2026-VIL-53-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Trading activity or not, Supply of Gift vouchers, CENVAT credit - Appellant is engaged in providing loyalty management and customer relationship services to its clients. As part of this, the appellant procures and supplies gifts and gift vouchers to customers upon redemption of loyalty points - Department of the view that the procurement and supply of goods and gift vouchers constitute a trading activity, which is either a non-taxable activity prior to 01.04.2011 or an exempted service thereafter – Department alleged that the appellant had wrongly availed and utilized CENVAT credit on common input services attributable to such trading activity, in contravention of Rule 6 of the CENVAT Credit Rules, 2004 - Whether the procurement and supply of goods and gift vouchers by the appellant constitute "trading activity" under the CENVAT Credit Rules, 2004 – HELD - The undisputed facts is that the appellant procures goods and vouchers independently, recovers the cost separately, and discharges VAT/CST on such supplies. These facts clearly demonstrate that the appellant is engaged in buying and selling of goods/vouchers, which squarely falls within the ordinary and commercial understanding of trading - The procurement and supply of goods and gift vouchers constitute trading activity which is a non-taxable activity prior to 01.04.2011, and an exempted service thereafter - The appellant is not entitled to avail CENVAT credit on inputs and input services attributable to such trading activity: prior to 01.04.2011, and subsequent thereto, in the absence of strict compliance with Rule 6 of the CENVAT Credit Rules, 2004, the demands for reversal/recovery of inadmissible CENVAT credit, as confirmed in the impugned Orders-in-Original and Orders-in-Appeal, are upheld – The appeals are disposed of - Whether gift vouchers are actionable claims or goods-in-lieu, and whether their supply can escape the ambit of Rule 6 of the CENVAT Credit Rules – HELD - The gift vouchers are not actionable claims but represent goods-in-lieu, with assured redemption value, and their trading attracts the consequences under Rule 6 of the CENVAT Credit Rules - Whether CENVAT credit attributable to trading activity is admissible prior to 01.04.2011 under the CENVAT Credit Rules, 2004 – HELD - Even prior to 01.04.2011, when trading was neither a taxable service nor an exempted service, credit attributable to trading activity was not admissible, as trading is neither manufacture nor provision of a taxable service, and therefore, credit was not eligible under Rule 3(1) of the CENVAT Credit Rules - Whether, for the period from 01.04.2011 to 31.03.2016, the appellant is entitled to avail CENVAT credit on common input services attributable to trading activity, and whether compliance with Rule 6 of the CENVAT Credit Rules, 2004 is mandatory – HELD – The argument of the appellant that Rule 6 is optional is misplaced. The period from 01.04.2011 onwards, when trading was expressly included as an "exempted service" under Rule 2(e) of the CENVAT Credit Rules, the appellant was required to strictly comply with the requirements of Rule 6, which mandates reversal or payment of an amount proportionate to the value of exempted services. Since the appellant failed to maintain separate accounts or follow the prescribed reversal mechanism, the denial of credit is legally sustainable - Whether, after the amendments to the CENVAT Credit Rules post-2016, the appellant is entitled to avail CENVAT credit, and whether the demands for the post-2016 period are sustainable – HELD - Even after the post-2016 amendments to the CENVAT Credit Rules, trading continued to be treated as an exempted service, and the core eligibility condition for availment of credit under Rule 6 remained unchanged. The appellant's failure to maintain separate accounts or comply with the reversal mechanism under Rule 6(3A) renders the demands for the post-2016 period also sustainable.
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