Back
2026 Supreme(Online)(CESTAT) 1999
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
M. Ajit Kumar, Technical Member, Ajayan T.V., Judicial Member
Sundaram Finance Ltd. – Appellant
Versus
Commissioner of GST & Central Excise – Respondent
Service Tax Appeal No.42309 of 2016
For the Appellants/Petitioners: Vardini Karthick
For the Respondents: M. Selvakumar
Rule 6(3B) of the Credit Rules provides a mandatory, overriding mechanism for banking and financial institutions to reverse 50% of input credit, effectively resolving issues regarding credit proportionality and eligibility for common input services used in both taxable and non-taxable business activities.
Headnote:(A) Finance Act, 1994 - Section 68(2), 73(1), 78 - Cenvat Credit Rules, 2004 - Rules 2(l), 2(p), 6(1), 6(2), 6(3), 6(3A), 6(3B), 14 - Service Tax - Input service credit - Eligibility of credit on manpower services used across multiple business verticals - Non-obstante clause in Rule 6(3B) gives overriding effect to specific provisions for banking companies and financial institutions over general prohibitions in Rule 6 - Rule 6(3B) acts as a specialized mechanism for reversal of credit, rendering complex apportionment of credit unnecessary. (Paras 19, 24, 25, 26, 27)
(B) Limitation - Extended period of limitation - Invocation of - Where the relevant facts regarding the claim and the dispute were known to the authorities in earlier proceedings, the department cannot allege suppression of facts or willful misstatement to invoke extended period of limitation. (Paras 30, 31, 32)
Facts of the case:
The appellant, a financial entity, utilized manpower services for various business activities, including services for which the recipient discharged tax liability under the reverse charge mechanism. The revenue sought to deny input service credit on the ground that these services did not qualify as 'input services' post-amendment to the definition of 'output service' and were used for exempted services without maintaining separate accounts. The adjudicating authority confirmed the demand and imposed penalties, invoking the extended period of limitation due to alleged suppression.
Findings of Court:
The court observed that the manpower services were utilized commonly across all business verticals. It held that for banking and financial institutions, the specific provisions of Rule 6(3B) serve as a complete code for credit reversal, overriding the general restrictions in Rule 6(1) to 6(3). Furthermore, the court found the invocation of the extended period of limitation unjustified as the facts were previously disclosed and adjudicated.
Issues: 1. Whether the manpower services utilized by the appellant qualified as 'input services' for the purpose of Cenvat credit eligibility. 2. Whether the appellant was entitled to the benefit of Rule 6(3B) of the Rules. 3. Whether the extended period of limitation was legally invokable.
Ratio Decidendi: Rule 6(3B) constitutes a special legislative provision for banking and financial institutions that overrides the general constraints under Rule 6. By mandating a 50% reversal, the legislature intended to bypass the practical difficulties of apportioning credit usage across diverse business activities. Because the appellant met its obligations under this rule, the entire credit denial was unsustainable. Additionally, since the department had prior knowledge of the relevant transactions through previous litigation, the conditions for invoking the extended period of limitation were not satisfied.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. requirement of nexus between input services and output services under cenvat credit rules. (Para 1 , 2 , 3 , 4) |
| 2. applicability of rule 6(3b) for nbfcs regarding proportionate reversal of cenvat credit. (Para 5 , 6 , 7 , 8 , 9 , 10) |
| 3. need to prove exclusive use of inputs in exempted activities to deny cenvat credit. (Para 11 , 12 , 13 , 14 , 15 , 16 , 17) |
| 4. overriding nature of rule 6(3b) over other provisions for banking and financial entities. (Para 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29) |
| 5. non-applicability of extended period of limitation absent wilful suppression of facts. (Para 30 , 31 , 32 , 33) |
Per Mr. AJAYAN T.V.
Sundaram Finance Ltd., the appellant herein, has taken exception to the Order in Original No. LTUC/519/2016-C, dated 31.08.2016 passed by the Adjudicating Authority (impugned Order) confirming a demand of service tax for the period 2011-12 to September 2014 along with applicable interest and a penalty imposed under Section 78 of the Finance Act, 1994, (the Act).
2. The brief facts are that the appellant is registered with the department for providing banking and other financial services. The officers of the internal audit group, upon verification of the appellant’s records, noticed that the appellant, apart from its regular business, acted as corporate agents for various insurance /mutual fund companies and were providing insurance auxiliary / mutual fund distribution services to them. For this purpose, they were availing man power services provided by two firms, namely, M/s. Aparajitha Corporate Services Pvt. Ltd. and M/s. Aparajitha Dynamic Synergies (P) Ltd. and were also availing credit of the service tax paid by them on the said services under the Cenvat Credit Rules, 2004 (CCR). It was alleged that the appellant was using these man power services not for the regular business, but exclusively in the provision of mutual fund distribution services / insurance auxiliary services rendered by them on which the service tax was paid by the service recipient Insurance Companies under reverse charge mechanism.
3. The Department was of the view that on a plain reading of the definition of input service as defined under Rule 2 (l) of the CCR, for a service to qualify as an eligible input service, it should be used by a provider of output service (taxable service) for providing their main output service. Since it appeared that the appellant is not using the impugned manpower services for providing their regular taxable output services of banking and financial services, but are only using them for in providing insurance auxiliary services to various insurance companies for which the tax liability is discharged by the insurance companies under reverse charge mechanism as per Rule 2(1)(d)(iii) of the Service tax Rules read with Section 68 (2) of the Act, the Department was of the view that the impugned services do not fall under the ambit of definition of ‘input services’ under Rule 2(l) of the CCR in so far as the appellant was concerned as the appellant was not discharging any service tax on the insurance auxiliary service. Further, Explanation III under Rule 6(3) of the CCR clearly states that no cenvat credit shall be taken on the tax paid on any services that are not input services. Further, from 01.07.2012, the liability for payment of service tax on the impugned services were fastened on the insurance companies in terms of Sl.No.1 of Notification No. 30/2012-ST dated 20.06.2012. From 01-07-2012 the term ‘output service’ was also amended to exclude the services for which service tax is paid by the recipient of service under reverse charge mechanism from the purview of the definition of ‘output service’. As the liability was on the insurance companies to pay service tax on the impugned manpower services provided by the appellant, the Department was of the view that they did not fall within the ambit of definition of ‘input services’ and that therefore the appellant was not eli
