Custom, Excise & Service Tax Tribunal
Shahi Food Product vs Udaipur on 25 October, 2022
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
EXCISE APPEAL NO. 51580 OF 2019
(Arising out of Order-in-Appeal No. 292 (CRM)/ST/JDR/2019, dated 25.03.2019
passed by Commissioner (Appeals), Central Excise & CGST, Jodhpur)
M/s. Shahi Food Product ...Appellant
Bagol Road, Mali Colony,
Nathdwara, Rajsamand
Rajasthan-313301
VERSUS
Commissioner of CGST & ...Respondent
Central Excise
Udaipur Division,
Head Office, 142 B,
Hiran Magri, Sector 11
Udaipur-Rajasthan - 313002
APPEARANCE:
Shri J.M. Sharma, Consultant for the Appellant
Shri Rakesh Agarwal, Authorized Representative for the Department
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing/Decision: 25.10.2022
FINAL ORDER NO. 51025/2022
JUSTICE DILIP GUPTA:
The issue involved is to whether input service credit distributed
by M/s. Parle Biscuits Pvt. Ltd. 1 to M/s. Shahi Food Product 2 can be
denied on the ground that credit could be distributed by Parle only to
its own manufacturing unit under rule 7 of the CENVAT Credit Rules,
2004 3 and not to the appellant which is not a manufacturing unit of
Parle.
1. Parle
2. the appellant
3. the CENVAT Rules
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2. The Commissioner (Appeals), by order dated 25.03.2019, held
that the appellant would be eligible for taking CENVAT credit w.e.f.
01.04.2016 in view of the amendment made in rule 7 on 01.04.2016
but has denied CENVAT credit to the appellant for the period prior to
01.04.2016 from April 2013 to 31.03.2016. The said order passed by
the Commissioner (Appeals), to the extent that it is denied CENVAT
credit for the period prior to 01.04.2016, has been assailed in this
appeal.
3. The appellant is engaged in the manufacture of Poppins and
Kismi Toffee 4 exclusively for Parle as a contract manufacturing unit.
The authorization submitted by Parle through letter dated 03.12.2010
is reproduced below:
"AUTHORISATION
We M/s. Parle Biscuits Pvt. Ltd., Vile Parle (East), Mumbai -
400057, hereby authorize M/s. Shahi Food Product, Bagol
Road, Mali Colony, Nathdwara, 1 holding Central Excise
Registration No. AAGHB0739REM001 to manufacture on our
behalf "Confectioneries" falling under Central Excise Tariff No.
1704 90 20 and to comply on our behalf all the procedural
formalities under the Central Excise Act 1944 and RULE made
there under in respect of goods manufactured on our behalf
and also to furnish information relating to the price at which
M/s. Parle Biscuits Pvt. Ltd., sell the said Confectioneries
products in order to enable determination of value of the said
goods under Section 4A of the said Act.
This will remain enforce till it is cancelled or another such
authorization is filled.
For PARLE BISCUITS PVT. LIMITED,
(Authorised Signatory)
Place: Mumbai - 400057
Date: 3/12/2010
4. the products
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(Manufacturers who gets his goods manufactured
From any other person or his authorized Agent)
We M/s. Shahi Food Products, holding Central Excise
Registration AAGHB0739REM001 of Nathdwara hereby accept
the above authorization and agree to discharge all liabilities
under the Central Excise Act 1944 and Rules made there under
in the respect the said goods manufactured from time to time
by us on behalf of the above mentioned manufacturer.
For SHAHI FOOD PRODCU.
(Authorised Signatory)
Place: Nathdwara
Date: 3/12/2010
(Actual manufacturer or his authorized signatory)
Cont...2/-"
4. It has been stated that the inputs required for manufacture of
the products were procured by Parle and supplied directly to the
factory of the appellant on payment of excise duty. Parle pays for the
inputs but the appellant takes credit of the same and utilizes the credit
for payment of duty on the products cleared on account of Parle. The
appellant also claims that it availed and utilized input services used in
relation to the manufacture of products for Parle in accordance with
the provision of the CENVAT Rules.
5. As the said product was manufactured not only in the factory of
Parle but also in other factories of contract manufacturing units such
as the appellant, the advertisement, market research, sales promotion
and marketing were centralized and were being handled by the
Corporate Office of Parle. Service tax paid on input services was
subsequently distributed to these contract manufacturing units.
6. However, a show cause notice dated 06.09.2019 was issued to
the appellant proposing the deny credit on following allegations:
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(i) The credit of Rs. 12,13,159/- was wrongly taken on
Goods and Transport Agency service for outward
transportation from factory to the depot of Parle;
(ii) Credit of Rs. 10,92,349/- was irregularly taken on Input
Service Distributor by Parle to the appellant as Parle could
distribute as an Input Service Distributor only to its own
manufacturing units.
(iii) The appellant had willfully suppressed facts of irregular
availment of credit with intent to evade payment of duty
and so the extended period of limitation could be invoked.
7. The appellant filed a reply to the aforesaid show cause notice but
the Assistant Commissioner, by order dated 11.01.2018, confirmed the
CENVAT credit amounting to Rs. 23,05,508/- with interest and penalty.
8. Feeling aggrieved, the appellant filed an appeal before the
Commissioner (Appeals), who by order dated 25.03.2019, upheld the
confirmation of credit on Input Service Distributor but allowed the
appellant to take credit relating to service tax paid on Goods and
Transport Agency service on outward transportation of the final
product. It is this order of the Commissioner (Appeal) that has been
assailed in the present appeal.
9. Shri J.M. Sharma, learned consultant for the appellant submitted
that Parle was justified in distributing credits on input services
attributable to the final product on a pro rata basis proportionate to
the turnover between the manufacturing plants of Parle and its
contract manufacturing units under rule 7(d) of the CENVAT Rules in
view of the decision of the Larger Bench of the Tribunal in M/s.
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Krishna Food Products vs. the Additional Commissioner of CGST
and Central Excise, Indore Commissionerate 5.
10. Shri Rakesh Agarwal learned authorized representative
appearing for the Department, however, supported the impugned
order.
11. The submissions advanced by the learned consultant for the
appellant and the learned authorized representative appearing for the
Department have been considered.
12. In order to appreciate the submissions, it would be pertinent to
refer to the relevant provisions of the CENVAT Rules.
13. The provisions of rule 2(m) of the CENVAT Rules, before the
amendment and after the amendment and that of rule 7 before the
substitution and after the substitution w.e.f. 01.04.2016 are
reproduced below:
"PRIOR TO 01.04.2016
Rule 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;
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 conditions, namely:-
(a) ******
(b) ******
5. Excise Appeal No. 52692 of 2019 decided on 25.05.2021
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(c) ******
(d) credit of service tax attributable to service used
by more than one unit shall be distributed pro rata
on the basis of the turnover of such units during the
relevant period to the total turnover of all its units,
which are operational in the current year, during the
said relevant period;"
Explanation 1.- For the purposes of this rule, "unit" includes
the premises of a provider of output service and the premises
of a manufacturer including the factory, whether registered or
otherwise."
AFTER 1.04.2016
Rule 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, or an outsourced
manufacturing unit as the case may be;"
(bold portion added after amendment)
Rule 7. "Manner of distribution of credit by input
service distributor.- The input service distributor
shall distribute the CENVAT credit in respect of the
service tax paid on the input service to its
manufacturing units or unit providing output service
or an outsourced manufacturing units, as defined in
Explanation 4, subject to the following conditions,
namely:-
(a) *****
(b) *****
(c) *****
(d) The credit of service tax attributable as input
service to all the units shall be distributed to all the
units pro rata on the basis of the turnover of such
units during the relevant period to the total turnover
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of all the units, which are operational in the current
year, during the said relevant period;
(e) Outsourced manufacturing unit shall maintain
separate account for input service credit received
from each of the input service distributors and shall
use it only for payment of duty on goods
manufactured for the input service distributor
concerned;
(f) Credit of service tax paid on input services,
available with the input service distributor, as on the
31st of March, 2016, shall not be transferred to any
outsourced manufacturing unit and such credit shall
be distributed amongst the units excluding the
outsourced manufacturing units. Explanation 1.- For
the purposes for this rule, "unit" includes the
premises of a provider of output service or the
premises of a manufacturer including the factory,
whether registered or otherwise or the premises of
an outsourced manufacturing unit.
Explanation 2. *****
Explanation 3. *****
Explanation 4. For the purposes of this rule, "outsourced
manufacturing unit" means a job-worker who is liable to pay
duty on the value determined under rule 10A of the Central
Excise Valuation (Determination of Price of Excisable Goods)
Rules, 2000 on the goods manufactured for the input service
distributor or a manufacturer who manufactures goods, for the
input service distributor under a contract, bearing the brand
name of such input service distributor and is liable to pay duty
on the value determined under section 4A of the Excise Act."
14. The only issue that arises for consideration in this appeal is as to
whether the appellant was entitled to take CENVAT credit prior to
01.04.2016 since credit for the period w.e.f. 01.04.2016 has been
granted by the Commissioner (Appeals).
15. The submission that was advanced on behalf of the appellant
before the Larger Bench was that rule 7 of CENVAT Rules allowed
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distribution of credit even prior for the period to 01.04.2016 and, in
any case, substitution of rule 7 of the CENVAT Rules would have
retrospective application. After noticing the provisions of the CENVAT
Rules and the Authorization submitted by Parle, which was accepted by
the appellant, the Larger Bench observed:
"25. The office of Parle at Bahadurgarh is registered as a "input
service distributor" under rule 2(m) of the CENVAT Rules.
Biscuits were manufactured not only in the factories of Parle,
but also in the factories of other contract manufacturers. It is
stated that the quantity of biscuits manufactured by the
appellant is reflected in the balance sheet of Parle as goods
manufactured on behalf of Parle and sold and marketed by
Parle. The excise duty paid on the biscuits cleared from the
factory of the appellant is also accounted for in the balance
sheet of Parle as duties paid by them. It has also been stated
that as a business strategy advertisement, market research,
sales promotion and marketing was centralised and handled by
the office of Parle at Bahadurgarh. Such Credit availed on input
services attributable to the final product was distributed by
Parle on a pro-rata basis proportionate to the turnover of each
unit between its own manufacturing plants and its
contract manufacturing units, including the appellant, under
rule 7 (d) of the CENVAT Rules.
26. What is also important to notice is that rule 7 of the
CENVAT Rules allows distribution of credit to its
manufacturing units. It does not use the words its own
manufactures units. It can, therefore, safely be presumed
that the term its manufacturing units should include a
contract manufacturer, who manufactures in accordance with
the provisions of the Registration Exemption Notification.
*****
42. Thus, even in terms of the provisions of rule 2(m) and rule 7 of the CENVAT Rules, as they stood prior to 01.04.2016, the appellant could distribute CENVAT credit in respect of the service tax paid on inputs services to its manufacturing units, including a job workers.
9E/51580/2019
43. Such being the position, we also find substance in the contention advanced by learned counsel appearing for the appellant that the amended provisions of rule 2(m) and rule 7 of the CENVAT Rules, after the 01.04.2016, merely seek to rectify the lacuna in the unamended rules and, therefore, would have effect from the inception of the rules."
16. In view of the aforesaid decision of the Larger Bench of Tribunal in Krishna Food Products, it has to be held that the Commissioner (Appeals) was not justified in denying CENVAT credit distributed by Parle prior to 01.04.2016.
17. The order dated 25.03.2019 passed by the Commissioner (Appeals) to the extent is has denied such benefit is, therefore, set aside and the appeal is allowed.
(Order dictated and pronounced in open Court) (JUSTICE DILIP GUPTA) PRESIDENT (P V SUBBA RAO) MEMBER (TECHNICAL) Shreya