Management Consultancy Services Covered by Rule 6(5): CESTAT Declares Cenvat Credit Reversal Void [Read Order]

The Bangalore Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT), set aside an order of Commissioner (Appeals) directing the reversal of Cenvat credit on Management Consultancy Services by overlooking the express mandate of Rule 6(5) of the Cenvat Credit Rules, 2004, holding that such a direction could not be sustained in law.

LAPP India Private Limited filed an appeal challenging the Order-in-Appeal passed by the Commissioner of Central Tax (Appeals-I), Bangalore. The dispute arose in the second round of litigation after the earlier remand by the Tribunal.

The core issue related to whether proportionate reversal of Cenvat credit was required on Management Consultancy Services when the appellant had already discharged service tax under the reverse charge mechanism and claimed credit under Rule 6(5) of the Cenvat Credit Rules, 2004. The appellate authority, during the de novo proceedings, upheld the reversal of Cenvat credit, leading to the present appeal.

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The appellant, represented by Vinay K.V., argued that the Commissioner (Appeals) misconstrued the Tribunal’s earlier remand directions. It was submitted that the Tribunal had clearly differentiated two issues, reversal of proportionate Cenvat credit attributable to trading activity under Rule 6(3A), and eligibility of full credit on Management Consultancy Services under Rule 6(5).

Further, contended that Management Consultancy Services fall under Section 65(105)(r) of the Finance Act, 1994, and Rule 6(5) expressly allows full credit unless the input service is used exclusively for exempted output. Since this was not the case, the denial of credit was contrary to law.

D.M. Misra, Judicial Member, examined the earlier remand order, particularly paragraphs 7.1 and 7.2, and held that the Commissioner (Appeals) failed to properly distinguish between the two issues already settled by the Tribunal. The Bench reiterated that Rule 6(5) of the Cenvat Credit Rules, 2004 contains a non-obstante clause expressly allowing full Cenvat credit on specified services, including Management Consultancy Services, irrespective of their use for taxable and exempted outputs.

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The Tribunal noted that the earlier order had conclusively allowed the appellant the benefit of full credit under Rule 6(5) for Management Consultancy Services. Therefore, directing proportionate reversal in the remand proceedings was contrary to the statutory provision and to the Tribunal’s own findings.

As a result, the impugned order was set aside, and the appeal was allowed with consequential relief.

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