CESTAT Delhi Upholds CENVAT Credit Reversal On Common Services Used For Own Investments

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has upheld the demand for proportionate reversal of CENVAT credit on common input services used for both taxable services and an assessee's own investment activities.

The tribunal held that buying and selling securities on one's own account is neither a taxable service nor an exempted service. It ruled that CENVAT credit attributable to such activities is inadmissible.

A bench of Judicial Member Binu Tamta and Technical Member P.V. Subba Rao dismissed the appeal filed by IFCI Limited.

The tribunal observed, "Clearly, such investments were neither a taxable service nor a manufacturing activity and hence were clearly beyond the scope of Finance Act as well as Excise Act and hence no CENVAT credit could have been taken of the input services used in such an activity either fully or partly as held in Lally Automobiles by the Delhi High Court which reasoning was explicitly upheld by the Supreme Court."

The dispute arose from a show cause notice seeking recovery of ₹89.84 lakh in CENVAT credit for the period between April 2008 and March 2011. The Department alleged that IFCI had availed full CENVAT credit on common input services, including housekeeping, professional consultancy, telephone and internet, courier, advertisement and professional training services, even though they were also used in relation to the purchase and sale of shares and securities.

It treated the activity as trading and sought proportionate reversal of credit.

Before the Tribunal, IFCI argued that the purchase and sale of securities was merely an investment of its own funds and did not amount to trading or the provision of any service. Since investment activity was outside the scope of service tax, Rule 6(3) of the CENVAT Credit Rules relating to exempted services had no application, it contended.

The revenue agreed that the activity was not a service. However, it argued that CENVAT credit attributable to activities outside the scope of the Finance Act was nevertheless inadmissible and had to be reversed proportionately.

The tribunal accepted that buying and selling securities on IFCI's own account amounted to investment and not trading or any taxable service.

However, the Tribunal relied on the Delhi High Court's ruling in Lally Automobiles, which was later upheld by the Supreme Court. It held that an assessee cannot claim full CENVAT credit on common input services when they are used partly for activities that are neither manufacture nor the provision of a service.

It further upheld the invocation of the extended period of limitation and the penalties, noting that these issues had already been settled in Lally Automobiles. Finding no error in the order under challenge, the Tribunal dismissed IFCI's appeal.

For Appellant: Advocates B.L. Narasimhan and Shri Kunal Agarwal,

For Respondent: Rakesh Kumar, Authorized Representative