The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) granted relief to M/s. HDFC Ltd. by allowing Cenvat credit on the brokerage/commission paid for underwriting government securities to maintain the Statutory Liquidity Ratio ( SLR ) and Cash Reserve Ratio ( CRR ), citing the bank’s statutory obligations.
M/s. HDFC Ltd,appellant-assessee, contested the denial of Cenvat credit on the brokerage/commission paid to brokers for underwriting government securities to maintain the SLR and CRR as mandated by the Reserve Bank of India (RBI).
Master GST Notice Replies – Drafting 20 Notices, Including Appeals – Register Now
The assessee claimed that these services were integral to the bank’s operations, necessary to comply with statutory obligations, and hence, eligible for Cenvat credit under the provisions of Rule 2(l) of the Cenvat Credit Rules, 2004.
The issue arose because the department contended that the brokerage/commission paid did not qualify as input services under the Cenvat Credit Rules, as the activity itself was related to the bank’s regulatory compliance rather than its direct provision of taxable services. However, the assessee argued that these services were essential for the bank to maintain SLR and CRR, which are crucial for the bank’s liquidity and statutory requirements.
In its analysis, the Tribunal referred to the South Indian Bank case, where the Larger Bench of the Tribunal held that services, which are essential for the existence of a taxable service provider and necessary to fulfill statutory obligations, qualify as input services.
Master GST Notice Replies – Drafting 20 Notices, Including Appeals – Register Now
The appellate tribunal also took into account precedent decisions, such as Bank of Baroda Ltd. v. Commissioner of Service Tax-I, where it was determined that services required to meet statutory obligations were deemed essential for the bank’s functioning. It thus concluded that any services necessary for SLR and CRR maintenance, including the brokerage/commission paid to brokers, qualified as input services.
The two member bench comprising Ajay Sharma(Judicial Member) and Anil.G.Shakkarwar(Technical Member) ruled in favor of the assessee affirming that the Cenvat credit on the service tax paid for these brokerage services was indeed eligible.
The Tribunal emphasized that these services were integral to the bank’s operations and their availability ensured the bank’s compliance with regulatory requirements. As a result, the assessee was entitled to claim Cenvat credit on the service tax paid for brokerage/commission fees related to SLR maintenance.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
