2025-VIL-1908-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax – Rule 2(l) of CENVAT Credit Rules, 2004 – Amendment of provisions – Prospective effect – During scrutiny of ST-3 returns filed by Appellant, department noticed that Appellant had availed ineligible CENVAT credit of Service Tax paid on vehicle repair bills issued by Authorised Service Stations (ASS) – Department issued show cause notice proposing demand of credit wrongly availed by Appellant – Adjudicating authority confirmed demand as proposed in show cause notice – Commissioner (Appeals) affirmed order passed by Adjudicating authority – Whether amendment made to Rule 2(l) of the Rules vide Notification No.3/2011-CE effective from 1-4-2011 operates retrospectively or prospectively – HELD – Pre-amended definition of input service was wide and inclusive, covering any service used directly or indirectly in or in relation to manufacture of final products or for providing output service, including activities relating to business. Effective from 1-4-2011, definition of input service under Rule 2(l) of the Rules was drastically changed to narrow its scope. Key change was deletion of phrase "activities relating to business". CBEC Circular No.943/4/2011 clarifies that amendment shall be applicable prospectively. Substitution of Rule 2(l) of the Rules by Notification No.3/2011-CE(NT) effective from 1-4-2011 is prospective in operation. Since services were delivered to Appellant on or before 31-3-2011, amended provisions will not apply in this case – Appeal allowed - Repair of vehicle – Payment of tax – Eligibility to avail credit – Whether Appellant is eligible to avail CENVAT credit of Service Tax paid on vehicle repair/claim bills issued by ASS – HELD – Service of repair of vehicle belonging to customer is an eligible input service as per Rule 2(l) of the Rules, using which, Appellant fulfils its obligation of providing insurance service to their clients. Appellant is eligible to avail credit of service tax paid on ASS services received by them. CENVAT Credit availed by Appellant is in order and disallowance of same in impugned order is not tenable and is set aside - Violation of principle of natural justice – Whether impugned order and order-in-original have traversed beyond allegations made in show cause notice – HELD – Order-in-Original had invoked exclusion clause to Rule 2(l) of the Rules to deny credit to Appellant. Show cause notice had not invoked said provision for fastening liability on Appellant. Adjudicating authority cannot make out a new case which was not put to notice of Appellant. Any finding or reasoning that travels beyond scope of show cause notice violates principles of natural justice, as assessee is deprived of an opportunity to meet those new allegations. Order-in-Original and Order-in-Appeal have traversed beyond scope of show cause notice. Such action is beyond jurisdiction and violates settled principles of natural justice. Impugned order is liable to be set aside.
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