2026-VIL-1041-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Admissibility of CENVAT Credit on Service Tax paid on Leadership Fee in Consortium Project – Under the consortium arrangement, the leader company is designated as the principal contractor and consortium members agree to pay leadership fee for overall management, coordination and integration of the entire project. The leadership fee is classified as consulting engineer service and service tax is paid under Reverse Charge Mechanism, which is subsequently distributed through ISD mechanism and availed as CENVAT credit - Department disallows the credit on the ground that the contract substantially relates to manufacture and supply of goods which is an exempted activity, and therefore the service tax paid is not eligible for credit – Whether the CENVAT credit on service tax paid on leadership fee – HELD - Once service tax is validly paid and accepted by the Department and credit is properly distributed through ISD mechanism without any dispute regarding genuineness of invoices or receipt of services, denial of credit at the recipient's end merely on account of procedural irregularity is legally unsustainable - The consortium arrangement constitutes an integrated turnkey project and the leadership fee forms part of the overall project management structure, therefore the Department's attempt to isolate one component contract and deny credit amounts to impermissible vivisection of a composite contractual arrangement - Additionally, consulting engineer service falls within the specified services covered under Rule 6(5) of CCR, 2004, which grants full credit unless such services are used exclusively in exempted goods or exempted services. The Department failed to establish that the impugned service was used exclusively for exempted activity, particularly when the project comprises both supply of goods and taxable service elements. Since the entire exercise is revenue neutral with service tax accepted as correctly paid and corresponding credit being legitimate, allegations of intention to evade become untenable, and imposition of penalty without any material establishing fraud, collusion, willful misstatement or suppression of facts is wholly unwarranted – The impugned order disallowing CENVAT credit and the demand, interest and equal penalty imposed are set aside and the appeal is allowed
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