A. AUGUSTIAN The issue in the present appeal is whether appellant is eligible for CENVAT credit as availed by them.
2. Appellant is manufacturing textile machinery in DTA and also having a 100% EOU unit in Bangalore manufacturing automobile parts classified under CETH 8708 and a trading unit issued with registration.
Page 1 of 11Central Excise Appeal No. E/20051/2015 All the three units are situated in the same compound. During course of investigation, it is found that Appellant had utilized common input services for all the units including 100% EOU Unit and the activity of trading. Thus, alleging that the services on which they have availed input credit do not qualify as input services as per the definition of Rule 2(1) of the CENVAT Credit Rules, 2004, proceedings were initiated and show cause notice dated 07.05.2013 was issued for the period from 2008-09 to 2012-13 up to December and a second show cause notice was issued on 04.02.2014 for the period from January 2013 to December 2013. Thereafter Adjudication Authority as per the impugned order dated 30.09.2014 disallowed the credit and confirmed the duty. Against first Show Cause Notice, Adjudication Authority imposed penalty also. Aggrieved by said order, present appeal is filed.
3. When the appeal came up for hearing, the Learned Sr. Counsel for the Appellant draw our attention to Rule 5 of the CENVAT Credit Rules and Rule 6 of the CENVAT Credit Rules, 2004. As regarding central tax registration, the Learned Sr. Counsel draw our attention to the communication made by them on 08.06.2011 regarding surrender of the service tax registration being used for 100% EOU on the ground that they have received central service tax registration from the Department for the registration and submitted that the CENVAT credit balance in this registration will be clubbed with centralized registration and utilized for payment of tax liability arising on sale of their products and rendering of services from the said premises.
4. The Learned Sr. Counsel further draws our attention to the letter dated 12.07.2011 regarding consolidating central excise and service tax, CENVAT credit balances where they have informed that central tax registration for other two units. Further Learned Sr. Counsel draws our attention to the show cause notice dated 07.05.2013 and submits that entire allegation is made on the ground that appellant has availed CENVAT credit on the strength of the input service invoices addressed to their DTA unit though the services were used commonly in relation to all the three activities viz., the manufacturing activity of DTA unit, Page 2 of 11 Central Excise Appeal No. E/20051/2015 manufacturing activity of 100% EOU unit as well as the activities relating to the trading unit. Even demand for extended period confirmed on the ground that irregular availment of input service tax credit came to the notice of the department only during the course of audit and appellant have wilfully contravened the provisions of CENVAT Credit Rules, 2004 with intent to evade payment of duty. In this regard, Learned Sr. Counsel submits that from inception, they have been following the method of centralized billing and accounting system for all the units, they opted for centralized registration under Rule 4(2) of the Service Tax Rules, 1994 and the same was granted as evident from letters dated 8 June 2011 and 12th July 2011. They not only brought to the notice of the Department the fact of their opting for centralized registration but also informed that the cenvat credit of both the units are being clubbed and consolidated and are being availed and utilized for payment of excise duty or service tax as the case may be. Learned Sr. Counsel also draw our attention to CBEC Circular No.799/32/2004- CX dated 23.09.2004 and submits that they can avail input credit and utilize the credit for payment of duty on DTA clearances. As regarding the utilization of CENVAT credit of EOU by DTA, Learned Sr. Counsel draw our attention to the decision of this Tribunal in the matter of M/s ECOF Industries (P) Ltd. Vs. Commissioner of Central Excise, Bangalore - 2009 (23) STT 381 (Bang. - CESTAT) / 2010 (17) STR 515 (Bangalore - CESTAT), where it is held that:-
"5. After hearing both sides, we find that the rule 3 merely says that a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of any input services received by the manufacturer of such final product or provider of output services. The availability of credit therefore is related to the manufacturer of goods or provider of output services as a whole and not restricted to any particular unit of the manufacturer/service provider.
6. The rule 7 referred to by the id. Advocate reads as follows:-
"7. Manner of distribution of credit by input service distributor. The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following condition, namely:-
(a) the credit distribution against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or Page 3 of 11 Central Excise Appeal No. E/20051/2015
(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".
7. Para 2.3 of the Master Circular referred to by the Id. Advocate reads as under:
"2.3 An input service distributor' is an office or establishment of a manufacturer of excisable goods or provider of taxable service. It receives tax paid invoices/bills of input services procured (on which Cenvat credits can be taken) and distributes such credits to its units providing taxable services or manufacturing excisable goods. The distribution of credit is subject to the conditions that,
(a) the credit distributed against an eligible document shall not exceed the amount of service tax paid thereon, and (b) credit of service tax attributable to services used in a unit either exclusively manufacturing exempted goods or exclusively providing exempted services shall not be distributed. An input service distributor is required (under section 69 of the Act, read with Notification No. 26/2005-ST) to take a separate registration."
8. The combined reading of the rule 7 and the clarificatory circular dated 23-8-2007 clearly shows that there are only two restrictions regarding the distribution of the credit. The first restriction is that the credit should not exceed the amount of service tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules, the restrictions sought to be applied by the Department in this case in limiting the distribution of the service tax, credit made in respect of the Malur Unit on the ground that the services were used in respect of the Cuttack Unit finds no mention in the relevant rules. As such, restricting the distribution of service tax credit in a manner as has been done by the impugned order of the lower appellate authority (original authority had approved of such distribution) cannot be upheld. In case the Department wants to place such restriction as is sought to be placed in the case, the rule is required to be amended.
9. In view of the foregoing, we allow all the three appeals".
5. The said decision was upheld by the Hon'ble High Court of Karnataka in the matter of Commissioner of Central Excise, Bangalore I Commissionerate Vs. M/s ECOF Industries (P) Ltd.- [2011] 16 taxmann.com 3 (Karnataka) / [2012] 34 STT 327 (Karnataka) / [2012] 34 STT 33 (Karnataka), where it is held that:-
"4. The assessee had availed the service tax credit based on the invoices issued by the Chennai office indicating that the service tax are taken by their unit at Malur. That the service tax paid by the Chennai Page 4 of 11 Central Excise Appeal No. E/20051/2015 unit pertains to advertisement of their product 'Sabena Dish Wash Bar' which was manufactured by their Cuttack Unit and not by the unit at Malur. Therefore, the assessee was dealing with the very same product. Rule 7 of the Cenvat Credit Rules governs procedure/manner of distribution of credit by input service distributor by imposing two conditions therein, which are as follows:
"a. Credit distributed under the invoice of ISD does not exceed the amount of Service Tax paid, b. Credit of Service exclusively used for exempted goods or exempt service is not distributed".
5. Therefore, the assessee is entitled to distribute the cenvat credit on the input services on its manufacturing unit or other units providing the output services. The view taken in the order in appeal that the distribution of credit is for the advertisement of the product, which is not at all manufactured at Malur unit, therefore, cannot be accepted The finding recorded by the Appellate Authority that the assessee is entitled to take credit only in the unit where the product is manufactured is therefore not the mandate of Rule 7 of the Cenvat Credit Rules".
6. Learned Sr. Counsel relied on the following decisions:-
(i) Doshion Ltd. Vs. CCE, Ahmedabad (2013) 288 ELT 291 - CESTAT Ahmedabad.
(ii) Tecumseh Products India P. Ltd. Vs. CC, CE&ST, Hyderabad (2016) 336 ELT 685.
7. Learned Sr. Counsel further submits that the Appellant had rightly availed the entire credit in DTA unit as they have centralized billing and accounting 100% EOU and DTA units are registered separately and credit pertaining to their respective units is required to be availed in the respective units only. Thus, without verifying relevant documents, it is not possible to findout whether the credit availed whether it is regular or authorized. Further the finding in the impugned order that the appellant have suppressed the fact of wrongly availing the CENVAT credit pertains to their 100% EOU in their DTA unit and have willfully contravened the provisions of Central Credit Act, 2004 is factually wrong and it is sustainable. As regarding the eligibility of the Appellant to avail the CENVAT credit which is denied by the Adjudication authority, Learned Sr. Counsel submits the following chart against each category of services and submits that the Appellant rightly made claim Page 5 of 11 Central Excise Appeal No. E/20051/2015 regarding the input credit and no demand can be confirmed alleging ineligible CENVAT credit as availed by the Appellant.
8. As regards Agency commission (for sale of machinery) the Cenvat credit denied for the period from 01.04.2008 to 31.12.2012 is Rs. 18,94,876/- and from 01.01.2013 to 31.12.2013 is Rs. 20,75,135/- (i.e., Total 39,70,011/-). Learned Sr. Counsel submits that the commission is paid to agents for procuring orders for sale of the textile machinery on the basis of which they undertake the production and dispatch of the machinery. Adjudication Authority denied the Cenvat credit following judgment in the matter of M/s. Cadila Healthcare Limited vs. Union Of India reported in 2013 (30) 5.T.R. 3 (Guj.), where Hon'ble High Court of Gujarat has held that "Agents were directly concerned with sales rather than sales promotion Services provided by them was neither 'Business Auxiliary Service' under Sections 65(19) and 65(105)(zzb) of Finance Act, 1994, nor were they covered in main or inclusive part of definition of input service in Rule 2(l) of Cenvat Credit Rules, 2004 It was not used directly or indirectly in or in relation to manufacture of final products or clearance of final products from place of removal. Learned Sr. Counsel submits that said judgment is reversed by Hon'ble Supreme Court in the matter of M/s. Zydus Lifesciences Ltd. Vs. Commissioner of Central Excise, Ahmedabad 2023 (13) Centax 93 (SCH-Supreme Court ISC has reversed the judgment of Gujarat HC in Cadila Health and remanded the matter for fresh consideration) and also relied on the CBEC Circular vide F. No. 96/85/2015-CX1, dated 7-12-2015 and following case laws:-
i. Pr. Commr. Of C. Ex., Kolkata-IV v. Himadri Speciality Chemical Ltd. 2022 (66) G.S.T.L. 264 (Cal) ii. Liebherr Machine Tools india (P) Ltd. v. C.C.E., Cus. & S.T, Bangalore-il 2016 (44) ST.R. 633 (Tri-Bang).
9. As regards Commercial or Industrial construction, the Cenvat credit denied, Learned Sr. Counsel submits that they have availed Page 6 of 11 Central Excise Appeal No. E/20051/2015 service towards installation of steel panel in dye wash room which is part of machinery and charges are paid to M/s. AMBIENT CONTROLS PVT. LTD. Adjudication Authority denied the Cenvat credit on the ground that The Commercial or Industrial Construction Service for Civil Structure falls under exclusion clause as the same is used for laying of foundation or making structures for support of capital goods, the said service does not qualify as input service. Learned Sr. Counsel further submits that definition of 'input services' inter-alia includes services used in relation to modernisation, renovation or repairs of a factory etc. Since the services in question are in relation to a machinery i.e. part of the factory, appellant is eligible for credit.
10. As regarding Consulting Engineer service, the Cenvat credit was denied for the period from 01.04.2008 to 31.12.2012. In this regard, Learned Sr. Counsel submits that the service is towards Design & Project management consultancy charges paid to STUP CONSULTANTS for construction of new factory of PHASE III of the factory premises. Adjudication Authority denied the credit on the ground that Prior to 01.04.2011, the definition of input service was including "the services for setting up, renovation, modernisation of factory premises" and not for construction of new factory. After 01.04.2011, the definition of input service was including "the services for modernisation, renovation or repairs to factory premises" and the exclusion clause was including "(a) construction of a building or a civil structure or a part thereof. Thus the appellant is eligible for said credit under Consulting Engineer service. Learned Sr. Counsel relied on the following case laws;
i. Pepsico India Holdings (Pvt.) Ltd. v. CCT 2022 (56) GS.T.L. 22 (Tri-Hyd.) ii. (Mangalam Cement Ltd. v. Commissioner of Central Goods, Excise and Service Tax (2024) 24 Centax 38 (Tri-Del.)
11. As regards Architect Service the Cenvat credit denied for the period from 01.04.2008 to 31.12.2012 is Rs. 1,00,491/- and from Page 7 of 11 Central Excise Appeal No. E/20051/2015 01.01.2013 to 31.12.2013 is Rs. 6,765/- (i.e., Total Rs. 1,07,256/-). Learned Sr. Counsel submits that the appellant paid amount to M/s. Hariyalee Landscapes towards maintenance of garden at office and factory premises. Adjudication Authority denied the Cenvat credit on the ground that maintenance of garden, covered under the exclusion to Rule 2(l)(ii) of CCR, 2004. Learned Sr. Counsel submits that this issue is also covered in the judgment of CCE Vs. Millipore India Ltd. 2012 (25) STR. 514 (Kar).
12. As regarding Club or Association the Cenvat credit denied for the period from 01.04.2008 to 31.12.2012 is Rs. 63,771/- and from 01.01.2013 to 31.12.2013 is Rs. 25,970/- (i.e., Total Rs. 89,741/-) Learned Sr. Counsel submits that they have availed service towards Membership fee paid to Trade and Industrial Associations like Textile Machinery Manufactures Association (India) and others, which are essential to keep updated about the latest trends and technologies in manufacturing and business activities and also for promoting the products. Adjudication Authority denied the Cenvat credit on the ground that ineligible input services as per exclusion clause of Rule 2(l)(ii) of CCR, 2004. Learned Sr. Counsel relied on the following case laws; i. Hinduja Foundries Ltd. v. CCE 2016 (42) STR. 494 (Tri-
Chennai) ii. Sony Pictures Networks India Pvt. Ltd. v. Commissioner of Service Таx, Mumbai-VI (2024) 20 Centax 472 (Tri-Bom) (Para 12) which is affirmed by Bombay HC
13. As regards Convention Services the Cenvat credit denied for the period from 01.04.2008 to 31.12.2012 of Rs. 9,912. Learned Sr. Counsel submits that they have availed service on delegation fee paid to Confederation of Indian Industry (CII) towards seminars conducted by them as a part of coaching and training. Adjudication Authority denied the Cenvat credit on the ground that Convention service is not defined under CCR 2004, thus not eligible. Learned Sr. Counsel relied on the Hinduja Foundries Ltd. v. CCE 2016 (Supra) and Sony Page 8 of 11 Central Excise Appeal No. E/20051/2015 Pictures Networks India Pvt. Ltd. v. Commissioner of Service Так, Mumbai-VI (Supra).
14. As regards 'Works Contract' the Cenvat credit denied for the period from 01.01.2013 to 31.12.2013 is Rs. 11,375/-. Learned Sr. Counsel submits that appellant provided services in respect of cooling power piping systems in the Appellant's factory. Adjudication Authority denied the Cenvat credit on the ground that the said services are towards capital goods, hence in not eligible. The claim is made only on the Service portion in a works contract in relation to building / construction of civil structure for the support of capital goods is not excluded from the definition of input, thus eligible for credit.
15. The Learned Sr. Counsel also relied on large number of decisions and submits that the demand confirmed by invoking the extended period is also unsustainable. Learned Sr. Counsel draws our attention to the decision of this Tribunal in the matter of Rose Bed Rolls Vs. CC CE&ST, Cochin (Order dated 15.10.2024 in S.T. Appeal No. 823 of 2010) - CESTAT Bangalore vide Final Order No. 21002/2024. Learned Sr. Counsel also draws our attention to the judgment of the Hon'ble Supreme Court in the matter of Cosmic Dye Chemical Vs. Collector of Central Excise, Bombay (1995) 6 SCC 117 - Supreme Court.
16. Learned Authorized Representative (AR) for the revenue draws our attention to the finding in the impugned order and the Rule 4(2) of the CENVAT Credit Rules, 2004. Rule 4(2) of the Service Tax Rules, 1994 provides for Centralized Registration. As per the said provision, where a person liable for paying service tax is having more than one premises or offices and has centralized billing system or centralized accounting system and such centralized billing or accounting system are located in one or more premises, he may, at his option register such premises or offices from where centralized billing or accounting system are located. Thus, it is clear that Centralized Registration is granted in a case where there are more than one premises of the same assessees Page 9 of 11 Central Excise Appeal No. E/20051/2015 but billing and accounting is centralized. Therefore, this facility is for payment of service tax. But the procedure of availing the credit on all the input services received in their DTA unit is wrong and the appellant is not eligible to avail the credit in their DTA unit on input services rendered in their 100% EOU, since the DTA Unit and the EOU unit are required to avail and utilize the Cenvat Credit separately with regard to Input Services actually received by them. Learned AR also draw our attention to the relevant provisions of Cenvat Credit Rules, 2004 which states as reproduced below :-
"Cenvat Credit Rules, 2004:
Rule 9 Sub Rule (2): No CENVAT credit under sub-rule(1) shall be taken unless all the particulars as prescribed under the Central Excise Rules, 2002 or the Service Tax Rules, 1994, as the case may be, are contained in the said document:
Provided that if the said document does not contain all the particulars but contains the details of duty or service tax payable, description of the goods or taxable service, assessable value, Central Excise or Service tax Registration number of the person issuing the invoice, as the case may be, name and address of the factory or warehouse or premises of first or second stage dealers or provider of taxable service, and the Deputy Commissioner of Central Excise or the Assistant Commissioner Central Excise, as the case may be, is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit;"
Thus, it is amply clear that the manufacturer or output service provider, who receives the input services, shall take the credit. Since the Appellant has not used the inputs for manufacturing activity, Appellant is not eligible for availing the CENVAT credit as claimed by them. As regards eligibility of the appellant to claim the credit against each service, Learned AR reiterated the finding in the impugned order.
17. Heard both sides and perused the records. As regards utilization of the cenvat credit, we find that the issue was considered by this Tribunal in the matter of M/s. ECOF Industries (supra) where it is held that combined reading of the Rule 7 and the clarificatory Circular Page 10 of 11 Central Excise Appeal No. E/20051/2015 dated 23-8-2007 clearly shows that there are only two restrictions regarding the distribution of the credit. The first restriction is that the credit should not exceed the amount of service tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules, the restrictions sought to be applied by the Department in this case in limiting the distribution of the service tax. Since appellant have obtained central service tax registration and informed to the concerned authority regarding utilization of the credit from time to time. Fact being so, alleging illegality in utilization of the credit and demand is unsustainable. Further as regards allegation of ineligible cenvat credit availed against each services, we find that the issues are covered by the decisions as relied by the appellant including the judgment of the Hon'ble Supreme Court in the matter of M/s. Zydus Lifesciences Ltd. (supra), appellant is eligible for the cenvat credit as claim by them. In view of the above discussion, the impugned order is unsustainable and liable to be set aside.
18. Accordingly, impugned order is set aside and the appeal is allowed with consequential relief, if any, in accordance with law.
(Order pronounced in Open Court on 12.03.2026.) (P. A. AUGUSTIAN) MEMBER (JUDICIAL) (PULLELA NAGESWARA RAO) MEMBER (TECHNICAL) hr/Sasi Page 11 of 11