ITC LTD. Vs. COMMISSIONER OF CENTRAL EXCISE, BANGALORE

JUDGEMENT

(1.) THE appellant is engaged in the manufacture of cigarettes and other tobacco products. Appellant has a division known as Indian Leaf Tobacco Division (ILTD) located at Guntur which is entrusted with the responsibility of procuring/purchasing services in relation to supply of threshed tobacco to the manufacturing facilities of the appellant. ILTD purchases leaf tobacco at auctions, gets them threshed and after threshing and segregation of leaf and stem, stores the same in different warehouses and supplies to the factories of ITC Ltd. The ILTD avails services such as storage and warehousing, transport to warehouse from threshing plants and from warehouses to factories, security services and accounting services. ILTD obtained registration as an Input Service Distributor under CENVAT Credit Rules, 2004 in 2006. During the course of audit of records of the appellant ITC Ltd., it was noticed that appellant had availed input service credit passed on by ILTD. Taking a view that the availment of CENVAT credit of service tax passed on by ILTD during the period from January 2006 to October 2010 was not admissible, proceedings were initiated by issuing show cause notice on 3 -2 -2011. The show -cause notice was issued on the ground that ILTD is not an office of the manufacturer or an office of the purchaser of finished goods or an office of the service provider. It is an independent and different entity. Further department also took the stand that the goods processed and supplied by them are not excisable and ILTD is not providing any output service and therefore the service tax credit passed on by ILTD is attributable to services used in manufacture of exempted goods/goods attracting nil rate of duty and therefore credit could not have been passed on as per the provisions of Rule 7 of CENVAT Credit Rules. The proceedings initiated have culminated in the impugned order wherein the credit of service tax availed to the extent of Rs. 3,25,80,308/ - has been denied and demanded with interest and penalty equal to the amount of service tax imposed.

(2.) LEARNED counsel for the appellant submitted that ILTD is not an independent entity as claimed by the department at all. He drew our attention to the registration certificate issued to ILTD as an ISD wherein it has been clearly shown that ILTD is a division of ITC Ltd. He drew our attention to the fact that in the registration certificate itself, the factories to which service tax credits will be distributed has been shown. Further he also submitted that the contention of the department that the service tax paid by ILTD and distributed to be availed as credit by the factories of ITC Ltd. are not at all the service tax amount paid in respect of activities undertaken by ILTD prior to the completion of threshing and segregation of leaf and stem. The credit of service tax passed on related to the activities which are undertaken by ILTD which are namely storage of processed tobacco in warehouses by transporting them from the threshing and segregation facilities and thereafter service availed for storage in warehouses and transportation from warehouses to the factories. Therefore the service tax paid cannot be relatable to the product which suffers nil rate of duty. He submits that procurement of inputs is one of the activities in respect of which credit of service tax is admissible to a manufacturer as per the definition of input service. Secondly he also submits that it is not correct to say that ILTD is an independent entity. It is in fact a part of ITC Ltd. It is also not correct to say that it is not an office of ITC Ltd. He submits that ILTD undertakes two activities. The first one is procurement of leaf tobacco, threshing of the same and segregation of leaf and stem (preparation of tobacco to be fit for used as raw material for manufacture of cigarettes) and another one is storage and supply of such prepared raw materials to the factories. Therefore the availment of CENVAT credit and distribution of the same are perfectly legal.

(3.) THE learned AR reiterates the stand taken by the department and upheld by the Commissioner as proposed in the show -cause notice namely ILTD is an independent entity; the credit is attributable to manufacturing activity resulting in exempted/nil rated goods; ILTD cannot be considered as an office of ITC Ltd.; inadmissible credit cannot be distributed and therefore the order passed by the Commissioner is correct and therefore the appellant is not eligible for waiver and stay.