The CESTAT, Ahmedabad, in the case of Kohler India Corporation Pvt. Ltd. v. CGST & Central Excise, Vadodara-II, has emphasized that judicial precedents must be applied within their specific legislative context. The Commissioner had erroneously denied CENVAT credit to Kohler India on input services by relying solely on the Supreme Court’s Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST judgment. The CESTAT observed that while Safari Retreats is a landmark ruling under the CGST Act, 2017, it cannot be automatically applied to disputes under the earlier Finance Act, 1994, which governs the CENVAT Credit Rules, 2004. The Commissioner failed to establish that the relevant provisions, specifically Rule 2(l) of the CENVAT Credit Rules and Section 17(5)(d) of the CGST Act, were pari materia (of the same subject matter or legal kind). The CESTAT reiterated that a court’s decision takes its character from the questions involved in the case and should not be applied out of context, especially across different legislative regimes with varying intents and wordings. The matter was remanded for a fresh decision, with the Commissioner directed to compare the two provisions before applying any ratio.
Facts:
Kohler India Corporation Pvt. Ltd. (“the Appellant”) was denied Cenvat credit on input services under Rule 2(l) of the Cenvat Credit Rules, 2004 by the Commissioner, who relied solely on the Supreme Court’s judgment in Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST [2024 (90) GSTL 3 (SC)]. The Commissioner disallowed credit despite acknowledging multiple precedents under the Finance Act, 1994 that were favourable to the Appellant.
The Appellant argued that the Safari Retreats judgment pertained to input tax credit restrictions under Section 17(5)(d) of the CGST Act, 2017, and not under Rule 2(l) of the CENVAT Credit Rules, which governed the relevant period. Therefore, without establishing that both provisions were pari materia, reliance on Safari Retreats was legally flawed.
Issue:
Whether the Commissioner was justified in disallowing credit under Rule 2(l) of the CENVAT Credit Rules, 2004 ?
Held:
The CESTAT, Ahmedabad in Final Order No. 10328/2025 held as under:
- Observed that, while the Safari Retreats ruling is a landmark judgment under the CGST regime, but, it cannot be mechanically applied to disputes under the Finance Act, 1994 without establishing that the relevant provisions are pari materia.
- Further held that, the basic principle while applying ratio of any court decision under two different Acts or legislations has been ignored by the learned Commissioner.
- Held that, the Commissioner ought to have compared Rule 2(l) of the Cenvat Credit Rules, which contains an inclusive definition of ‘input services’ with Section 17(5)(d) of the CGST Act, which restricts ITC on immovable property-related expenses before applying the ratio.
- Further allowed the appeal by way of remand and directed that the matter be disposed of within three weeks of receipt of the Tribunal’s order, and liberty is granted to the Appellant to make further submissions.
Our Comments:
The Supreme Court in Commissioner of Income Tax v. Sun Engineering Works (P) Ltd. [(1992) 4 SCC 363] held that judicial decisions must be confined to the context of the statute under which they are delivered. It said,
“It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings.”
Applying Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST [2024 (90) GSTL 3 (SC)]., which interprets a restriction under GST, to the more liberal regime of Cenvat credit under Rule 2(l) without comparing their legislative purpose and language, was erroneous. Rule 2(l) under the Cenvat Credit regime had a much wider ambit, and expenses incurred even for civil structures (e.g., setting up of premises) were held to qualify under certain circumstances.
Relevant Provisions:
Rule 2(l), Cenvat Credit Rules, 2004 –
“(l) ―input service‖ means any service, –
i. used by a provider of output service for providing an output service; or
ii. used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes, ….”
Section 17 of CGST Act
17. Apportionment of credit and blocked credits-
“(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation.-For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property”
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