2026-VIL-338-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - CENVAT Credit - Lack of nexus - Appellant, operating both as a manufacturer and a service provider, imported telecom hardware and software for its manufacturing division and availed credit for Central Excise purposes. However, it also reflected the same credit in its service tax returns - Department alleged double availment and a lack of nexus between the imported goods and the output services - Whether CENVAT credit can be availed for service tax obligations using documents already utilized for manufacturing credit when the goods have no functional connection to the service activity – HELD - The credit is ineligible as the imported equipment and software were neither inputs nor capital goods for the service-related activities undertaken by the appellant. The goods were utilized in the manufacturing of products for a specific customer and had no nexus with the engineering or software services provided - Furthermore, the availment of credit on additional customs duty for service tax payment is found to be specifically barred under the Cenvat Credit Rules. Since the documents (Bills of Entry) were already utilized at the manufacturing unit, the second availment for service tax is deemed as double benefit and legally untenable – The demand of irregular credit is confirmed and the appeal is dismissed - Penalty and Extended Period - Suppression of facts and intentional re-availment of credit – HELD - Following a departmental investigation into irregular credit, the appellant's representative admitted the error and initially reversed the credit. However, it was later discovered that the appellant had suo moto re-availed the credit in subsequent returns without notifying the authorities, purportedly based on an internal legal opinion - The act of reversing the credit and then secretly re-availing it without departmental clarification was an intentional and deliberate act to evade payment of service tax. The statements recorded under Section 14 of the Central Excise Act, which were never retracted, clearly established the appellant’s awareness of the irregularity. The failure to inform the department of the re-availment constituted suppression of facts in utter disregard of legal provisions. Consequently, the imposition of an equal penalty and the invocation of the extended period of limitation are justified - Penalty and invocation of extended period upheld and appeal dismissed.
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