2026-VIL-353-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Distribution of Cenvat credit by Input Service Distributor (ISD) - Whether the appellant, as an ISD, could distribute the Cenvat credit of input services used exclusively in the R&D units, which were engaged in neither manufacturing dutiable goods nor providing taxable services - HELD - The issue is not of admissibility of credit of the input service received at R&D units by the manufacturing unit by their being directly or indirectly relatable to the manufacturing activity but whether the said credit could have been distributed by the appellant as an ISD to their manufacturing units in gross violation of the provisions of Rule 7 of CCR, 2004. The appellant, as an ISD, could not distribute the Cenvat credit of input services used exclusively in the R&D units as per the provisions of Rule 7(b) of the CCR. The Rule 7(b) clearly stipulates that the credit of service tax attributable to services used in a unit exclusively engaged in the manufacture of exempted goods or provision of exempted services shall not be distributed by the ISD. In the present case, the R&D units were neither manufacturing dutiable goods nor providing taxable services, and therefore, the credit of input services used in these R&D units could not be distributed by the appellant to its manufacturing units – Further, taking of credit by the R&D units itself was void ab initio in terms of Rule 6(1) of the CCR, which provides that Cenvat credit shall not be allowed on inputs or input services used in or in relation to the manufacture of exempted goods. The case laws relied upon by the appellant were distinguished on the facts as they involved situations where the R&D units were providing scientific and technical consultancy services to the manufacturing units, which is not the case here – The appeal filed by assessee is dismissed
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