A manufacturer providing taxable services may use input-service credit against excise duty without ISD registration.

Royal Enfield, which manufactured motorcycles at Tiruvottiyur and provided taxable repair and maintenance services through service stations covered by its centralised service-tax registration, took credit of service tax on services received at those stations and recorded it in the Tiruvottiyur factory’s CENVAT account.

The Department disputed that credit because the services were not used in manufacture or received at the factory.

It also challenged credit distributed by the company’s input service distributor (ISD) wholly to Tiruvottiyur, and credit taken there on invoices for services used exclusively at the company’s Oragadam and Manjambakkam units.

The adjudicating authorities confirmed demands, interest and penalties; the Commissioner (Appeals) affirmed the orders.

Royal Enfield appealed in three connected appeals.

The Tribunal framed five issues, including eligibility of service-station credit, ISD distribution, credit relating to other units, limitation, interest and penalties.

1. Whether credit on services received at service stations and offices covered by the centralised registration could be taken in the Tiruvottiyur factory’s CENVAT account and used to pay excise duty.

2. Whether the ISD credit of Rs. 23,77,934 distributed wholly to Tiruvottiyur was recoverable.

3. Whether credit of Rs. 8,09,021 on services used exclusively at the Oragadam and Manjambakkam units was recoverable from Tiruvottiyur.

4. Whether the extended limitation period was available for the demand under Show Cause Notice No. 009/2016.

5. Whether the demands for interest and penalties were sustainable.

Rule 2(l) of the CENVAT Credit Rules, 2004 defines an input service, including a service used by a provider of output service to provide that service and, under the applicable manufacturer limb, a service used in or in relation to manufacture and clearance up to the place of removal.

Rule 3(1) permits a manufacturer or provider of output service to take credit on an eligible input service; Rule 3(4) permits credit to be used for payment of excise duty on any final product or service tax on any output service, without a one-to-one correlation.

Rule 4(7) governs the timing of input-service credit, while Rule 4(2) of the Service Tax Rules, 1994 permits centralised registration for a provider operating from multiple premises with centralised billing or accounting.

Rule 7 of the CENVAT Credit Rules, as applicable before 1 April 2016, used “may distribute”; the substituted rule made distribution mandatory for an ISD from that date.

Rule 9 places the burden on the person taking credit to establish eligibility.

Section 11A(4) requires the statutory basis for invoking the extended period, including deliberate suppression with intent to evade; Pushpam Pharmaceuticals, Uniworth Textiles and Reliance Industries establish that mere non-disclosure or discovery in audit does not, without the requisite intent, prove suppression.

The Tribunal also applied the principles that the Revenue cannot sustain a demand on a ground not stated in the notice (Toyo Engineering and Champdany Industries), and that cross-utilisation is permissible absent a restrictive provision (CCE v. S.S. Engineers and CCE v. Pipavav Shipyard).

It relied on Oerlikon Balzers and Dashion concerning pre-2016 ISD distribution and the procedural character of ISD non-registration.

The service-station services did not qualify under the manufacturer limb because they were consumed after sale and were not used in manufacture or clearance.

But the evidence and the authorities’ own findings established that the same services were used at premises from which Royal Enfield provided taxable repair and maintenance services.

They therefore qualified under the output-service limb of Rule 2(l); centralised registration identified the single provider and accounting location but did not itself create eligibility.

Rules 3(1) and 3(4) permitted the credit to be recorded at Tiruvottiyur and used for excise duty, and no ISD distribution was required where the registered provider received and accounted for the invoices itself.

The marketing- and branch-office component also failed: Royal Enfield’s uncontroverted case was that goods were sold from those premises, and the authorities had not properly addressed the resulting place-of-removal and sales-promotion arguments.

The ISD demand failed because the notice did not establish that the relevant services were used in more than one unit, and the applicable pre-2016 Rule 7 did not compel proportional distribution in the circumstances.

Royal Enfield conceded the merits of the Rs. 8,09,021 demand, but the extended period was unavailable: the credit was disclosed in returns, audit relied on the company’s records, and the Department did not establish deliberate suppression or intent to evade.

The resulting interest and penalties could not survive; the Tribunal also noted that the penalty imposed for the later period exceeded the statutory ceiling.

It held the service-station and marketing/branch-office credit demands unsustainable on merits; the ISD demand unsustainable on merits and, independently, the relevant extended-period demand barred by limitation; and the Rs. 8,09,021 demand barred by limitation despite Royal Enfield’s concession on merits.

Interest and penalties were set aside.

However, the amounts of Rs. 23,77,934 and Rs. 8,09,021 already reversed and credited to the Manjambakkam and Oragadam units could not be re-credited at Tiruvottiyur or refunded, to prevent double benefit.

Consequential relief was granted subject to that direction.