2026-VIL-1256-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Activities Not Constituting Service - Availability of CENVAT Credit on Common Input Services used partly for Non-Taxable Activities – Appellant availed CENVAT credit on common input services used partly for rendering taxable services and partly for activities which do not amount to service, such as investment of own funds in buying and selling securities on its own account – Demand raised on the ground that trading in securities was an exempted service requiring proportionate reversal of CENVAT credit on common input services - Whether when common input services are used partly for rendering taxable services and partly for activities which do not amount to service at all, the assessee is entitled to full CENVAT credit or is required to reverse proportionate amount of CENVAT credit – HELD - The assessee is not entitled to full CENVAT credit on common input services to the extent they are used for activities which do not amount to service at all. Any activity which is not a service falls outside the purview of the Finance Act, 1994 and Central Excise Act, 1944 and therefore input services for such activity are not eligible for CENVAT credit – To the extent the input services were used for activity which is not a service, the credit is not admissible and the assessee is required to reverse proportionate CENVAT credit as determined under sub-rule (3) of Rule 6 of the CCR, 2004 - The decision of the Delhi High Court in the case of Lally Automobiles, explicitly upheld by the Supreme Court, established that an activity which is not a service at all goes out of the purview of the Finance Act and Central Excise Act and therefore no CENVAT credit on input services is admissible for such activity either wholly or partly - In the decisions relied on by the ld. counsel, the decision of Lally Automobiles was not presented before the bench nor was it considered – Further, the impugned services cannot be attributed to any particular activity but are services meant for running the office and can only be called common input services, hence, cannot agree with the submission that these were used exclusively used for providing taxable services - The impugned order requiring reversal of proportionate CENVAT credit on common input services to the extent used for activities which do not amount to service is correct and proper – The appeal is dismissed - Invocation of Extended Period of Limitation and Imposition of Penalties – HELD - The assessee was well aware of the exact nature and extent of its service tax liability and the eligible service tax inputs. It was also aware that it was claiming credit in respect of activities which were not subjected to service tax levy and that such claim was excessive and could not be justified. Being conscious of its investment activity and that such activity was not liable to service tax, it was aware of what it was doing. An assessee cannot take shelter under the plea that the non-service activity became expressly exempt from claiming credit only after an amendment in 2011, as trading was never taxable under the Finance Act, 1994. The assessee failed to maintain regular separate accounts in respect of the non-service taxable activity. The invocation of extended period of limitation was warranted in the circumstances. Penalties were properly imposed as the assessee had availed excess credit without reversing the same by suppression of material facts – The extended period of limitation was properly invoked and penalties were correctly imposed.
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