CESTAT Allows Cenvat Credit On Service Tax Paid By Automotive Dealers

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has allowed the cenvat credit on service tax paid by automotive dealers.

The two-member bench of S. K. Mohanty Member (Judicial Member) and C.J. Mathew (Technical Member) has relied on the Supreme Court's decision in the case of CCE & C versus MDS Switchgear Ltd., in which it was held that once the tax liability has been discharged and accepted by the Department, the consequential Cenvat credit cannot be denied at the recipient’s end.

The appellant/assessee is a general insurance company engaged in the business of providing insurance services with respect to automobiles. For providing the services, the appellant got itself registered with the service tax department as a service provider as well as a service recipient, in terms of the Finance Act of 1994.

As per industry practise, automotive dealers, being the first point of contact with the buyers of the automotive car or vehicle, interact with the buyer and facilitate the availment of insurance services from the appellant by the buyer.

The buyer procured the insurance policies for the cars and vehicles from the appellant. Out of the premium collected from the buyer of the motor vehicle, a portion was paid by the appellant to the automotive dealer as a commission, on which amount the automotive dealer also charged service tax and duly discharged such liabilities upon making payment into the Central Government Account.

On the basis of the invoices issued by the automotive dealer and the service tax paid by the automotive dealer to the government, the appellant had availed himself of Cenvat credit, which had been sought to be denied and recovered along with interest and penalty.

The Commissioner of CGST and Central Excise, Mumbai Central, confirmed a service tax demand of Rs. 135 and 72,987,778 was confirmed, along with interest, and a penalty of an equivalent amount was imposed on the appellant.

The tribunal held that since the service tax was paid by the auto dealer under the taxable head of "business auxiliary service" and the assessment of the auto dealer has not been reopened or questioned, credit availed cannot be denied to the insurance company.

Case Title: ICICI Lombard General Insurance Company Ltd.

Citation: Service Tax Appeal No. 89570 of 2018

Date: 06.02.2023

Counsel For Appellant: V. S. Nankani

Counsel For Respondent: Nitin M. Tagade

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