Insurance Company's CENVAT Credit Appeal Allowed: CESTAT Rules Services Received Before Restrictive Definition Applied [Read Order]

The Chennai Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) allowed the Appellant’s appeal, holding that credit cannot be denied on grounds not raised in the Show Cause Notice. It found that repair services were received before the April 2011 restrictive amendment and remained eligible for CENVAT credit and reiterated that the amended Rule 2(l) of CCR applies prospectively, not retrospectively.

The Appellant, M/s. Royal Sundaram Alliance Insurance Company Limited, challenged the denial of CENVAT credit on service tax paid for vehicle repair claims whereby the dispute arose for the period April 2011 to September 2011, following an amendment to the definition of "input services" in the CENVAT Credit Rules, 2004, effective 01.04.2011 which excluded services related to motor vehicles.

The department had denied credit, arguing the amendment was prospective and that invoices were in the name of individual insureds, not the appellant company and were excluded from the definition of “input services” following the 01.04.2011 amendment to Rule 2(l) of the CENVAT Credit Rules, 2004.

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The Rule 2(l) of theCENVAT Credit Rules, 2004 explained that: Input Services

“(i)services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India where service tax is paid by the manufacturer or the provider of output service being importer of goods as the person liable for paying service tax for the said taxable services and the said imported goods are his inputs or capital goods; or

(ii)any service used by a provider of output service for providing an output service; or

(iii)any service used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal.”

During the scrutiny of the half-yearly ST-3 returns, the department questioned the credit and issued a Show Cause Notice on 15.06.2012. The Additional Commissioner confirmed a demand of Rs.17,34,906/- with interest and imposed a Rs.3,00,000/- penalty on 26.03.2013, which was later upheld by the Commissioner (Appeals) on 01.06.2015. The Appellant challenged this decision before the Tribunal.

The Counsel for the Appellant, R. Charulatha, argued that that the impugned order exceeded the scope of the Show Cause Notice and was therefore illegal. She contended that the amendment to the input services definition was curative and retrospective in nature, making Authorised Service Stations credit always available.

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Further, the Counsel relied on favourable Tribunal decisions in its own case and similar cases involving United India Insurance Co. Lid. v. CCE & ST, LTU, Chennai 2018 (6) TMI 200 - CESTAT Chennai. and Cholamandalam MS General Insurance Company limited v Commissioner of Central Excise, Service tax (LTU), Chennai, 2018 (7) TMI 1218 -CESTAT Chennai for earlier periods and stated that vehicle repair services constitute input services as they enable the company to fulfill its insurance obligations. The counsel also observed that interest and penalty were not imposable as the credit denial lacked merit.

On the other hand, the Counsel for the Respondent, Rajini Menon, Authorized Representative, supported the Order-in-Appeal dated 01.06.2015, stating that Rule 9 of the CENVAT Credit Rules and Rule 4A of the Service Tax Rules require valid invoices bearing the name of the service recipient. Since the invoices were issued to individual vehicle owners and not to the insurer, the Appellant cannot claim CENVAT credit; and where the insurer’s name appears, the vehicle itself belongs to private individuals.

Further, the Counsel argued that after the amendment to the definition of “input service” dated 01.04.2011, authorized station services were specifically excluded, rendering the Appellant ineligible for CENVAT credit on such services for the relevant period.

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The Tribunal consisted of Technical Member, Vasa Seshagiri Rao, heard and reviewed the matter challenged by the Appellant.

The Tribunal, after considering the submissions made, held that the amendment to the "input services" definition was prospective in nature, and strongly agreed with the appellant. The Tribunal stated that the adjudicating authorities had indeed exceeded the scope of the Show Cause Notice by introducing new allegations, violating principles of natural justice.

Further, the services in question were, in fact, delivered to the appellant on or before 31.03.2011. Therefore, the amended, restrictive definition of "input service" did not apply to these transactions, and the CENVAT credit available was in order. The Tribunal also acknowledged that the issue of invoices being in the name of insured individuals was settled in favour of the appellant by earlier decisions.

Thus, the Appeal was allowed with consequential reliefs, if any, as per the law and the impugned Order in-Appeal dated 01.06.2015, along with the demand for CENVAT credit, interest, and penalties, was set aside. The Order was pronounced in open court on 11.11.2025

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