Case Law Details
Mahindra Holiday And Resorts India Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The appeal arose from an Order-in-Original dated 09.10.2015 passed by the Commissioner, LTU, Chennai, concerning denial of CENVAT credit availed by Mahindra Holiday and Resorts India Ltd. The appellant, registered under centralized service tax registration, provided “Club or Association” services along with other taxable services such as tour operations, event management, health club and fitness centre services, internet café services, and renting of immovable property.
During scrutiny of records for the period April 2012 to March 2013, the department objected to certain CENVAT credit claims on two principal grounds: defects in invoices and alleged absence of nexus between certain input services and output services. The Commissioner disallowed CENVAT credit amounting to Rs. 2,69,76,573, ordered recovery with interest, and imposed a penalty of Rs. 14,00,000. A further demand of Rs. 18,13,455 was confirmed relating to invoices lacking mandatory particulars.
The appellant challenged the order, contending that the show cause notice (SCN) had been issued mechanically on the basis of an Excel sheet without proper invoice verification. It argued that procedural defects in invoices should not result in denial of credit and that all disputed services had a nexus with its output services. The appellant also alleged violation of natural justice because the verification report relied upon during adjudication had not been furnished to it. Additionally, it submitted that certain demands confirmed in the order related to services not proposed in the SCN.
The Revenue argued that the SCN contained invoice-wise details and clearly identified the reasons for proposed denial. It maintained that the appellant had failed to produce invoices despite multiple opportunities and reminders. According to the department, the burden of establishing admissibility of CENVAT credit under Rule 9 of the CENVAT Credit Rules, 2004 rested entirely on the assessee.
The Tribunal classified the disputes under three heads: denial of credit due to non-submission of proper documents, denial of credit on allegedly ineligible input services, and alleged defects in the SCN.
On the issue of defects in the SCN, the Tribunal rejected the appellant’s argument that the notice had been issued without verification of invoices. It observed that the burden of proving such allegations lay on the appellant, which had failed to place the annexures to the SCN or any supporting evidence before the Tribunal.
Regarding documentary requirements under Rule 9 of the CENVAT Credit Rules, 2004, the Tribunal emphasized that certain particulars in invoices constituted mandatory “core” requirements. These included details relating to service tax payable, description of services, assessable value, registration number of the service provider, and other specified particulars. The Tribunal held that the burden of proving admissibility of CENVAT credit remained with the assessee and could not be shifted to the Revenue.
At the same time, the Tribunal noted inconsistencies regarding the submission and verification of documents covered under Annexures I and II of the SCN. While part of the credit had been allowed after verification, disputes remained regarding invoices allegedly not produced. In the interests of justice, the Tribunal remanded these issues to the original authority, granting the appellant a final opportunity to submit all relevant documents for verification under Rule 9 and directing a reasoned decision thereafter.
The Tribunal agreed with the appellant that the verification report should have been shared during adjudication. It observed that transparency through consultation, joint verification, and reconciliation could reduce unnecessary litigation. Accordingly, it directed that a copy of the verification report prepared after fresh verification should be provided to the appellant before passing a fresh order.
With respect to Annexures III and IV concerning allegedly ineligible input services, the Tribunal examined the amended definition of “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004. It noted that although the phrase “activities relating to business” had been removed from the definition with effect from 01.04.2011, credit could still be availed if the services had a real and sufficient nexus with the output services and were not used primarily for personal consumption of employees.
The Tribunal accepted the appellant’s explanations regarding the disputed services. It held that civil works relating to renovation and modernization qualified for credit. It also found that vehicle hire and repair services, sales promotion and customer engagement activities, membership fees paid to industry associations, water and food testing services, public performance licences, and insurance relating to company-owned vehicles all had a sufficient nexus with the appellant’s taxable output services.
The Tribunal concluded that these services were consumed in relation to the appellant’s provision of club and association services and other taxable activities. Since they were not used primarily for employees’ personal consumption, denial of credit was unjustified.
The Tribunal further held that demands relating to courier charges, bank charges, telecommunication charges, and consultancy services could not be sustained because these issues had not been proposed in the SCN. Relying on settled legal principles, it held that the department could not travel beyond the scope of the notice.
Consequently, the Tribunal set aside the demands pertaining to Annexures III and IV and allowed the related CENVAT credit. In respect of Annexures I and II, the matter was remanded to the original authority for fresh consideration after giving the appellant an opportunity to submit supporting documents. The proceedings were directed to be completed within ninety days, and the appellant was held entitled to consequential relief in accordance with law.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is against Order-in-Original (OM) dated 09.10.2015 passed by the Commissioner, LTU, Chennai. (impugned order)
Factual Matrix
2. An apercu of the facts is that the appellant, holding a centralized Service Tax registration, provides ‘Club or Association’ service to members and other taxable services (tour operations, event management, health club/fitness center, internet café, and renting of immovable property) from its office and resorts across India. It availed and utilized CENVAT credit on input services. On scrutiny for April 2012- March 2013, the department alleged invoice deficiencies (absence of service provider registration number and/or description of services etc.) and lack of nexus for certain services. By the OM, the Commissioner disallowed credit of 269,76,573/- under section 73(1) of the Finance Act, 1994 read with Rule 14 of the CENVAT Credit Rules, 2004 (CCR, 2004), and dropped a part of the demand; ordered recovery with interest; and imposed penalty of Z14,00,000/- under Rule 15(1) of the CCR, 2004. The OM further confirmed demand of Z18,13,455/- of which (a) 27,70,080/- was for absence of Service Tax registration number on invoices; and (b) Z10,43,375/- for absence of nature/description of services on invoices. The appellant is before us, aggrieved by the impugned order.
3. The Ld. Advocate Shri Harish Bindhumadhavan appeared for the appellant and Ld. Authorized Representative Smt. G. Kripa appeared for the respondent.
Submissions made by the Appellant
3.1 Shri Harish Bindhumadhavan the Ld. Counsel for the appellant submitted that the above demand is unsustainable on the following grounds:
A. SCN fundamentally defective
The Show Cause Notice (SCN) was issued hastily and based solely on an Excel sheet provided by the appellant, without verification of underlying invoices. Being the foundation of adjudication, an SCN must contain clear, evidence-based allegations. Its issuance without proper examination renders it vitiated and unsustainable. [CCE Vs Brindavan Beverages (P) Ltd., 2007 (213) ELT 487 (SC); Vageesh Umesh Jaiswal Vs State of Gujarat, 2022 (1) TMI 446; Circular F. No. 275/17/2015-CX.8A dated 11.03.2015].
B. Violation of principles of natural justice
During adjudication, invoice verification was done and it led to a partial dropping of demand (Rs.27,47,024). However, the Verification Report was not shared with the appellant, denying them an opportunity to respond—thus violating natural justice. [T.V. Sundaram Iyengar & Sons Vs Commissioner, 2020 (9) TMI 596 (Madras HC))].
C. Procedural defects not fatal to credit
Any discrepancies in invoices were held to be procedural and curable and therefore cannot justify denial of credit. [Mahindra Holidays and Resorts India Vs Commissioner, 2023 (10) TMI 527 (CESTAT Chennai)].
D. Incorrect denial of input service credit
Credit was denied mechanically without invoice verification. On merits, all disputed services are used in providing output service and are eligible input services, including:
i. Civil works.
ii. Vehicle hire and repair.
iii. Sales promotion and customer engagement.
iv. Membership fees.
v. Water and food testing.
vi. Public performance licence.
vii. Insurance of company-owned vehicles.
E. Mismatch between SCN and confirmed demand
The Impugned Order confirms certain disputed services (courier charges, bank charges, telecommunication charges, and consultancy services) even though there is no averment in the SCN and cannot traverse beyond the SCN (CC Vs Toyo Engineering Ltd., 2006 (201) E.L.T. 513 (SC)).
F. Entire demand and penalty to be set aside
In view of procedural lapses, lack of evidence, and eligibility of credits, the entire demands merits to be set aside. Any penalty imposed was also flawed due to lack of reasoning and improper exercise of discretion.
The Ld Advocate stated that as no demand survives, the question of interest and penalty do not arise. Hence the impugned order may be set aside.
Submission made by the Respondent-Revenue
3.2 The Ld. Authorized Representative Smt. G. Kripa appeared for the respondent, submitted that:
A. The SCN sets out the grounds of proposed denial and encloses separate annexures with invoice-wise break-up for each category. The dispute in Annexures I & II involve two questions:
i. whether CENVAT credit is admissible when invoices lack mandatory particulars (such as the service provider’s Service Tax Registration Number and/or description of services) as required under Rule 4A of the STR, 1994 read with Rule 9 of the CCR, 2004; and
ii. whether credit has been taken on services that do not qualify as eligible “input services” under the CCR, 2004.
B. Invoices were not produced for Rs. 7,70,080/- (balance in Annexure I) and Rs. 10,43,375/- (entire Annexure II), despite multiple hearing opportunities (25.02.2015, 05.03.2015, 12.03.2015 and 16.03.2015) and a reminder dated 27.04.2015. The Taxpayer failed to submit invoices aggregating to Rs. 18,13,455/-. Accordingly, credit of Rs. 18,13,455/- is denied for non-production of prescribed documents under Rule 9 of the CCR, 2004.
C. Credit is admissible only where the input service is used for providing the output service and a direct nexus is established. Additionally, exclusions apply, and “activities relating to business” stands deleted w.e.f. 01.04.2011. (Annexures III & IV)
D. It is the assessee’s burden under Rule 9(5) of the CCR, 2004 to prove admissibility of documents. Accordingly, Club Mahindra can avail credit only on those services directly used for providing its Club/Association output service, with the burden to establish eligibility resting on the Taxpayer.
The Ld. A.R. stated that no offer of producing the requisite documents or proof of admissibility of documents had been submitted, even at this stage and hence the appeals may be rejected.
Discussion & Analysis
4. We have gone through the appeals and have heard the rival parties. We find that the dispute can be bunched under three broad headings:
i. Credit denied because of non-submission of proper documents
ii. Credit denied due to availing credit of ineligible input service
iii. Defects in the SCN
4.1 The preliminary submission made by the appellant is that the Show Cause Notice (SCN) was issued hastily and based solely on an Excel sheet provided by the appellant, without verification of underlying invoices. The general rule in legal proceedings is that “he who asserts must prove”. This is known as the onus probandi actori incumbit principle. It means that the person who wants the court to believe in a fact must prove that fact. [Also see: Section 101, Indian Evidence Act, 1872; Section 104 in Bharatiya Sakshya Adhiniyam, 2023; Anil Rishi Vs Gurbaksh Singh, (2006) 5 SCC 558; Rangammal Vs Kuppuswami, (2011) 12 SCC 220]. The burden of proof is hence on the appellant to prove that the SCN has been issued without verification of underlying invoices. Assumptions and presumptions will not do. We find that the Annexures to the SCN have not been made a part of the Appeal Memorandum. No proof other than a bald statement has been made and hence the submissions are rejected. The Apex Court in R.P. Royappa Vs State of Tamil Nadu and Anr., [AIR (1974) SC 555], held that Courts would be slow to draw dubious inferences from incomplete facts placed before it by a party, particularly when the imputations are grave and they are made against the holder of an office which has a high responsibility in the administration.
5. We find that the computation of tax demanded has purportedly been shown Annexure wise to the SCN, which unfortunately, as stated earlier, have not been made a part of the Appeal Memorandum. From the impugned order it can be gleaned that Annexure I of the SCN relates to details of invoices in which the Service Tax registration number of the service provider was absent. Annexure II pertains to invoices which did not contain the nature/ description of service received. Annexures III & IV relates to the availment of credit on ineligible services. We take up the issues and submissions made by the rival parties, Annexure wise.
Annexures I & II of the SCN
6. Rule 9 of the CCR, 2004 deals with the availment of eligible credit and the documentation requirements. It admits no ambiguity: eligible CENVAT credit can be availed only on prescribed documents supported by proper records. The proviso to Rule 9(2) is a narrow exception, not a charter to regularise defective claims. It operates only where the document contains the core particulars and the proper officer is satisfied that the goods or services were in fact received and duly accounted for. In the present appeal, it is Revenue’s case that the appellant never discharged that threshold burden. Rule 9(5) & (6) puts the matter beyond controversy by expressly placing the burden on the claimant. The relevant portion of Rule 9 is reproduced below:
RULE 9. Documents and accounts. — (1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, ……
(2) No CENVAT credit under sub-rule (1) shall be taken unless all the particulars as prescribed under the Central Excise Rules, 2002 or the Service Tax Rules, 1994, as the case may be, are contained in the said document:
Provided that if the said document does not contain all the particulars but contains the details of duty or service tax payable, description of the goods or taxable service, assessable value, Central Excise or Service tax registration number of the person issuing the invoice, as the case may be, name and address of the factory or warehouse or premises of first or second stage dealers or provider of output service, and the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit.
…..
(5) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilized, the person from whom the input or capital goods have been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit.
(6) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit.
(emphasis added)
6.1 The aforesaid Rule, therefore, demarcates the particulars contained in an input credit document into two distinct categories, namely, (A) the core area, which comprises:
i. the particulars relating to the duty or service tax payable;
ii. the description of the goods or taxable service;
iii. the assessable value;
iv. the Central Excise or Service Tax registration number of the person issuing the invoice, as the case may be; and
v. the name and address of the factory, warehouse, premises of the first or second stage dealer, or the provider of output service.
The remaining particulars would fall within (B) the penumbra area, namely, all other details reflected in the document. The particulars constituting the core area are foundational in character and are, by their very nature, readily capable of verification—some from the face of the document itself, such as whether the duty bears nexus to the assessable value, and others upon minimal enquiry so as to establish that the document has been lawfully issued. An invoice is not a mere piece of paper; it is a vital commercial instrument evidencing the supply of goods or rendition of services, the tax paid thereon, and the payment due or received. In the regime of indirect taxation, particularly under MODVAT, CENVAT and GST, such documents assume even greater significance, for once credit is taken in the books of account based on the document, it becomes, in effect, immediately available for discharge of duty, akin to liquid cash. The facility of availing such credit being substantially easier and less costly than raising finance through conventional means, the possibility of defective documents being passed off as genuine, by unscrupulous businessmen, cannot be ruled out. It is for this reason that stringent safeguards are indispensable to protect the public revenue from fraud, making the process mandatory. The details contained in the core area of the said document are hence mandatory in nature, based on a statutory directive. The discretionary jurisdiction of the Deputy Commissioner/Assistant Commissioner is, therefore, confined to the penumbra area while considering whether credit on a defective document may be allowed or rejected. Where the statute prescribes that an act must be done in a particular manner and also provides the consequence of non-compliance, the requirement must be held to be mandatory. [See: State of Tharkhand & Ors. Vs Ambay Cements & Anr. – 2004-TIOL-89-SC-CT]. Consequently, the appellant demonstrating the integrity of the core area particulars of the input credit document is mandatory and, under the Rule, stands beyond the subjective or discretionary jurisdiction of the proper officer. 6.2 In its landmark judgment in Rohitash Kumar & Ors. Vs Om Prakash Sharma & Ors [(2013) 11 SCC 451], on the interpretation of statutes the Hon’ble Supreme Court held that inconvenience or hardship is not a ground for the court to interpret the plain language of the statute differently, to give relief. It held:
“19. In Bengal Immunity Co. Ltd. v. State of Bihar & Ors., AIR 1955 SC 661 it was observed by a Constitution Bench of this Court that, if there is any hardship, it is for the legislature to amend the law, and that the Court cannot be called upon, to discard the cardinal rule of interpretation for the purpose of mitigating such hardship. If the language of an Act is sufficiently clear, the Court has to give effect to it, however, inequitable or unjust the result may be. The words, ‘dura lex sed lex’ which mean ‘the law is hard but it is the law.’ may be used to sum up the situation. Therefore, even if a statutory provision causes hardship to some people, it is not for the Court to amend the law. A legal enactment must be interpreted in its plain and literal sense, as that is the first principle of interpretation.
20. In Mysore State Electricity Board Vs Bangalore Woolen, Cotton & Silk Mills Ltd. & Ors., AIR 1963 SC 1128 a Constitution Bench of this Court held that, ‘inconvenience is not’ a decisive factor to be considered while interpreting a statute.
21. In Martin Burn Ltd. v. The Corporation of Calcutta, AIR 1966 SC 529, this Court, while dealing with the same issue observed as under:-
‘A result flowing from a statutory provision is never an evil. A Court has no power to ignore that provision to relieve what it considers a distress resulting from its operation. A statute must of course be given effect to whether a Court likes the result or not.’
(See also: The Commissioner of Income Tax, West Bengal I, Calcutta v. M/s Vegetables Products Ltd., AIR 1973 SC 927; and Tata Power Company Ltd. v. Reliance Energy Limited & Ors., (2009) 16 SCC 659).
Therefore, it is evident that the hardship caused to an individual, cannot be a ground for not giving effective and grammatical meaning to every word of the provision, if the language used therein, is unequivocal.”
(emphasis added)
6.3 The Apex Court in its recent judgment in Chief Commissioner of Central Goods and Service Tax & Ors. Vs M/s Safari Retreats Private Ltd. & Ors. [CIVIL APPEAL NO. 2948 OF 2023, Dated: 03/10/2024 /2024-TIOL-101-SC-GST], after examining a host of judgments listed out the principles governing the interpretation of the taxation statutes, as under:
“RULES REGARDING THE INTERPRETATION OF TAXING STATUTES
25. Regarding the interpretation of taxation statutes, the parties have relied on several decisions. The law laid down on this aspect is fairly well-settled. The principles governing the interpretation of the taxation statutes can be summarised as follows:
a. A taxing statute must be read as it is with no additions and no subtractions on the grounds of legislative intendment or otherwise;
b. If the language of a taxing provision is plain, the consequence of giving effect to it may lead to some absurd result is not a factor to be considered when interpreting the provisions. It is for the legislature to step in and remove the absurdity;
c. While dealing with a taxing provision, the principle of strict interpretation should be applied;
d. If two interpretations of a statutory provision are possible, the Court ordinarily would interpret the provision in favour of a taxpayer and against the revenue;
e. In interpreting a taxing statute, equitable considerations are entirely out of place;
f. A taxing provision cannot be interpreted on any presumption or assumption;
g. A taxing statute has to be interpreted in the light of what is clearly expressed. The Court cannot imply anything which is not expressed. Moreover, the Court cannot import provisions in the statute to supply any deficiency;
h. There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature’s failure to express itself clearly;
i. If literal interpretation is manifestly unjust, which produces a result not intended by the legislature, only in such a case can the Court modify the language;
j. Equity and taxation are strangers. But if construction results in equity rather than injustice, such construction should be preferred;
k. It is not a function of the Court in the fiscal arena to compel the Parliament to go further and do more;
l. When a word used in a taxing statute is to be construed and has not been specifically defined, it should not be interpreted in accordance with its definition in another statute that does not deal with a cognate subject. It should be understood in its commercial sense. Unless defined in the statute itself, the words and expressions in a taxing statute have to be construed in the sense in which the persons dealing with them understand, that is, as per the trade understanding, commercial and technical practice and usage.”
6.4 The burden of establishing the admissibility of eligible CENVAT credit squarely rests upon the manufacturer or the provider of output service who claims such credit. The appellant cannot be permitted to circumvent this statutory burden merely by producing defective invoices along with proof of payment. Such material, by itself, does not constitute proof of admissibility in the eye of law. If the appellant intended to invoke the proviso to Rule 9(2), it was incumbent upon it, at the time of receipt of the invoices as a prudent businessman, to rectify the defects to the extent possible, approach the proper officer and satisfy him as to the actual utilisation and accounting of eligible services in question, instead of taking a chance and waiting for it to be discovered by taxmen during an audit or inspection.
6.5 The principles governing adherence to the procedure for availment of credit under the CGST Act and the Tamil Nadu VAT Act have been comprehensively analysed by the Hon’ble Madras High Court in Reliance 3io Infocomm Ltd. Vs Union of India [(2026) 184 taxmann.com 103 (Madras)]. In our considered view, the legal principles enunciated therein are equally apposite to the procedure contemplated under the Finance Act, 1994. The relevant portion is extracted below:
“22. In the case of VKC Footsteps India Pvt Ltd [Union of India v. VKC Footsteps India Pvt Ltd (2022) 2 SCC 603], in the matter of challenge to the validity of the statutory scheme of refund of unutilised ITC, after having referred to the provision contained in Section 16 of the CGST Act, it was held as follows:
“70. Section 16(2) indicates that the credit of input tax charged on any supply of goods or services, or both, can be availed of by a registered person subject to the conditions which are set out in the provisos. Input tax, as we have already seen, has been defined in Section 2(62) as tax charged on any supply of goods or services or both. The credit of input tax is, therefore, relatable both to the supply of goods and services. Whether tax is paid on the supply of goods or services, the recipients receive ITC in a similar manner. Taxes on goods and services are identifiable, but upon credit to the electronic ledger they form a common pool for utilisation.”
23. It is thus clear that the credit of input tax charged on any goods or services or both can be availed by a registered person subject to the conditions which are set out in the provisions.
24.1. In the case of ALD Automotive Pvt Ltd. [ALD Automotive (P.) Ltd. v. Commercial Tax Officer – [2018] 99 taxmann.com 202 (SC)/[2018] 70 GST 751 (SC)/(2019) 13 SCC 225], it was held that the input credit is in the nature of benefit/concession extended to the dealer under the statutory scheme and that concession can be received by the beneficiary only as per the scheme of the statute. It was held as below:
“34 The input credit is in the nature of benefit/concession extended to the dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the statute. Reference is made to the judgment of this Court in Godrej & Boyce Mfg. Co. (P) Ltd. v. CST, (1992) 3 SCC 624. Rules 41 and 42 of the Bombay Sales Tax Rules, 1959 provided for the set-off of the purchase tax. This Court held that the rule-making authority can provide curtailment while extending the concession. In para 9 of the judgment, the following has been laid down: (SCC pp. 631-32)
‘9. In law (apart from Rules 41 and 41-A) the appellant has no legal right to claim set-off of the purchase tax paid by him on his purchases within the State from out of the sales tax payable by him on the sale of the goods manufactured by him. It is only by virtue of the said Rules—which, as stated above, are conceived mainly in the interest of public—that he is entitled to such set-off. It is really a concession and an indulgence. More particularly, where the manufactured goods are not sold within the State of Maharashtra but are despatched to out-State branches and agents and sold there, no sales tax can be or is levied by the State of Maharashtra. The State of Maharashtra gets nothing in respect of such sales effected outside the State. In respect of such sales, the rule-making authority could well have denied the benefit of set-off. But it chose to be generous and has extended the said benefit to such out-State sales as well, subject, however to deduction of one per cent of the sale price of such goods sent out of the State and sold there. We fail to understand how a valid grievance can be made in respect of such deduction when the very extension of the benefit of set-off is itself a boon or a concession. It was open to the rulemaking authority to provide for a small abridgement or curtailment while extending a concession. Viewed from this angle, the argument that providing for such deduction amounts to levy of tax either on purchases of raw material effected outside the State or on sale of manufactured goods effected outside the State of Maharashtra appears to be beside the point and is unacceptable. So is the argument about apportioning the sale-price with reference to the proportion in which raw material was purchased within and outside the State.”
24.2. In the said decision, the fulfilment of preconditions for availing concession was held to be mandatory relying upon another decision in the case of India Agencies Vs CCT (2005) 2 SCC 129, as below:
“35. A three-Judge Bench in India Agencies Vs CCT, (2005) 2 SCC 129 had the occasion to consider Rule 6(b)(ii) of the Central Sales Tax (Karnataka) Rules, 1957, which requires furnishing of original Form C to claim concessional rate of tax under Section 8(1). This Court held that the requirement under the Rule is mandatory and without producing the specified documents, dealers cannot claim the benefits. The following was laid down in para 13: (SCC pp. 139-140)
’13. … Under Rule 6(b)(ii) of the Karnataka Rules, the State Government has prescribed the procedures to be followed and the documents to be produced for claiming concessional rate of tax under Section 8(4) of the Central Sales Tax Act. Thus, the dealer has to strictly follow the procedure and Rule 6(b) (ii) and produce the relevant materials required under the said rule. Without producing the specified documents as prescribed thereunder a dealer cannot claim the benefits provided under Section 8 of the Act. Therefore, we are of the opinion that the requirements contained in Rule 6(b)(ii) of the Central Sales Tax (Karnataka) Rules, 1957 are mandatory.”
24.3. The other legal proposition of law that taxing statute is to be interpreted literally and further it is in the domain of the legislature as to how much tax credit is to be given and under what circumstances was also clearly stated as below:
“36. This Court had the occasion to consider the Karnataka Value Added Tax Act, 2013 in State of Karnataka v. M.K. Agro Tech. (P) Ltd. , (2017) 16 SCC 210. This Court held that it is a settled proposition of law that taxing statutes are to be interpreted literally and further it is in the domain of the legislature as to how much tax credit is to be given under what circumstances. The following was stated in para 32: (SCC p. 223)
’32. Fourthly, the entire scheme of the KVAT Act is to be kept in mind and Section 17 is to be applied in that context. Sunflower oil cake is subject to input tax. The legislature, however, has incorporated the provision, in the form of Section 10, to give tax credit in respect of such goods which are used as inputs/raw material for manufacturing other goods. Rationale behind the same is simple. When the finished product, after manufacture, is sold, VAT would be again payable thereon. This VAT is payable on the price at which such goods are sold, costing whereof is done keeping in view the expenses involved in the manufacture of such goods plus the profits which the manufacturer intends to earn. Insofar as costing is concerned, element of expenses incurred on raw material would be included. In this manner, when the final product is sold and the VAT paid, component of raw material would be included again. Keeping in view this objective, the legislature has intended to give tax credit to some extent. However, how much tax credit is to be given and under what circumstances, is the domain of the legislature and the courts are not to tinker with the same.”
24.4. Interpreting similar provision with regard to availing of ITC under the Tamil Nadu Value Added Tax Act, 2006, it was highlighted that ITC is in the form of concession and it was categorically held that such ITC would be available on certain conditions stipulated in law. The relevant paragraphs are reproduced hereunder:
“37. . . .
38. This Court further held that it is a trite law that whenever concession is given by a statute the conditions thereof are to be strictly complied with in order to avail such concession. In para 12, the following has been laid down: (SCC pp. 134-35)
’12. It is trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the “dealers” to get the benefit of ITC but it is a concession granted by virtue of Section 19. As a fortiori, conditions specified in Section 10 must be fulfilled. In that hue, we find that Section 10 makes original tax invoice relevant for the purpose of claiming tax. Therefore, under the scheme of the VAT Act, it is not permissible for the dealers to argue that the price as indicated in the tax invoice should not have been taken into consideration but the net purchase price after discount is to be the basis. If we were dealing with any other aspect dehors the issue of ITC as per Section 19 of the VAT Act, possibly the arguments of Mr Bagaria would have assumed some relevance. But, keeping in view the scope of the issue, such a plea is not admissible having regard to the plain language of sections of the VAT Act, read along with other provisions of the said Act as referred to above.”
25. It is thus clear that unless all the conditions stipulated in Section 16(2) of the CGST Act are fulfilled as required under the law, a registered person is not entitled to take ITC.
*****. *****. *****
28. A conjoint reading of the provisions contained in Section 16 of the CGST Act and the Rules, referred to herein above, would reveal that mere receipt of invoice does not entitle the registered dealer to claim to be entitled to ITC without fulfillment of other conditions enumerated therein. Various conditions incorporated therein, including submission of details of invoices or debit notes furnished in the statement of outward supplies in Form GSTR-1 [as amended in Form GSTR-1A (if any)] and communication of details of ITC in respect of such invoice or debit notices to the registered person in Form GSTR-2B [as provided under Rule 37(4) of the CGST Rules], alone would finally lead to a situation where ITC can be said to be availed legally and in accordance with the statutory scheme of CGST Act and the Rules made thereunder, not otherwise.”
(emphasis added)
6.6 The Constitution Bench in Commissioner of Central Excise, New Delhi Vs Hari Chand Shri Gopal [2010 (260) E.L.T. 3 (S.C.)], referring to the doctrine of substantial compliance, recognised that hardship may be avoided where a party has done what is reasonably expected and any shortfall is minor or inconsequential. It stated:
“24. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the “essence” or the “substance” of the requirements. Like the concept of “reasonableness”, the acceptance or otherwise of a plea of “substantial compliance” depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means “actual compliance in respect to the substance essential to every reasonable objective of the statute” and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. Fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance of an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non- compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the “substance” or “essence” of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the “essence” of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential.”
The Apex Court went on to examine whether deviation from procedure under Chapter X of the Central Excise would be permitted since it was procedural in nature.
34. We find it difficult to sustain the reasoning of the Tribunal that the procedure laid down in Chapter X, is meant only to establish the receipt of goods by the recipient unit and their utilization. The Tribunal completely overlooked the object and purpose of the procedure laid down in Chapter X. The goods manufactured at the supplier end were excisable goods and if a party wants remission of duty, he has to follow certain pre-requisities, the object of which is to see that the goods be not diverted or utilized for some other purpose, on the guise of the exemption notification. Detailed procedures have been laid down in Chapter X so as to curb the diversion and misutilization of goods which are otherwise excisable. The plea of “substantial compliance” and “intended use” is, therefore, rejected for the reasons already stated.
(emphasis added)
6.7 In Eagle Flask Industries Limited Vs Commissioner of Central Excise, Pune reported in 2004 (171) E.L.T. 296 (S.C.), the appellant submitted that mere lapse of non-submission of a declaration in terms of exemption notification did not disentitle them from benefits otherwise available under the notification. The Hon’ble Supreme Court held :
“6. We find that Notification 11/88 deals with exemption from operation of Rule 174 to exempted goods. The Notification has been issued in exercise of powers conferred by Rule 174A of the Rules. Inter a/ia it is stated therein that, where the goods are chargeable to nil rate of duty or exempted from the whole of duty of excise leviable thereon, the goods are exempted from the operation of Rule 174 of the Rules. The goods are specified in the Schedule to the Central Excise Tariff Act, 1985 (in short ‘the Tariff Act’). The proviso makes it clear that where goods are chargeable to nil rate of duty or where the exemption from the whole of the duty of excise leviable is granted on any of the six categories enumerated, the manufacturer is required to make a declaration and give an undertaking, as specified in the Form annexed while claiming exemption for the first time under this Notification and thereafter before the 15th day of April of each financial year. As found by the forums below, including CEGAT, factually, the declaration and the undertaking were not submitted by the appellants. This is not an empty formality. It is the foundation for availing the benefits under the Notification. It cannot be said that they are mere procedural requirements, with no consequences attached for non-observance. The consequences are denial of benefits under the Notification. For availing benefits under an exemption Notification, the conditions have to be strictly complied with. Therefore, CEGAT endorsed the view that the exemption from operation of Rule 174, was not available to the appellants. On the facts found, the view is on terra firma. We find no merit in this appeal, which is, accordingly, dismissed.”
(emphasis added)
6.8 The Hon’ble Apex Court in The State of Karnataka Vs M/s Ecom Gill Coffee Trading Private Limited. [Civil Appeal No. 230 OF 2023 / 2023 (3) TMI 533 SC]. examined the relevance of the `burden of proof’ as per Section 70 of the KVAT Act, 2003, which is similar to Rule 9(5) & (6) of the CCR, 2004. The relevant portions are extracted below;
“9. While considering the aforesaid issue/question, Section 70 of the Karnataka Value Added Tax Act, 2003 is required to be referred to, which reads as under:
“70. Burden of proof.- (1) For the purposes of payment or assessment of tax or any claim to input tax under this Act, the burden of proving that any transaction of a dealer is not liable to tax, or any claim to deduction of input tax is correct, shall lie on such dealer.
(2) Where a dealer knowingly issues or produces a false tax invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to tax at a lower rate, or that a deduction of input tax is available, the prescribed authority shall, on detecting such issue or production, direct the dealer issuing or producing such document to pay as penalty:
a. in the case of first such detection, three times the tax due in respect of such transaction or claim; and
b. in the case of second or subsequent detection, five times the tax due in respect of such transaction or claim.
(3) Before issuing any direction for the payment of the penalty under this Section, the prescribed authority shall give to the dealer the opportunity of showing cause in writing against the imposition of such penalty.”
9.1 Thus, the provisions of Section 70, quoted hereinabove, in its plain terms clearly stipulate that the burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that the ITC claim is correct is squarely upon the assessee who has to discharge the said burden. Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient. The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Such a burden of proof cannot get shifted on the revenue. Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act, 2003. The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. The aforesaid information would be in addition to tax invoices, particulars of payment etc. In fact, if a dealer claims Input Tax Credit on purchases, such dealer/purchaser shall have to prove and establish the actual physical movement of goods, genuineness of transactions by furnishing the details referred above and mere production of tax invoices would not be sufficient to claim ITC. In fact, the genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section 70 of the KVAT Act, 2003 would be upon the purchasing dealer. At the cost of repetition, it is observed and held that mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per section 70 of the Act, 2003.
10. Even considering the intent of section 70 of the Act, 2003, it can be seen that the ITC can be claimed only on the genuine transactions of the sale and purchase and even as per section 70(2) if a dealer knowingly issues or produces a false tax invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to take at a lower rate, or that a deduction of input tax is available, such a dealer is liable to pay the penalty. Therefore, as observed hereinabove, for claiming ITC, genuineness of the transaction and actual physical movement of the goods are the sine qua non and the aforesaid can be proved only by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. The purchasing dealers have to prove the actual physical movement of the goods, alleged to have been purchased from the respective dealers. If the purchasing dealer/s fails/fail to establish and prove the said important aspect of physical movement of the goods alleged to have been purchased by it/them from the concerned dealers and on which the ITC have been claimed, the Assessing Officer is absolutely justified in rejecting such ITC claim.
11. In the present case, the respective purchasing dealer/s has/have produced either the invoices or payment by cheques to claim ITC. The Assessing Officer has doubted the genuineness of the transactions by giving cogent reasons on the basis of the evidence and material on record. In some of the cases, the registration of the selling dealers have been cancelled or even the sale by the concerned dealers has been disputed and/or denied by the concerned dealer. In none of the cases, the concerned purchasing dealers have produced any further supporting material, such as, furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and therefore it can be said that the concerned purchasing dealers failed to discharge the burden cast upon them under Section 70 of the KVAT Act, 2003. At the cost of repetition, it is observed and held that unless and until the purchasing dealer discharges the burden cast under Section 70 of the KVAT Act, 2003 and proves the genuineness of the transaction/purchase and sale by producing the aforesaid materials, such purchasing dealer shall not be entitled to Input Tax Credit.
12. Despite the findings of fact recorded by the Assessing Officer on the genuineness of the transactions, while refusing to allow the ITC, which came to be confirmed by the first Appellate Authority, the second Appellate Authority as well as the High Court have upset the concurrent findings given by the Assessing Officer as well as the first Appellate Authority, on irrelevant considerations that producing invoices or payments through cheques are sufficient to claim ITC which, as observed hereinabove, is erroneous. As observed hereinabove, over and above the invoices and the particulars of payment, the purchasing dealer has to produce further material like the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods including actual physical movement of the goods, alleged to have been purchased from the concerned dealers.
13. Now so far as the reliance placed upon Rules 27 and 29 of the Karnataka Value Added Tax Rules, 2005 and the submission on behalf of the purchasing dealers that under the provisions of the Rules 2005, more particularly under Rules 27 & 29, the only requirement is to issue the tax invoice and to produce the same and there is no other requirement is concerned, the aforesaid has no substance. Rule 27 cast an obligation on the dealers to issue tax invoice and the particulars of the tax invoice are provided under Rule 29. Merely because the tax invoice as per Rule 27 and Rule 29 might have been produced, that by itself cannot be said to be proving the actual physical movement of the goods, which is required to be proved, as observed hereinabove. Producing the invoices as per Rules 27 and 29 of the Rules 2005 can be said to be proving one of the documents, but not all the documents to discharge the burden to prove the genuineness of the transactions as per section 70 of the KVAT Act, 2003.
14. Now so far as the reliance upon the decision of the Delhi High Court in the case of On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi (Writ Petition (Civil) No. 6093/2017, decided on 26.10.2017), relying upon by the learned counsel appearing on behalf of the purchasing dealers is concerned, at the outset, it is required to be noted that before the Delhi High Court, Section 9(2)(g) of the Delhi Value Added Tax Act was under consideration, which reads as under:
“9(2)(g) to the dealers or class of dealers unless the tax paid by the purchasing dealer has actually been deposited by the selling dealer with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the return filed for the respective tax period.”
The burden of proof as per Section 70 of the KVAT Act, 2003 was not an issue before the Delhi High Court. How and when the burden of proof can be said to have been discharged to prove the genuineness of the transactions was not the issue before the Delhi High Court. As observed hereinabove, while claiming ITC as per section 70 of the KVAT Act, 2003, the purchasing dealer has to prove the genuineness of the transaction and as per section 70 of the KVAT Act, 2003, the burden is upon the purchasing dealer to prove the same while claiming ITC.
15. In view of the above and for the reasons stated above and in absence of any further cogent material like furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and the actual physical movement of the goods by producing the cogent materials, the Assessing Officer was absolutely justified in denying the ITC, which was confirmed by the first Appellate Authority. Both, the second Appellate Authority as well as the High Court have materially erred in allowing the ITC despite the concerned purchasing dealers failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per section 70 of the KVAT Act, 2003. The impugned judgment(s) and order(s) passed by the High Court and the second Appellate Authority allowing the ITC are unsustainable and deserve to be quashed and set aside and are hereby quashed and set aside. The orders passed by the Assessing Officer denying the ITC to the concerned purchasing dealers, confirmed by the first Appellate Authority are hereby restored.
16. The instant appeals are accordingly allowed. However, there shall be no order as to costs.”
(emphasis added)
The principle flowing from the above judgement as applicable in the present context is very lucid and emphatic. The burden of proving to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, the correctness of the documentation on which CENVAT credit is sought to be claimed/ availed, as per proviso to Rule 9(2) ibid, remains upon the output service provider, who seeks to take such credit. Such burden of proof cannot be shifted to Revenue. Credit can be claimed and availed only on genuine transactions – in which the core areas of the input credit document as mentioned in the Rule is not seen to be compromised – and can be demonstrated to be so. Mere production of defective invoices with excuses relating to the procedural nature of the issue, is not sufficient and cannot be said to be proving the burden as required by the Rules.
6.9 The Hon’ble HIGH COURT OF GUJARAT in Maruti Enterprise Vs Union of India [(2026) 186 taxmann.com 90 (Gujarat), Dated: 0105-2026], held as under:
85. The Supreme Court in the case of ALD Automotive (P.) Ltd. Vs CTO [2018] 99 taxmann.com 202/70 GST 751 (SC)/(2019) 13 SC 225, while examining the provisions of VAT, has clarified the nature of ITC as under:
“34.The input credit is in nature of benefit/ concession extended to dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the Statute.
35. A Three-Judge Bench in India Agencies Vs Addl. CIT 2006 taxmann.com 1841 (SC) had occasion to consider Rule 6(b)(ii) of Central Sales Tax (Karnataka) Rules, 1957, which requires furnishing original Form-C to claim concessional rate of tax under Section 8(1). This Court held that the requirement under the Rule is mandatory and without producing the specified documents, dealers cannot claim the benefits.
36. This court had occasion to consider the Karnataka Value Added Tax Act, 2013 in State of Karnataka Vs M.K. Agro Tech.(P) Ltd. [2017] 86 taxmann.com 123/64 GST 19 (SC). This Court held that it is a settled proposition of law that taxing statute are to be interpreted literally and further it is in the domain of the legislature as to how much tax credit is to be given under what circumstances.
37. The judgment on which learned Advocate General of Tamil Nadu had placed much reliance i.e. Jayam and Co. [Jayam and Company Vs Assistant Commissioner and Another – (2016) 15 SCC 125], is the judgment which is relevant for present case. In the above case, this Court had occasion to interpret provisions of Tamil Nadu Value Added Tax Act, 2016, Section 19(20), Section 3(2) and Section 3(3). Validity of Section 19(20) was under challenge in the said case. This Court after noticing the scheme under Section 19 noticed following aspects in paragraph 11:
“11. From the aforesaid scheme of Section 19 following significant aspects emerge:
a. ITC is a form of concession provided by the legislature. It is not admissible to all kinds of sales and certain specified sales are specifically excluded.
b. Concession of ITC is available on certain conditions mentioned in this section.
c. One of the most important condition is that in order to enable the dealer to claim ITC it has to produce original tax invoice, completed in all respect, evidencing the amount of input tax.”
38. This Court further held that it is a trite law that whenever concession is given by a statute the conditions thereof are to be strictly complied with in order to avail such concession. In paragraph 12, following has been laid down: —
“12. It is a trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concession. . . .”
(emphasis added)
7. We may now examine the averments of the rival parties.
7.1 The claim of the appellant that any discrepancies in invoices were held to be procedural and curable and therefore cannot justify denial of credit, is not correct in the light of the discussion above. The proof of showing compliance is also on the appellant. Annexures I & II of the SCN pertain to ineligible documents. However, the said annexures have not been provided along with the SCN enclosed in the Appeal Memorandum. The impugned order mentions at para 9.1 that the appellant vide their letter dated 28.04.2015 had submitted some box files, purporting to contain copies of invoices covered under Annexures I & II of the SCN. On verification the Ld. Commissioner has recorded that invoices with service tax registration was submitted for an amount of Rs 27,47,204/- out of Rs 35,17,104/- mentioned in Annexure I, leaving a balance of Rs 7.70,080/-. The said amount of Rs 27,47,204/-was allowed as credit. The order goes on to record that the appellant did not submit any documents listed in Annexure II of the SCN which involved an amount of Rs 10,43,375/-. This as the appellant pointed out appears to contradict the recording in the impugned Order acknowledging the submissions of documents pertaining to Annexure II as per the appellants letter dated 28.04.2015. The Order however also records that during the personal hearing on 16.03.2015 the appellant undertook to submit the documents in 3 weeks’ time, which they only partially fulfilled after a reminder. In amidst the submissions and counter-submissions we feel that the ends of justice would be met by remanding the matter for giving the appellant a last opportunity to submit all the documents for verification in terms of Rule 9 of CCR, 2004, and for a reasoned decision thereafter.
7.2 As regards the appellants plea that they were not given a copy of the verification report, we agree that the verification report should have been furnished to the appellant, so that any difference could have been sorted out and reconciled and the difference minimized avoiding a multiplicity of proceedings. Consultation, joint verification and reconciliation are accepted steps in dispute resolution, as tax laws seek to move from adversarial litigation to reliance on consensual and participatory mechanisms. They have now become a part of the tax statute. Hence Adjudicating Authorities should not resist the transparency that sharing of factual reports bring. This is to be differentiated from confidential internal reports rendering subjective opinion called for by the Authority from subordinates and would be governed by his discretionary jurisdiction. A copy of the report after fresh verification are conducted may hence be provided to the appellant, allowing it to state its objections if any or after recording the appellants satisfaction in writing in case of a joint verification, before deciding the matter.
Annexures III & IV of the SCN
8. Annexure III & IV relates to the availment of credit on ineligible services. The dispute pertains to the period April 2012 – March 2013. It would be apposite to extract Rule 2(1) of CCR, 2004 at this stage.
The earlier Rule 2(1) was amended by Notification dated 01.03.2011, with effect from 01.04.2011 and it is reproduced below :
With effect from 01.04.2011
“2(1) “input service” means any service,-
i. used by a provider of output service for providing an output service; or
ii. used by the 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 modernization, 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 exclude –
(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
a. construction or execution of works contract of a building or a civil structure or a part thereof; or
b. laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or
(B) Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) Service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by
a. a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ;or
b. an insurance company in respect of a motor vehicle insured or reinsured by such person; or
(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;
(emphasis supplied)
Rule 2(1), as it stood prior to 01.04.2011 – the exclusions made in the said rule after 01.04.2011 are highlighted – is also reproduced below: Prior to 01.04.2011
“2(1) “input service” means any service,-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the 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 setting up, modernization, 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, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;”
With effect from 01.07.2012
“2(1) “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 up to the place of removal, and includes services used in relation to modernization, 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 up to the place of removal. but excludes-
(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for-
a. construction or execution of works contract of a building or a civil structure or a part thereof; or
b. laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or”
Revenue is of the opinion that the definition of ‘input service’ as per Rule 2(1) of CCR, 2004 in its main limb, requires that an input service to be eligible for credit, should be ‘used for providing output service’. Hence there must be a nexus between the input service and the output service provided. The ‘use’ must be directly related to the output service. Secondly, the definition explicitly excludes certain services. Further, the phrase “activities relating to Business” has been deleted from definition of input service w.e.f. 01.04.2011. The appellant has submitted that the services on which input credit has been availed are in connection with its output service on which tax has been duly discharged and are not used for personal consumption of employees. 8.1 Under the Service Tax regime, Cenvat credit was designed to avoid cascading of taxes by enabling a service provider to avail credit of tax paid on input services and utilize it for payment of tax on output services. Rule 2(1) of the Cenvat Credit Rules, 2004 gave “input service” a wide ambit, allowing credit where the service had a real and sufficient nexus with the assessee’s output service and the chain of credit remained unbroken. A direct one-to-one correlation was not necessary. In Commissioner of Central Excise Vs Manikgarh Cement, 2010 (20) S.T.R. 456 (Bom.), following Maruti Suzuki Ltd. Vs Commissioner of Central Excise, Delhi, AIR 2009 SC 534, the Hon’ble Bombay High Court held that unless a nexus is established between the services rendered and the business carried on by the assessee, the benefit of CENVAT credit was not allowable. Further the expression ‘relating to business’ in Rule 2(1) of CCR, 2004 refers to activities which are integrally related to the business activity of the assessee and not welfare activities undertaken by the assessee. Post 01.04.2011 the definition of ‘input service’ was amended, primarily removing the phrase ‘activities relating to business’ and excluding certain specific services including services used primarily for personal use or consumption of any employee, from its definition.
8.2 The Principal Bench of this Tribunal at New Delhi had an occasion
to examine the issue, post the amendment of the definition of ‘input service’ in the case of Godawari Power & Ispat Limited Vs Commissioner, Customs, Central Excise, FINAL ORDER NO. 51519/2023, Dated: 08.11.2023. It held:
“14. It would be seen from the aforesaid definition of “input service” in rule 2(1) of the Rules that while the “means” part of the definition has continued to remain the same pre amendment or post amendment, but the “includes” part and the “excludes” part of the definition of “input service” have underdone changes. Though “services used in relation to setting up” of a factory was included in the inclusive part of the definition of “input services” prior to 01.04.2011 but it was deleted w.e.f. 01.04.2011. The “excludes” part in the definition of “input service” was added w.e.f. 01.04.2011 and it provided that services specified in certain sub-clauses of clause (105) of section 65 of the Finance Act in so far as they were used for construction of a building or a civil structure or a part thereof would be excluded w.e.f. 01.04.2011. It is also seen that the “excludes” part of the definition of “input service” was further amended w.e.f. 01.07.2012.”
(emphasis added)
Hence though the phrase ‘relating to business’ in Rule 2(1) of CCR, 2004 was deleted from the definition of ‘input services’, an assessee could avail of Cenvat credit if the input service satisfied the “means” part of the definition by having a real and sufficient nexus with the assessee’s output service, without being for the personal use or consumption of any of its employee.
9. The input services listed below were taken up by the appellant at the Bar and are disputed by Revenue. The explanation given by the appellant, in brief are stated against each input service.
i. Civil works. The appellant has stated that the service pertains to renovation/modernisation and not for construction /works contract of a building/ civil structure. The activity is covered by Boards Circular No. 943/04/2011-CX dated 29.04.2011. We find that service used in relation to modernization, renovation or repairs of factory either prior to 01.04.2011 or from 01.04.2011 upto 30.06.2012 and beyond are covered by the Order of the Principal Bench in Godawari Power (supra). The Bench held that any construction and works contract if used for repair and renovation of existing factory, the same falls under inclusion clause of definition of Input Service, accordingly, the Cenvat credit is admissible. Further, the Board through its Circular No. dated 29-4-2011 has clarified that renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, are specifically provided for in the inclusive part of the definition of input services. Hence the said input credit is an eligible credit.
ii. Vehicle hire and repair. The appellant has stated that the service is used for taxable output services and not for personal use of the employees. The eligibility of input credit is covered by the Order of the Coordinate Bench in Shoreline Hotels Vs Commissioner (A), 2019 (6) TMI 70 (CESTAT Mumbai); Marvel Vinyls Vs CCE, 2016 (11) TMI 1128 (CESTAT New Delhi)].
iii. Sales promotion and customer engagement. The appellant has stated that the service is for engaging customers as part of advertisement and sales promotion and not for personal use. The same is covered by the Order of a coordinate Bench in Reliance Communication Vs CST – 2018 (5) TMI 488 (CESTAT Mumbai).
iv. Membership fees. The appellant has stated that the service is provided by industry/business associations and is not for personal use.
v. Water and food testing. The appellant stated that the service is a statutory/business necessity and not for personal use.
vi. Public performance licence. The appellant has stated that the is integral to hospitality services and not for personal use.
vii. Insurance of company-owned vehicles. The appellant has stated that the exclusion for the service applies where motor vehicles are not capital goods, as in their case.
9.1 We find that the input services in dispute are consumed/ used in relation to the output service of ‘Club or Association’ service to members and other taxable services (tour operations, event management, health club/fitness center, internet café, and renting of immovable property). They have a real and sufficient nexus with the assessee’s output service and are not for the personal use or consumption of any of its employee. Similarly, in Coca Cola India Pvt. Ltd. Vs CCE, Pune-III, 2009 (15) S.T.R. 657 (Bom.), and Kulp (India) Pvt. Ltd. Vs CCE, Mumbai-I, 2012 (12) TMI 825 (CESTAT Mumbai), it was recognized that the test is functional and commercial nexus, not rigid direct use in the output service, that determined the eligibility of the service to be utilized as a input service. The impugned inputs are by the nature of their use, eligible input services and the credit on the same cannot be denied.
10. The Appellant has stated that the impugned Order has confirmed certain disputed services (courier charges, bank charges, telecommunication charges, and consultancy services) even though there is no averment in the SCN and cannot traverse beyond the SCN. We find that the Apex Court in Commissioner Vs Toyo Engineering India Ltd. [2006 (201) E.L.T. 513 (S.C.)], the Apex Court had held that the department cannot travel beyond the show cause notice. Hence the said demands merit being set aside.
Conclusion
11. In the light of the discussions we set aside the demand of duty pertaining to Annexure I & II and remand the same to the file of the Original Authority for a decision afresh by giving the appellant a last opportunity to submit all the documents for verification in terms of Rule 9 of CCR, 2004, and for a reasoned decision thereafter. The appellant should also cooperate in the proceedings which should be completed within ninety days of receipt of this order. As regards Annexure III & IV of the SCN, the demand is set aside and the credit allowed. The appellant is eligible for consequential relief as per law. The appeal is disposed of accordingly.
(Order pronounced in open court on 29.05.2026)
Author Bio
