No restriction imposed on quantum of credit to be distributed by ISD during disputed period – Chennai Tribunal

M/s Pricol Ltd. Vs. Commissioner of GST & Central Excise, Coimbatore, Final Order Nos. 40188-40189/2019, dated 29-1-2019 in Appeal Nos. ST/332-333/2011-DB (Tribunal – Chennai)

Facts- M/s. Pricol Ltd. have three plants situated at different locations and is the appellant in Appeal No. ST/333/2011. They are registered as Input Service Distributor (ISD). M/s. Pricol Ltd., Plant-I is one of their manufacturers and is the appellant in Appeal No. ST/332/2011. It appeared that M/s. Pricol Ltd., Plant-I had transferred Cenvat credit of Rs. 3,32,14,672/- to M/s. Pricol Ltd., ISD in an unauthorized manner and thus contravened the provisions of Rule 3(4) of the Cenvat Credit Rules (CCR), 2004. It further appeared that inasmuch as M/s. Pricol Ltd., Plant-I is not a person liable to pay service tax, the unauthorized transfer of service tax and issue of invoice for input credit transfer appeared to be wrong.

Held- The learned commissioner of GST held that the manner in which the credit can be distributed among different units is prescribed under Rule 7 of CCR, 2004. During the relevant period, Rule 7 ibid stated that the Input Service Distributor may distribute the credit to its manufacturing units or units providing output service subject to two conditions stated therein. The two conditions are : (i) The credit distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon; (ii) Credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing exempted services shall not be distributed.  The Department has no case that these conditions have not been satisfied. Rule 7 ibid was later amended vide Notification No. 18/2012-C.E. (N.T.), dated 17-3-3012 wherein a restriction for proportionate distribution was introduced. M/s. Pricol Ltd., Plant-I has only returned/reversed the exact quantum of credit that was transferred to it in the first place by the M/s. Pricol Ltd., ISD. Such return/reversal has not enlarged the quantum of credit that has been availed nor has there been any financial injury caused to the exchequer. This is then only a revenue neutral situation. For these reasons, the demand or penalties cannot sustain. The impugned order is set aside.

To read the complete judgment 2019 Taxo.online 968