No Use of Cenvat Credit in Trading: CESTAT Quashes ₹634 Crore Service Tax Demand [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the Cenvat credit availed by Tenormac Enterprises Pvt. Ltd. was not used for trading activities and set aside the Rs. 634 crore service tax demand raised by the department.

Tenormac Enterprises Pvt. Ltd., the appellant, is engaged in providing colocation services, hosting services, marketing and sales promotion of telecom services, and other business support services.

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The case arose from an audit conducted by the revenue authorities for the period October 2014 to June 2017, during which the department alleged that the appellant had wrongly availed and utilized Cenvat credit amounting to Rs. 634.05 crore on input services that were supposedly used for trading in telecom equipment.

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A show cause notice was issued on December 22, 2020, invoking the extended period of limitation, which culminated in the confirmation of the demand along with interest and penalties by the adjudicating authority.

Challenging the order, the appellant argued before the CESTAT that they were not engaged in any trading activity except incidental scrap sales and that input services were used solely for taxable output services. The appellant’s counsel also argued that the credit figures alleged by the department were inconsistent with the amounts reflected in their ST-3 returns.

The revenue submitted that the appellant had misused Cenvat credit and that the advances and liabilities were payments for services, justifying the extended period of limitation on the grounds of suppression of facts.

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The two-member bench comprising Ajay Sharma (Judicial Member) and Anil G. Shakkarwar (Technical Member) observed that the show cause notice was based entirely on the appellant’s own ST-3 returns, which were duly filed, and that there was no evidence of suppression or intent to evade tax.

The tribunal found no substantive proof that the appellant had engaged in trading of telecom equipment during the audit period or that the Cenvat credit availed was used for non-taxable purposes. The tribunal held that the reversal of credit by the appellant further weakened the department’s case.

The tribunal set aside the impugned order and quashed the service tax demand along with interest and penalties. The appellant's appeal was allowed with consequential relief.

To Read the full text of the Order CLICK HERE

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