Pranav B Prem

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), has held that the variable “P” used in Rule 6(3A) of the CENVAT Credit Rules, 2004, refers only to common credit, not total credit, for tax periods prior to 01.04.2016. The ruling came in an appeal filed by M/s Sify Technologies Ltd. challenging the demand raised by the Adjudicating Authority, which had substituted total credit in place of common credit while computing the amount of reversal under Rule 6(3A) for the period April 2012 to March 2014.

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Background

The appellant, engaged in providing various taxable services and trading activities, availed CENVAT credit of service tax paid on input services. As certain input services were used commonly for both taxable and exempted services, the assessee was required to comply with Rule 6 of the CENVAT Credit Rules, 2004, which governs the manner of reversal of credit. Show cause notices were issued alleging that the appellant was not correctly following Rule 6(3A) and that the variable “P” in the formula should denote the total CENVAT credit taken during the financial year. The appellant, however, maintained that “P” referred only to common credit, i.e., credit availed on input services used both for taxable and exempted outputs. The Adjudicating Authority, by order dated 22.04.2016, rejected the appellant’s contention, holding that prior to the amendment effective from 01.04.2016, “P” denoted total credit, not common credit. Consequently, demands for reversal and payment of excess credit were raised.

Findings of the Tribunal

The Bench noted that Rule 6(3A) was amended by Notification No. 13/2016-CE dated 01.03.2016, which introduced a clear distinction between eligible credit (A), ineligible credit (B), and common credit (C). The Tribunal observed that although the concept of “common credit” was formally introduced only from 01.04.2016, judicial interpretation prior to the amendment had already recognized that the formula under Rule 6(3A) referred only to common credit. The Bench relied on earlier decisions, including Commissioner of Central Excise & Service Tax, Rajkot v. Reliance Industries Ltd. [2019 (28) GSTL 96 (Tri.-Ahmd.)], which held that total CENVAT credit for the purpose of the formula meant only common input service credit, not the entire credit availed. It was observed: “If the interpretation of the Revenue is accepted, then the CENVAT credit of part of input service, even though used in the manufacture of dutiable goods, shall stand disallowed, which is not provided under any of the Rules of CENVAT Credit Rules, 2004.”

The Tribunal also referred to E-Connect Solutions Pvt. Ltd. v. Commissioner of C. Ex. & CGST, Udaipur [2021 (376) ELT 678 (Tri.-Del.)], which took the same view, and to the Madras High Court’s judgment in M/s Honda Motor India Pvt. Ltd. v. CCE & ST (CMA No. 1179/2018, dated 29.08.2024), where it was observed that the 2016 amendment was intended to clarify and remove distortions caused by the earlier rule format. Rejecting the reliance placed by the Department on Thyssenkrupp Industries (I) Pvt. Ltd. [2014 (310) ELT 317 (Tri.-Mum.)], the Tribunal clarified that the said decision was rendered prior to the 2016 amendment and hence could not assist the Revenue’s interpretation.

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Holding that the 2016 amendment was clarificatory in nature, the Tribunal ruled that even for the pre-amendment period, the variable “P” would denote only common credit, not total credit. “We hold that the variable ‘P’ for the tax periods under consideration would denote only common credit which arises from inputs/input services used both for exempted and non-exempted goods/services.” Consequently, the CESTAT set aside the impugned order and allowed the appeals, holding the Adjudicating Authority’s interpretation to be erroneous and contrary to settled law. The order was pronounced on October 31, 2025.

Appearance

Counsel for Appellant/ Assessee: Natasha Jhaner, Chartered Accountant

Counsel for Respondent/ Department: Rajni Menon

Cause Title: M/s. Sify Technologies Ltd. v. Commissioner of GST & Central Excise

Case No: Service Tax Appeal Nos. 41366 & 41367 of 2016

Coram: P. Dinesha (Judicial Member), Vasa Seshagiri Rao (Technical Member)