Relief for Maruti Suzuki: CESTAT Rules CENVAT Credit on Input Services Used for Business or Personal Use Valid if Availed Before April 2011 Amendment [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that CENVAT credit on input services is valid if availed before the April 2011 amendment, regardless of whether the services were used for business or personal purposes.

Maruti Suzuki India Ltd., the appellant, is engaged in the manufacture of motor vehicles. During the period from July 2006 to March 2012, the company availed CENVAT credit worth Rs. 65,34,129 on insurance services and authorized service station services related to vehicles used in its operations.

These vehicles were used by company officials for various purposes including sales promotion and day-to-day business activities.

The department issued show cause notices demanding reversal of the credit, along with interest and penalty, on the ground that the services were not eligible for credit following an amendment to Rule 2(l) of the CENVAT Credit Rules which came into effect on 1 April 2011.

The adjudicating authority confirmed the demand which led to the present appeal before the Tribunal.

The appellant’s counsel argued that the services in question were availed before the 1 April 2011 amendment and the revised definition of “input service” could not be applied retrospectively. They referred to a CBEC circular dated 29 April 2011 which clarified that the amendment would not affect services availed prior to that date.

The appellant also submitted that the vehicles were used in the course of business, not exclusively for personal use, and therefore the related services were eligible for credit. They relied on multiple tribunal and high court decisions which upheld credit in similar circumstances.

The revenue counsel argued that only services directly connected to the manufacturing process qualified as input services. They argued that insurance and repair services for vehicles used by employees lacked a direct nexus with manufacturing and were ineligible.

They also claimed that even if services were availed before 1 April 2011, the credit could not be used or carried forward after that date under the amended rules.

The two-member bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that there was no evidence to show the vehicles were used solely for personal purposes, and found that the services were closely linked to the company’s business activities.

It further observed that the amendment to Rule 2(l) could not be applied retrospectively. The tribunal also noted that the appellant was a major taxpayer regularly audited by the department, and the extended limitation period and penalty were not justified. The tribunal remanded the case to the adjudicating authority to verify whether the services were availed before 1 April 2011.

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