Custom, Excise & Service Tax Tribunal
M/S. Itc Limited vs Commissioner Of Central Excise C.R. ... on 12 July, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/253/2012 (Arising out of Order-in-Original No.24/2011 dated 31.10.2011 passed by the Commissioner of the Commissioner of Central Excise, Bangalore-II.) For approval and signature: HON'BLE SHRI S.S. GARG, JUDICIAL MEMBER HON'BLE SHRI ASHOK K. ARYA, TECHNICAL MEMBER 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes M/s. ITC Limited Meenakunte Village, Jala Hobli, Bangalore 562 157. Appellant(s) versus Commissioner of Central Excise C.R. Bangalore-II Commissionerate, CR Building, Queens Road, Bangalore 560 001. Respondent(s)
Appearance:
Mr. K. S. Ravi Shankar, Sr. Advocate & Mr. Anirudh, Advocate For the Appellant Mr. Parashiva Murthy, (AR) For the Respondent Date of Hearing: 04/07/2016 Date of Decision: 12/07/2016 CORAM:
HON'BLE SHRI S.S. GARG, JUDICIAL MEMBER HON'BLE SHRI ASHOK K. ARYA, TECHNICAL MEMBER Final Order No. 20540_ / 2016 Per : Ashok K. Arya The appellant viz., ITC Limited, Bangalore is before this Tribunal aggrieved with the Order of the Commissioner of Central Excise, Bangalore-II whereunder CENVAT credit of Rs.3,25,80,308/- was held as inadmissible and the demand of the said inadmissible CENVAT credit was confirmed along with interest, and equivalent penalty was also imposed.
2. The appellant has been represented by the learned Sr. Advocate, Shri K. S. Ravi Shankar, who has inter alia pleaded as below:
* The appellant submits that the credit of service tax on all the input services in question was legitimately available and is admissible under the Cenvat Credit Rules, 2004 and would not be questioned in view of their distribution having been made from the same entitys identity (ILTD, being their own division) of the same company-appellant (legal entity).The ILTD having been duly registered under Rule 2(m) read with Rule 7 of the Cenvat Credit Rules and having distributed eligible input service credit under Rule 2(l), denial of credit was erroneous.
* The Leaf Tobacco Division (ILTD) being the Input Service Distributor (ISD) of the very same company which owns and runs both the division and the factory, the Ld. Lower authority was in grave error in treating the ILTD as a separate entity. This grave error vitiates the show-cause notice dated 3.2.2011 and the impugned order which has no legs to stand upon in law.
* The Ld. Lower authority has grievously erred in not appreciating that the same legal entity (appellant) had been granted a registration as ISD under the Cenvat Credit Rules as evident from p.62 of the appeal petition which enumerated the name of the entity, its identity at Guntur as Leaf Tobacco Division apart from the addresses of various premises to which the credit was to be distributed that included the address of the factory in Bangalore of the appellant. This certificate dated 8.2.2006 granted under the Finance Act and the Cenvat Credit Rules has never been questioned by the Revenue either at the place of registration (Guntur) or at Bangalore (factory) by the Central Excise authorities/service tax department. That being so the Respondent fell into grave error in denying credit and demanding cenvat credit/duty from the appellant.
* The above contention is also supported by the decision of the Tribunal in Integral Construction Co.: (17) S.T.R. 380 (Tri.-Bang.) and Vihar Ahar, 32 STR 563 (Tri.-Ahmd.). The impugned order passed by the Respondent is without jurisdiction since the distribution of credit by the ISD has not been questioned, nor has their status as an eligible distributor of eligible credit subjected to dispute by the Guntur Commissionerate.
* The Respondent erred in not appreciating that the supply chain of unmanufactured tobacco commences with the Leaf Tobacco Division buying leaf tobacco in auctions conducted by Tobacco Board, threshing and separation of such leaf and stem, packing and dispatch to the warehouses for onward transportation to the factories in Bangalore it is only such of those credits that are related to post threshing and separation activity at the ILTD which have been distributed and ought not to have been questioned or denied, since procurement of inputs for manufacture of cigarettes is inevitable for manufacture of cigarettes on which duty is paid. The order is therefore wrong in law.
* There is no evidence on record led by the Revenue to establish that the credits distributed relate to pre-threshing and separate activity done at the ILTD. The order is therefore based on specious theories and has no legal basis whatsoever, Assumptions and presumptions have run rife and conjectures and surmises have led the Respondent away from the path of justice delivery.
* The appellant submits that the lower authority has misconstrued the text and tenor of Rule 7 of the Cenvat Credit Rules by not appreciating that the rules permit in terms of the definition of ISD in Rule 2(m) an office of the manufacturer of final products to receive cenvatable invoices to distribute the credit to the manufacturer. In the present case, ITC Limited (Appellant) is the manufacturer in Bangalore, has an office in Leaf Tobacco Division in Guntur which distributed the credit and received invoices prescribed by Rule 4A of the Service Tax Rules, 1994 which were eligible for distribution. The Respondent has failed to take cognizance of Rule 2(m) and Rule 7 of the Cenvat Credit Rules which deal which definition of ISD and manner of distribution of credit. The entire proceedings are based on faulty perception of facts and law. In this connection, the appellant relies on the decision of the apex court in Goa Urban Cooperative Bank Ltd. vs. Noor Mohammed Sheik Musha and Anor, AIR 2004 SC 3886. It was held that the word office should be understood in the sense in common parlance/dictionary understands it. In para 15/16 ibid the Court held that contextually an office is a place or a building used for business or for conducting office work, regular transacting of business or performance of particular service. It would include a room, set of rooms or buildings used for business, clerical or administrative work. So as also the word godown was explained in para 14 ibid and the word warehouse in para 20. The Ld. Lower authority has brushed aside the above understanding in law of the word office. The order is therefore untenable.
* The appellant also relies on the decision of the Bombay High Court in CST vs. Indokem Pvt. Ltd. [1975] 37 STC 432 (Bom.) in which the companys head office and branch office were both the same assessee and were not different legal entities in the eyes of law or two separate legal entities. So also in Ecof Industries Pvt. Ltd. v. CCE: 2010 (17) S.T.R. 515 (Tri.-Bang.). It was held that a restriction cannot be applied in distributing service tax credit from one unit in Karnataka and another unit in Orissa. This decision was affirmed by Karnataka High Court in 2011 (271) ELT 58 (Kar.).
* The Respondent has ignored the Board Circular No.97/8/2008-ST dated 23.8.2007 and para 2.3 thereof in particular. This circular clarifies that ISD can be an office or establishment of the same manufacturer. The intent of law having been made clear by the Government of contemporaneous explanation by the Board could not have been ignored by the Respondent. The order is therefore is untenable.
2.1 The appellant has also produced the following flow-chart saying that they are rightly eligible to claim CENVAT credit of the service tax paid on input services of their Indian Leaf Tobacco Division (ILTD) located at Guntur.
2.2 The learned advocate, Mr. K. S. Ravi Shankar has also referred to provisions of Section 2(m), which gives the definition and meaning of Input Service Distributor (ISD), and Rule 7 of CENVAT Credit Rules, 2004. He has relied on the following case-laws in support.
* ECOF Industries Pvt. Ltd. vs. CCE, Bangalore: 2010 (17) S.T.R. 515 (Tri.-Bang.) * CCE, Bangalore-I vs. ECOF Industries Pvt. Ltd.: 2011 (271) E.L.T. 58 (Kar.) * ITC Ltd. vs. CCE, Bangalore: 2007 (208) E.L.T. 277 (Tri.-Bang.) * CCE, Bangalore-II vs. ITC Ltd.: 2010 (257) E.L.T. 514 (Kar.) * Commissioner vs. ITC Ltd.: 2013 (295) E.L.T. A64 (S.C.) * Ugam Chand Bhandari vs. CCE, Madras: 2004 (167) E.L.T. 491 (S.C.) * Commissioner of Sales Tax vs. Indokem Pvt. Ltd. by Bombay High Court decision dated 7th December 1974 * Goa Urban Co-operative Bank Ltd. vs. Noor Mohd. Sheikh Mussa and Another: AIR 2004 SUPREME COURT 3886.
3. The Revenue has been represented by learned AR, Shri Parashiva Murthy, who has inter alia argued as follows:
* Appellant is not eligible for the CENVAT Credit in respect of the input services in question as ILTD, Guntur is not the same as the appellant viz., ITC Ltd., Bangalore.
* Input Service Distributor, ILTD, Guntur is not manufacturing any excisable goods.
* Input services do not have direct or indirect nexus in relation to manufacture of final product.
* To support his submissions, he relied on the following case laws:
i. Fosroc Chemicals India Pvt. Ltd. vs. CCE, Bangalore-LTU: 2016 (42) S.T.R. 28 (Tri.-Ban.) ii. Mahindra & Mahindra Ltd. vs. CCE, Pune-I: 2013 (31) S.T.R. 667 (Tri.-Mumbai)
4. We have carefully considered the facts on record as well as the submissions of both the sides.
5. We find that for the identical facts, Revenue in two orders has dropped the proceedings against the appellant. One order in this regard has been passed by Additional Commissioner of Central Excise, Bangalore-II Commissionerate vide Order-in-Original No.49/2013 dated 29.11.2013 and another is passed by Commissioner of Central Excise (Appeals-I), Bangalore vide Order-in-Appeal No.44-45/2014-CE dated 31.1.2014. In both these orders, the appellant has been found to be eligible for claiming CENVAT credit in case of the credit on input services distributed by ILTD, Guntur, which is a division of ITC Ltd., the appellant in question.
5.1 After having carefully gone through full facts on record and the case laws submitted by both the sides, we find ourselves completely in agreement with the stand of the appellant as there is no scope to have two views regarding the status of ILTD, Guntur, which is factually an integral part of ITC Ltd. In other words, ILTD, Guntur which is an input service distributor registered as such with the service tax wing of the Revenue in Guntur is nothing but ITC Ltd, who is the appellant only, for the purpose of enforcing laws of Central Excise and Service Tax. There have all the proofs been available on record giving clear conclusion that ILTD, Guntur is a part of ITC Ltd., who is the appellant claiming CENVAT Credit for the input services utilised directly or indirectly for the manufacture of the final product of the appellant, when the final product is an excisable commodity and on which the appellant is paying Central Excise duty. In this regard, we reproduce below Section 2(m) of CENVAT Credit Rules, 2004 which defines and gives the meaning of an input service distributor.
2(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 distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be.
5.2 The Revenue has argued that in the light of provisions of Rule 7B of CENVAT Credit Rules, 2004, input service distributor viz., ILTD, Guntur cannot legally distribute the CENVAT credit in respect of service tax paid on the input services consumed by them. The provisions of Rule 7 of CCR are reproduced below:
Rule 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 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.
5.2.1 The Revenues argument is that ILTD, Guntur is not paying either Central Excise duty or any service tax. In other words, Revenues argument is that Input Service Distributor viz., ILTD, Guntur is not a Revenue paying entity and that is why it is covered under the provisions of Rule 7(b) above; therefore it cannot distribute the CENVAT Credit in respect of service tax paid on input services used by them. Revenue here is completely wrong in treating ILTD as a separate entity with reference to the appellant viz., ITC Ltd. In fact ILTD and ITC are one and the same; only as a matter of structuring and in order to have proper functioning with reference to the appellants manufacturing operations, the appellant has carved out ILTD as its Division. In order to find out if the operations being conducted by ILTD Guntur are within the mischief of Rule 7(b) of CENVAT Credit Rules, we have to find out whether ITC as a whole is exclusively engaged in the manufacture of exempted goods or providing exempted services. Here when the appellant, ITC is manufacturing excisable goods on which duty of excise is being paid, the operations of ILTD, Guntur do not come within the mischief of provisions of Rule 7(b) of CENVAT Credit Rules. It is on record that ILTD, Guntur is actually a division of ITC Ltd., and registration of input service distributor is of ITC Ltd.s ILTD Division. Further, in the certificate of registration dated 8.2.2006 issued by the Superintendent of Central Excise, Guntur, it is clearly mentioned that credit of input services is distributed or intended to be distributed to their manufacturing factories of ITC Ltd. at Bangalore (Karnataka), Saharanpur (Uttaranchal), Munger (Bihar). Consequently, Revenues argument that input service distributors operations are within the mischief of Rule 7(b) of CENVAT Credit Rules is without any foundation and is hereby rejected. Further the case laws quoted by the Revenue in support do not aid their stand. Consequently, the service tax paid for the input services by ILTD, Guntur and distributed as ISD (input service distributor) to the appellant is rightly admissible to the appellant.
5.3 Further, on this subject, we reproduce findings from the Additional Commissioner of Central Excise, Bangalore-II Commissionerates Order-in-Original No.49/2013 dated 29.11.2013.
24. ........ I find that in the absence of any evidence to the contrary, the impugned services are not hit by the bar as contained in Rule 7(b) of the Cenvat Credit Rules 2004 and I also find that the services are squarely covered within the description of input services as per Rule 2(l)(i) of the Cenvat Credit Rules 2004. I find that the services for which input service credit is sought to be distributed by ILTD to various units of ITC are specifically covered in the definition of input service as highlighted above. Therefore I find that there can be no bar in permitting credit on the input services being distributed by ILTD to various units of ITC as an Input Service Distributor.
5.3.1 On the same subject matter, the Commissioner of Central Excise (Appeals), Bangalore in its Order-in-Appeal No.44-45/2014-CE dated 31.1.2004 has also concluded as follows:
11. ...... In the instant case, the impugned services relate to warehousing of unmanufactured tobacco and transport of the same to their cigarette factories. Therefore the services cannot be attributed to goods which are exempted and there is n evidence on record to show otherwise. I find that services storage up to the place of removal and procurement of inputs are specifically covered under definition of input service.................
5.3.2 We also take support from the decision of Honble Karnataka High Court in the case of CCE vs. Ecof Industries Pvt. Ltd. (supra). The Honble Karnataka High Court in the said case inter alia observes as follows:
8. It is in this? context, the definition of input service distributor makes it clear that a manufacturer or a producer of a final product or a provider of output service may have more than one unit and may be distributed in various parts of the country. It is in this background the definition of service distributor is defined as office of the manufacturer or producer of a final product 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 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 service tax paid in all its units and accumulate them at its head office and distribute the said credit to its various units. At the time of distribution, the manner of distribution is provided in Rule 7 which reads as under :-
Manner of?Rule 7. 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 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 paid and secondly, the credit of service tax attributable to service used shall not be distributed in a unit exclusively engaged in the manufacture of exempted goods or providing of exempted services.
9. In fact, the? Board has issued a circular clarifying in this regard, which is extracted by the tribunal at para 7 which reads as under :-
Para 2.3 of the Master Circular referred to by the ld.?Para 7. Advocate reads as under :-
An Input service distributor?2.3 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-S.T.) to take a separate registration.
10.Therefore,? these are the only two limitations, which are imposed in Rule 7 preventing the manufacturer from utilizing the CENVAT credit, otherwise, he is entitled to the said credit. Merely because the input service tax is paid at a particular unit and the benefit is sought to be availed at another unit, the same is not prohibited under law. It is in this context, the manufacturer is expected to register himself as a input service distributor and thereafter, he is entitled to distribution of credit of such input in the manner prescribed under law. Therefore, the order passed by the tribunal is legal and valid and does not suffer from any legal infirmity and does not call for any interference and therefore it is dismissed.
6. Considering the above discussions and the decision of Honble Karnataka High Court in the case of CCE vs. Ecof Industries Pvt. Ltd. (supra), it is held that the appellant is rightly entitled to the CENVAT Credit of service tax amounting to Rs.3,25,80,308/-. The appeal is allowed with consequential benefits, if any.
(Order was pronounced in open court on 12/07/2016.) ASHOK K. ARYA TECHNICAL MEMBER S.S. GARG JUDICIAL MEMBER rv 16