Cenvat Credit for Common Input Services in Multiple Units: CESTAT Ahmedabad Upholds Assessee's Right to Avail Full Credit at Single Unit

Case Reference

Piramal Glass Pvt Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)

Background and Factual Matrix

This matter arose from a dispute concerning the eligibility of Cenvat credit on common input services when such services were utilized across two distinct manufacturing facilities. The assessee, Piramal Glass Pvt Ltd, operated manufacturing units at two locations — one at Koshamba and another at Jambusar (Bharuch). During the period from February to March 2013, the assessee availed Cenvat credit aggregating to ₹81,19,072/- at its Koshamba unit in respect of common input services that were attributable to operations at both units.

The Revenue took the position that since the input services in question were commonly used across both facilities, the Koshamba unit could not legitimately claim the entirety of the Cenvat credit. According to the department, only that portion of the credit which was proportionately attributable to the Koshamba unit's own operations could be availed there; the balance, corresponding to the share attributable to the Jambusar unit, was to be denied. This resulted in a partial disallowance of Cenvat credit, prompting the assessee to file an appeal before CESTAT Ahmedabad.

The central question that the Tribunal was required to resolve was:

Whether, during the relevant period, an assessee operating multiple manufacturing units was legally obligated to proportionately distribute Cenvat credit on common input services across all such units under Rule 7(d) of the Cenvat Credit Rules, 2004, or whether it retained the discretion to avail the entire credit at a single unit?

Submissions Made on Behalf of the Assessee

The learned Chartered Accountant, Shri Mehul Jiwani, appearing for the assessee, contended that the denial of credit was founded on Rule 7(d) of the Cenvat Credit Rules, 2004. He argued that this very provision had been interpreted by multiple judicial forums in a manner that consistently favoured the assessee's position.

The core of his argument rested on the linguistic construction of the rule. He submitted that prior to the amendment effective from 1st April 2016, Rule 7 employed the phrase "may distribute", which under established principles of statutory interpretation, connotes an option or discretion rather than a compulsion. Accordingly, the assessee was free to either distribute the Cenvat credit proportionately among its units or to consolidate the entire credit in one unit. Availing the full credit at the Koshamba unit was, therefore, a lawful exercise of that discretion.

He further drew attention to the fact that the 2016 amendment replaced the word "may" with "shall", thereby converting the erstwhile optional mechanism into a mandatory obligation. This legislative change, he argued, itself demonstrated conclusively that the pre-amendment provision imposed no such compulsion.

Judicial Precedents Relied Upon

The following case laws were placed before the Tribunal in support of the assessee's submissions: