Custom, Excise & Service Tax Tribunal
Hardik Founders And Engineers (P) Ltd vs Commissioner Of Central Excise, Pune-I on 1 December, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.
Appeal No. E/1706/2010
(Arising out of Order-in-Appeal No. PI/RKS/95/2010 dt. 05/07/2010 passed by the Commissioner (Appeals) Central Excise Pune-I )
For approval and signature:
Honble Shri Ramesh Nair, Member (Judicial)
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1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
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Hardik Founders and Engineers (P) Ltd.
:
Appellant
VS
Commissioner of Central Excise, Pune-I
:
Respondent
Appearance
Shri Prasad Paranjpe, Advocate for Appellant
Shri R.K. Maji, Asstt. Commr. (A.R) for respondent
CORAM:
Honble Shri Ramesh Nair, Member (Judicial)
Date of hearing : 1/12/2015
Date of pronouncement: 22/03/2016
ORDER NO.
The appeal is directed against Order-in-Appeal No. PI/RKS/95/2010 dt. 05/07/2010 passed by the Commissioner (Appeals) Central Excise Pune-I, whereby the Ld. Commissioner upholding the Order-in-Original No. PI/Div-IV/17/C.Ex/2010 dated 12.4.2010 dismissed the appeal filed by the appellant.
2. The fact of the case is that the appellant M/s. Hardik Founders and Engineers (P) Ltd. are having three units the first unit is at Hinjewadi, second unit is at Pirangut and third unit is at Wai, Satara District. The appellant have availed Cenvat Credit in respect of services such as security services and Fettling Contract Services received in their Pirangut unit and Architectural Services received in their Wai unit. However, the credit was taken in their Hinjewadi unit, both the lower authorities have disallowed the Cenvat Credit on the ground that the services were not received by the appellant unit at Hinjewadi whereas it was received at Pirangut unit and Wai unit, these two units are not registered. They are neither manufacturer nor providing any service and not paying excise duty or service tax. Aggrieved by the impugned order the appellant filed this appeal before me.
3. Shri Prasad Paranjpe, Ld. Counsel appearing for the appellant submits that the appellant is engaged in the manufacture of excisable goods and discharging the excise duty thereon. The Hinjewadi unit where the Services of Security and Fettling Contract Services were received are carrying out job work of the appellant unit under Rule 4(5) (a) of Cenvat Credit Rules 2004. Therefore, the services received by Hinjewadi unit is deemed to have been used in or in relation to manufacture of the final product on which excise duty is paid by the appellant unit. As regard Wai unit, it is newly setting up unit where the architectural services were received, this unit is also part of the appellant company only. All the expenditure of both the above units in respect of the services in question were booked in the books of accounts in the company. He submits that all the three units are under the banner of the appellant company only and all the expenditures related to all the three units are obsorbed in the business proceeds of the appellant company. Therefore, merely because the Hinjewadi and Wai units are outside the unit of appellant the credit cannot be denied on this ground. He placed reliance on this Tribunal decision in the case of M/s. Aurobindo Pharma Ltd. Vs. Commissioner of Central Excise, Chennai-III 2015-TIOL-1017-CESTAT-MAD. He also placed reliance on the following judgment:
(i) Well Known Polyesters Ltd. Vs. Commissioner of C.Ex. Vapi 2011 (267) E.L.T. 221 (Tri.-Ahmd.)
(ii) Coca Cola India Pvt. Ltd. Vs. Commissioner of C.Ex. Pune-III 2009 (242) E.L.T. 168 (Bom.)
(iii) Commissioner of C. Ex., Nagpur Vs. Ultratech Cement Ltd.
2010 (20) S.T.R. 683 (Tri.-Mumbai).
He also submits that the demand is time barred as the show cause notice was issued beyond 1 year for the reason that the appellant is filing ER.1 monthly return regularly and showing therein the Cenvat Credit availed by them. Therefore, there is no suppression on the fact on their part. In support, he placed reliance on the following judgment:
(i) Collector of Central Excise Vs. Chempur Drugs and Liniments 1989 (40) E.L.T. 276 (S.C.)
(ii) Commissioner of C. Ex. Coimbatore Vs. Precot Mills Limited 2007 (212) E.L.T. 483 (Tri.-Chennai).
4. On the other hand, Shri R.K. Maji, Ld. Assistant Commissioner (A.R.) appearing on behalf of the Revenue, reiterates the finding of the impugned order. He submits that the appellant unit is the only manufacturing unit, whatever services are received by the appellant unit are used in or in relation to the manufacture of final product whereas appellants other two units i.e. Hinjewadi and Wai units are outside the appellants factory. Therefore, any input services received by these two units cannot be said to have been used in or in relation to manufacture of final product of the appellant. Therefore the appellant is not entitled for the Cenvat Credit in respect of the services received by their Hinjewadi and Wai units.
5. I have carefully considered the submissions made by both sides. I find that even though the appellant have three units, all the three units are under one entity i.e. M/s. Hardik Founders and Engineers (P) Ltd. Therefore appellants other unit cannot be treated as different from the appellant. Even though there are three units but the business activity of the appellant is only one i.e. manufacturing of excisable goods at appellant factory and clearance thereof on payment of excise duty. As regard Hinjewadi unit is concerned they are carrying out the job work activity on the product which is subsequently cleared as a final product on payment of duty by the appellant unit. Therefore the services received and used by Hinjewadi unit is used in relation to part of the manufacturing process of appellant unit. Therefore, the services deemed to have been used in or in relation to manufacture of final product of the appellant. As regard Wai unit, it is a newly setting up unit though this unit is not started but it is in connection to the business activity of the appellant company and the business activity, needless to say is an activity of manufacturing of final product. All the expenditures in respect of subject input service were booked as expenditure against the overall business activity of the appellant company. Cenvat Credit in respect of the input service cannot be denied merely for the reason that the services were received and used outside the registered premises. There is no prohibition for availing the Cenvat Credit in such cases, the Cenvat Credit on input service is admissible so long the services are used in or in relation to the manufacture of final product or for providing output service irrespective of the location where the services were received and used. I find that the ratio of decision in the case of M/s. Aurobindo Pharma Ltd.(supra) which is based on the Karnataka High Court judgment in the case of Commissioner of Central Excise, Bangalore-I Vs. ECOF Industries Pvt. Ltd. 2011-TIOL-770-HC-KAR-ST. applies in the present case wherein, it was decided as under:
The only dispute raised by Revenue in the present appeal is that the impugned credit not being earned by the appellant that ought not be allowed to it. Appellant submits that there is no prohibition of credit genuinely earned by one unit to be availed by another unit of same 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.) = 2011-TIOL-770-HC-KAR-ST, 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 authorities below.
3. Heard both sides and perused the records.
4. 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. (supra). However, a word of caution may be stated that the manner of distribution of credit should not be contrary 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 the advertisement or production at Malur Unit, the assesse is not entitled to the benefit of CENVAT credit under the rules. The lower Appellate Authority has rightly held so which order has been erroneously set-aside by the tribunal and therefore he submits a case for interference is made out.
4. Per contra , the learned Counsel for the assessee submits that the definition of input service and input service provider read with Rule 3(1) and Rule 7(1) of the Rules makes it very clear that it is not 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, which is strictly in accordance with law.
5. In the light of the aforesaid facts and rival contentions, the question that arises for consideration is that when service tax is paid in respect of services obtained by a unit at Cuttack whether such a credit of the said service tax paid cannot be utilized by a unit at Malur belonging to the same manufacturer, namely the assessee.
6. As we are concerned only about input service, it is sufficient to extract the definition of input, input service and input 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, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Rule 2(l) "input service" 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 sales promotion, market research storage upto the place of removal procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
2(m) "input service distributor" means as 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;"
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 take credit".
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:-
"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) 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 7. Para 2.3 of the Master Circular referred to by the ld. 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 service 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) that 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 it 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."
5. In the light of the above, appeal is allowed. In view of the detail finding of the Ld. Single Member Bench in the above decision, it is clear that even if input is received outside the credit cannot be denied on this basis. As per my above discussion and the decision relied upon by the Ld. Counsel as reproduced above, I am of the considered view that the appellant is entitled for the Cenvat Credit in respect of Security Services, Fettling Contract Service (Labour Contract Service) & Architectural Services used outside the factory of the appellant in their own Hinjewadi & Wai unit. Since, the appeal is being decided on merit itself, I am not addressing the issue of time bar. I, therefore set aside the impugned order and allow the appeal.
(Pronounced in court on 22/03/2016)
(Ramesh Nair)
Member (Judicial)
SM.
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Appeal No. E/1706/2010