CESTAT Rules Old Cenvat Rule 6(5) Still Applicable, Orders Recalculation on Decade-Old Service Tax Credit Dispute [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the benefit of Rule 6(5) of the Cenvat CreditRules, 2004, though omitted in 2011, remains applicable for disputes pertaining to periods when it was in force. The tribunal ordered a fresh adjudication to recalculate credit availed on input services used for both taxable and exempt activities, including trading, setting aside all penalties due to the interpretational nature of the dispute.

SHV LPG India Private Limited (formerly Caltex Gas India Pvt Ltd.), which was engaged in the import, storage, and bottling of LPG. The company sold its own LPG cylinders under the brand ‘Caltex’ and also provided taxable storage and packaging services to Bharat Petroleum Corporation Ltd (BPCL). The department had disallowed Cenvat credit availed on common input services, arguing that credit pertaining to the sale of their own LPG (a trading activity not subject to service tax) was ineligible. The demands covered the period from April 2008 to March 2011.

The appellant argued that during the disputed period, trading was not explicitly classified as an ‘exempted service,’ and thus, a full credit reversal was unjust. Without prejudice, they contended that even if reversal was required, the credit was protected under Rule 6(5), which allowed full credit on specific listed input services unless used exclusively for exempted activities. They cited several tribunal decisions to support their claim of acting under a bona fide belief.

The revenue authorities relied heavily on a judgment from the Madras High Court in the case of Ruchika Global Interlinks V. The CESTAT (2017), which held that the 2011 amendment adding ‘trading’ to the definition of exempted services was merely clarificatory. They also pointed out that the appellant had a history of litigation on the same issue, with a previous tribunal order from 2018 confirming demands for an earlier period.

After considering both sides, the CESTAT bench acknowledged the settled legal position that credit on inputs used for trading activities must be reversed. However, the tribunal delved into the crucial issue of the applicability of the since-omitted Rule 6(5). Relying on the Supreme Court's judgment in Shree Bhagawati Steel Rolling Mills V. CCE (2015), which equated ‘omission’ with ‘repeal,’ and considering the protective nature of Section 38A of the Central Excise Act, the bench concluded that the legal provision must be applied to the period it was active.

The Bench comprising Member (Judicial) Ajayan T.V. and Member (Technical) Vasa Seshagiri Rao. found merit in the appellant’s argument and held that the benefit of Rule 6(5) should be examined. This rule allowed full credit on a specific list of input services unless used exclusively for exempted goods or services.

Consequently, the matter was remanded to the original adjudicating authority for a fresh calculation to determine the exact quantum of credit eligible under Rule 6(5). The tribunal upheld the demand and interest liability on any ineligible credit that falls outside this protection.

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