Chittaranjan Satapathy, Member (T)

1. Heard both sides. Considering the reasons stated below, we dispense with the requirement of pre-deposit and with the consent of both sides, take up this appeal with earlier Appeals No. E/50/09 and E/339/09 for hearing and disposal as all the three appeals relate to the same issue for different periods.

2. The issue in these appeals is whether the appellant is correct in distributing the credit of service tax in respect of their Malur Unit even though the service tax has been paid in respect of services used by their Cuttack Unit.

3. Shri B.N. Gururaj, Id. Advocate appearing for the appellant states that the impugned service tax credit has been distributed by the head office of the appellants in Chennai confirming to the conditions specified under Rule 7 of the CENVAT Credit Rules, 2004. He also states that Para 2.3 of the master circular of service tax dated 23-8-2007 has been followed by the appellants. He argues that neither the circular nor the rule itself prohibits, distribution of service tax credit relating to one unit of a manufacturer to another unit of the same manufacturer or service provider. He says that there are only two conditions, firstly the service tax credit to be distributed against the document should not exceed the service tax paid and secondly, the credit of service tax should not be in respect of exempted finished goods and exempted output services.

4. Heard the Id. DR, who supports the impugned order. He also refers to Rule 3 of the CENVAT Credit Rules, 2004 to support the claim of the Department that Service Tax credit relating to one unit should not be distributed to another.

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

(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.