CESTAT Bangalore Upholds CENVAT Credit on Aircraft Running Expenses and Executive Jet Hiring Charges in Favour of Kalyan Jewellers India Ltd.
Case Overview
Pr. Commissioner of Central Tax Vs Kalyan Jewellers India Ltd. (CESTAT Bangalore)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, has ruled against the Revenue department in a significant matter concerning the eligibility of CENVAT credit on aircraft running expenses and hiring charges of executive jets. The Tribunal upheld the order passed by the Commissioner (Appeals) and dismissed the Revenue's appeal, affirming that such aviation-related services qualify as "input services" under the CENVAT Credit Rules, 2004.
Background and Business Profile of the Respondent
Kalyan Jewellers India Ltd. is engaged in a multi-layered business operation that includes sourcing jewellery through the conversion of bullion into gold jewellery by artisan manufacturers, manufacturing gold jewellery independently, and distributing finished jewellery to retail showrooms spread across India through a network of regional offices. Additionally, the respondent holds service tax registration and provides output services, including business auxiliary services and renting of immovable property.
During an internal audit covering the period April 2015 to June 2017, the department observed that the respondent had availed CENVAT credit on several services that the Revenue considered ineligible under the provisions of the CENVAT Credit Rules, 2004. Consequently, a show cause notice dated 18.02.2021 was issued, covering the specific period from 01.04.2016 to 30.06.2017, alleging availment of inadmissible CENVAT credit.
Adjudication History
Order-in-Original
The adjudicating authority concluded that the respondent had availed ineligible CENVAT credit and passed an order directing recovery of the same along with applicable interest. An equal penalty was also imposed on the respondent.
Order of Commissioner (Appeals) dated 11.07.2024
Being aggrieved by the original order, the respondent appealed before the Commissioner (Appeals). The first appellate authority allowed the appeal on two distinct grounds:
- The activities undertaken by the respondent were directly or indirectly connected with the manufacture of the final product, rendering the impugned services eligible as "input services."
- The adjudicating authority had failed to establish the necessary prerequisites — namely, willful suppression of facts, misstatement, or fraud — required to invoke the extended period of limitation.
Accordingly, the demand raised by invoking the extended limitation period was held unsustainable, and the appeal was allowed in favour of the respondent.
Revenue's Appeal Before CESTAT
Dissatisfied with the said order, the Revenue reviewed the matter through Review Order No. 1/2024/CE, dated 16.10.2024 and filed the present appeal before CESTAT Bangalore.
Revenue's Contentions
The Learned Authorised Representative (AR) for the Revenue raised the following arguments before the Tribunal: