CENVAT Credit not allowed on Duty Paid for Diesel, But allowed for Service Tax on Diesel Delivery and DG Set Operations: CESTAT in Vodafone Idea's Matter [Read Order]

The Allahabad bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) clarified that CENVAT credit cannot be availed on the duty paid for diesel, but can be claimed for service tax paid on services related to diesel delivery and the operation of diesel generator ( DG ) sets.

Vodafone Idea Ltd., a provider of telecommunication services, had availed CENVAT credit on service tax paid for services associated with diesel delivery and the operation of diesel generator ( DG ) sets. During an audit for the period from April 2011 to March 2014, discrepancies were found regarding the credit claimed for diesel-related services.

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The department issued a show-cause notice alleging that CENVAT credit was wrongly claimed on diesel duty which was not eligible for credit under the CENVAT Credit Rules. The department demanded the recovery of the credit along with interest and penalties.

The appellant challenged the demand arguing that credit on diesel duty was ineligible but credit on the service tax paid for services related to diesel delivery, storage, and DG set operations should be allowed, as these services directly supported the telecommunication operations.

The matter was brought before CESTAT. The two-member bench comprising Ashok Jindal ( Judicial Member ) and Rajeev Tandon (Technical Member) observed that this matter was no longer res-integra as the Mumbai Bench of CESTAT already analyzed it in the case of Idea Cellular Ltd.

The tribunal referenced the case of Idea Cellular Ltd. vs. CST, Mumbai, where it was held that CENVAT credit on service tax paid for services related to the supply and running of DG sets is allowable.

In the referenced case, the tribunal explained that credit on diesel itself is not permissible as it is not an eligible input but service tax paid on services associated with the use of diesel, such as transportation, loading, and running of DG sets, qualifies for CENVAT credit.

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The tribunal specifically stated that credit on services directly related to the operation of DG sets, such as maintenance, servicing, and the logistics of diesel delivery, should be allowed, as these are necessary for the functioning of the business.

In light of the above observation, the CESTAT set aside the demand for the recovery of CENVAT credit on diesel duty and clarified that the appellant was eligible to claim credit only for the service tax on services related to diesel delivery and DG set operations, excluding diesel duty itself. The appellant’s appeal was allowed.

To Read the full text of the Order CLICK HERE

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