Hiteco Tool Management Services India Pvt India vs CST Ch - III

IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI

Service Tax Appeal No. 40146 of 2016

(Arising out of Order-in-Appeal No. 271/2015 (STA – II) dated 26.10.2015
passed by the Commissioner of Service Tax (Appeals – II), Chennai)

Hiteco Tool Management Services India Pvt. Ltd. Appellant
No. 16/23, Swagatham Apartment
Shenoy Road, Nungambakkam
Chennai – 600 034.

Vs.

Commissioner of GST & Central Excise Respondent
Chennai North Commissionerate
26/1, Mahatma Gandhi Road
Nungambakkam, Chennai – 600 034.

APPEARANCE:

Shri Ashwin Kumar, Chartered Accountant for the Appellant
Shri N. Satyanarayanan, Authorised Representative for the Respondent

CORAM

Hon’ble Shri P. Dinesha, Member (Judicial)
Hon’ble Shri M. Ajit Kumar, Member (Technical)

FINAL ORDER NO. 41139/2026

Date of Hearing: 08.05.2026
Date of Decision: 29.10.2026
Per M. Ajit Kumar,

This appeal is filed by the appellant against Order-in-Appeal No.
271/2015 (STA – II) dated 26.10.2015 passed by the Commissioner of
Service Tax (Appeals – II), Chennai.
Factual Matrix
2. Brief facts of the case are that the appellant is providing Erection,
Commissioning and Installation service and Management, Maintenance
and Repair Service and is registered with the Service Tax Department.
During the audit of the appellant, it was noticed that (a) they have
raised bills on their client M/s. Hyundai Motors India Ltd. ( HMIL ), for

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tool management and service charges but had not paid service tax
thereon amounting to Rs.23,74,847/- for the taxable value received
for the period April and May 2009 even though the said service
attracted service tax under ‘Business Support Service’, (b) they have
removed CENVAT credit availed capital goods during the month of
October 2008 without reversing the CENVAT credit of Rs.64,478/-
availed thereon in contravention of Rule 3(5) of the CENVAT Credit
Rules, 2004, (c) the appellant have removed CENVAT credit availed
capital goods for export during the month of January 2009 and
February 2009 without reversing the CENVAT credit of Rs.1,90,908/-
availed thereon in contravention with Rule 3(5) of the Rules, 2004, and
(d) they have availed CENVAT credit of Rs.8,599/- on printer and
cartridge as capital goods but these items were not eligible for CENVAT
credit. Hence Show Cause Notice ( SCN ), dated 29.9.2010 was issued.
After due process of law, the Ld. Adjudicating Authority confirmed the
demand as proposed in the SCN along with interest and imposed
penalty under section 78 of the Finance Act, 1994. The issue regarding
CENVAT Credit on printer and cartridge was not contested by the
Appellant. The appeal preferred by the before the Ld. Commissioner
(Appeals) was rejected. Hence the present appeal.
3. The Ld. Chartered Accountant Shri Ashwin Kumar appeared for
the appellant and Shri N. Satyanarayanan, Ld. Authorized
Representative appeared for the respondent.
Submissions made by the Appellant
3.1 The Ld. Chartered Accountant for the appellant submitted as
follows:

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A. The dispute relates to April–May 2009 and concerns the demand
of ₹23,74,847/- towards Service Tax on tool hire charges and
₹2,63,985/- towards reversal of CENVAT credit on capital goods
removed as such, along with equal penalties and applicable interest.
B. The Tool Management Agreement dated 03.05.2008 with HMIL,
undertook an integrated arrangement involving the supply and assured
availability of production tools, together with procurement, storage,
handling, regrinding, coating, maintenance, inventory management
and deployment of manpower. Although Service Tax was initially paid
on the entire consideration, from April 2009 onwards, acting on
professional advice, the Appellant discharged VAT on tool hire charges
and continued paying Service Tax on tool service charges. The
contractual obligations and nature of activities remained unchanged.
C. The Appellant contends that the activities were incorrectly
classified under Business Support Service (BSS) under Section
65(104c) of the Finance Act, 1994. The essential object of the
agreement was the supply and availability of production tools, while
regrinding, coating, handling and manpower deployment were ancillary
activities necessary for their effective use in manufacturing. Under
Section 65A(2), the classification must be determined by the specific
description and essential character of the service, without artificially
splitting an integrated contractual arrangement.
D. During the disputed period, the definition of BSS covered
“operational or administrative assistance for marketing”, and the
broader expression “operational or administrative assistance” was
introduced only with effect from 01.05.2011. Since the Appellant did

4
not provide marketing assistance, the amended definition cannot be
applied retrospectively. Reliance is placed on Air Liquide North India
(P) Ltd. Vs CCE, Jaipur [2012 (27) S.T.R. 295 (Tri.-Del.)], and
Welspun Syntex Ltd. Vs Commissioner of Central Excise &
Customs [2013 (31) S.T.R. 270 (Bom.)], to contend that
manufacturing-related activities do not become BSS merely because
they support business operations. Accordingly, the classification and
consequential Service Tax demand are unsustainable.
E. The matter cannot be remanded for classification under any
alternative taxable service, as the Show Cause Notice specifically
proposed classification under BSS and did not allege any alternative
classification. A remand for a fresh classification would enlarge the
scope of the notice and prejudice the Appellant.
F. With regard to the demand of ₹2,63,985/- on capital goods
removed as such for export under bond/LUT, the Appellant submits
that the removal was undertaken under a bona fide interpretation of
Rule 3(5) of the CENVAT Credit Rules, 2004, read with the applicable
departmental clarifications permitting export of credit-availed capital
goods under bond. It contends that the credit framework does not
justify an unwarranted distinction between manufacturers and service
providers. The export-facilitation provisions and the availability of
rebate, subject to statutory conditions, are also relied upon to support
its claim that reversal should not be demanded in the circumstances.
The decision in KCP Vs CCE, Chennai [2013 (295) E.L.T. 353 (S.C.)],
is distinguishable as it concerned the erstwhile MODVAT regime.

5
G. The extended period under Section 73 of the Finance Act, 1994,
is not invocable, as the dispute concerns interpretation of the statutory
provisions and the relevant facts, including VAT payment and export
under bond, were disclosed during audit. There was no wilful
suppression or intent to evade tax. Relying on Pushpam
Pharmaceuticals Co. Vs CCE [1995 (78) E.L.T. 401 (S.C.)]; Cosmic
Dye Chemical Vs CCE [1995 (75) E.L.T. 721 (S.C.)]; Continental
Foundation Jt. Venture Vs CCE [2007 (216) E.L.T. 177 (S.C.)]; and
Anand Nishikawa Co. Ltd. Vs CCE [2005 (188) E.L.T. 149 (S.C.)],
the Appellant submits that the extended period and penalty under
Section 78 are unsustainable.
Additional Submissions
H. Under the Service Agreement dated 03.05.2008 with HMIL, the
main activity was supplying and ensuring the availability of production
tools, such as drills, reamers, boring tools and milling tools, through
an integrated Tool Management System. Regrinding, coating, handling
and manpower were only supporting activities needed to maintain the
tools and avoid production stoppages. Therefore, the arrangement was
wrongly classified as Business Support Service (BSS) under Section
65(104c) of the Finance Act, 1994.
I. During April–May 2009, BSS covered only “operational or
administrative assistance for marketing”. The wider phrase
“operational or administrative assistance” took effect only from
01.05.2011 and cannot apply retrospectively. The Appellant provided
no marketing assistance. Air Liquide North India (P) Ltd. v. CCE, Jaipur,
2012 (27) S.T.R. 295 (Tri.-Del.), and Welspun Syntex Ltd. v.

6
Commissioner of Central Excise & Customs, 2013 (31) S.T.R. 270
(Bom.), also confirm that manufacturing-related activities do not
become BSS merely because they support business operations. The
Department has therefore not established that Section 65(104c)
applies, and the classification and tax demand should be set aside.
J. CENVAT credit on capital goods exported as such under bond/LUT
need not be reversed under Rule 3(5) of the CENVAT Credit Rules,
2004. The CBEC Manual, the Central Excise Guide for New Registrants,
Rules 5 and 6(6) of the CENVAT Credit Rules, 2004, and Rule 18 of the
Central Excise Rules, 2002, support export under bond without
reversal. Alternatively, any reversed amount should be allowed as
rebate, subject to the applicable conditions. KCP v. CCE, Chennai, 2013
(295) E.L.T. 353 (S.C.), does not apply because it concerned the earlier
MODVAT regime.
K. The Appellant acted in good faith based on its understanding of
the law and departmental clarifications. It disclosed all relevant facts
during audit, including VAT payment and export under bond. As the
dispute concerns interpretation and there is no evidence of wilful
suppression or intent to evade tax, the extended period under Section
73 of the Finance Act, 1994, cannot be invoked. Based on Pushpam
Pharmaceuticals Co. v. CCE, Cosmic Dye Chemical v. CCE, Continental
Foundation Jt. Venture v. CCE and Anand Nishikawa Co. Ltd. v. CCE,
the extended-period demand and penalty under Section 78 should be
set aside.
L. The Appellant therefore requests that Order-in-Appeal No.
271/2015 dated 26.10.2015 be set aside to the extent challenged. The

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Service Tax demand, CENVAT credit reversal, interest and penalties
should be cancelled, with consequential relief.
Submissions Made by the Respondent-Revenue
3.2 Shri N. Satyanarayanan, Ld. Authorized Representative
appeared for the respondent. He submitted that:
A. As per the agreement dated 03.05.2008 with HMIL, the Appellant
undertook an integrated range of activities, including procurement,
stocking, handling, maintenance and management of tools, provision
of manpower to operate the tools, and other allied production-related
activities.
B. Although the Appellant classified the services under
Management, Maintenance and Repair Service until March 2009, it
subsequently split the invoices from April 2009 into tool hire charges
and tool service charges, charging VAT on the former and service tax
on the latter. There was no substantive change in the nature of services
and the splitting of invoices was intended to avoid Service Tax on tool
hire charges.
C. The services constituted a composite arrangement involving the
supply and management of tools, repairs and provision of manpower,
and were not confined to the mere hiring of tangible goods or repair of
tools.
D. Accordingly, the services were appropriately classifiable under
Business Support Service under Section 65(104c) of the Finance Act,
1994, rather than Supply of Tangible Goods for Use Service, as claimed
by the Appellant.

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E. The Ld. A.R. hence prayed that the impugned order may be
upheld and the appeal be rejected.
Discussion and Findings
4. We have carefully considered the submissions made by the ld.
Chartered Accountant for the Appellant and the ld. Authorised
Representative for the Revenue and perused the records of the case.
The issues arising for determination are whether the services rendered
by the Appellant to HMIL during April and May 2009 are classifiable
under Business Support Service (BSS); whether CENVAT credit availed
on capital goods removed as such, including those exported under
bond/LUT, is liable to be reversed under Rule 3(5) of the CENVAT Credit
Rules, 2004; and whether the demand, interest and penalty imposed
under Section 78 of the Finance Act, 1994, are sustainable.
A. Classification of Tool Management Services
5. The Appellant contends that the Tool Management Agreement
dated 03.05.2008 with HMIL covered an integrated arrangement for
the supply and assured availability of production tools, including drills,
reamers, boring tools and milling tools, together with procurement,
stocking, handling, regrinding, coating, maintenance and deployment
of manpower. It submits that the essential nature of the arrangement
was the supply and management of production tools and that the
ancillary activities cannot be separately considered to classify the
entire arrangement under BSS. The Revenue, on the other hand,
submits that the contractual obligations remained unchanged from
April 2009 onwards and that the Appellant merely split its invoices into
tool hire charges and tool service charges, charging VAT on the former

9
and Service Tax on the latter, with a view to avoiding Service Tax on
a portion of the consideration.
5.1 We find that the classification of a taxable service must be
determined with reference to the terms of the contract, the actual
activities undertaken and the statutory definition applicable during the
relevant period. The manner in which invoices are raised or the
description assigned to a transaction by the parties cannot, by itself,
determine its classification. Equally, the existence of a composite
contractual arrangement does not automatically justify classification of
the entire consideration under BSS without establishing that the
activities satisfy the statutory definition of that service.
5.2 The relevant period is April and May 2009. Section 65(104c) of
the Finance Act, 1994, defined support services of business or
commerce to include, inter alia, operational assistance for marketing.
The expression “operational or administrative assistance in any
manner” was substituted only with effect from 01.05.2011.
Assessment creates a vested right and an assessee cannot be
subjected to reassessment unless a provision to that effect inserted by
amendment is either expressly or by necessary implication
retrospective. [See: CIT Vs Vatika Township Private Limited -
2014 (9) TMI 576 - SUPREME COURT ]. The Appellant has specifically
contended that the definition of BSS applicable during this period was
narrower than the definition subsequently amended with effect from
01.05.2011. It is settled that the taxability of a service must be
determined under the statutory provisions in force when the service
was rendered. A subsequent amendment enlarging the scope of a

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taxable entry cannot be applied retrospectively in the absence of
express statutory authority.
5.3 We also find merit in the Appellant's submission that an activity
does not become BSS merely because it supports the business
operations of the recipient. The nature of the services must fall within
the scope of the specific taxable entry. The agreement dated
03.05.2008 reveals that the activities undertaken by the service
provider principally comprised procurement, stocking, regrinding,
coating, setting, distribution, handling and management of perishable
tools, together with the provision of competent labour for their use in
HMIL's engine and transmission shops. These activities relate to tool
management and manufacturing operations and have no apparent
nexus with marketing. The services, therefore, cannot be classified
under Business Support Service merely by treating them as operational
or administrative assistance. In Air Liquide North India (supra) , the
Tribunal held that renting machinery used in production or
manufacturing did not fall within BSS, applying the principle of noscitur
a sociis . This approach was affirmed in Welspun Syntex Ltd. (supra) .
These authorities support the distinction between manufacturing-
related activities and outsourced commercial support functions.
5.4 In the present case, the Revenue has relied primarily on the
composite nature of the Tool Management Agreement and the inclusion
of manpower, maintenance and other allied activities. However, the
mere fact that the agreement covers several activities does not
dispense with the requirement to establish that the services rendered
during the disputed period fall within the statutory definition of BSS.

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The Revenue must establish such coverage under the law applicable
during April and May 2009 and cannot rely upon a subsequent
enlargement of the definition.
5.5 In view of the above, we find that the classification of the entire
consideration under BSS cannot be sustained merely on the basis of
the integrated nature of the agreement or the splitting of invoices. The
demand of ₹23,74,847/- is therefore liable to be set aside, insofar as
it is founded on the classification of the disputed activities under BSS
without establishing their coverage under the applicable statutory
definition.
5.6 The Appellant has also contended that the matter cannot be
remanded for classification under an alternative taxable service, as the
Show Cause Notice proposed classification only under BSS. We find
that the adjudication must remain within the allegations and grounds
set out in the Show Cause Notice. In the absence of an alternative
classification proposed therein, the proceedings cannot be used to
introduce a new classification at the appellate stage to sustain the
demand. Accordingly, no remand for fresh classification under an
alternative taxable service is warranted in the present proceedings.
B. CENVAT Credit on Capital Goods Removed as Such
6. The next issue concerns a demand of ₹ 2,63,985/- for CENVAT
credit on capital goods allegedly removed as such: ₹ 64,478/- for
removal in October 2008 and ₹ 1,90,908/- for exports in January and
February 2009.
6.1 We find that the Appellant has stated that as per CBEC, letter F.
No. 345/2/2000-TRU dated 29.08.2000, it was clarified that a

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manufacturer could export inputs or capital goods under bond without
payment of duty. It applies equally to manufacturers and service
providers, without distinction, for export under bond. The same
position is reflected in paragraph 3.4 of Chapter 5 of the CBEC Manual
of Supplementary Instructions, which states that there is no bar to the
removal of inputs or capital goods as such for export under bond.
However, we find that the issue is not whether export under bond is
permitted, but whether it triggers reversal of credit taken under Rule
3(5). We find that, in State of Karnataka Vs M.K. Agro Tech Pvt.
Ltd . [(2017) 16 SCC 210], the Supreme Court held that taxing statutes
must be interpreted literally and that the grant of tax credit and the
conditions governing its availability fall within the legislative domain.
Credit is a statutory benefit subject to the conditions and restrictions
prescribed by the Act and Rules, and is not an absolute right.
6.2 The Hon’ble Supreme Court in Commissioner of Central
Excise, Nagpur Vs Ultratech Cement Ltd. , [2010 (260) E.L.T. 369
(S.C.)], traced the evolution of the value added tax system. The
Central Excises and Salt Act, 1944 initially resulted in cascading
taxation when duty-paid inputs were used in the manufacture of final
products. To address this, the proforma credit scheme was introduced,
followed by the MODVAT scheme from 01.03.1986, which was
subsequently extended to capital goods. With the introduction of
service tax in 1994-95, the need arose to integrate the taxation of
goods and services. As held in All India Federation of Tax
Practitioners Vs Union of India, [2007 (7) S.T.R. 625 (S.C.)],
Service Tax is a value-added tax applicable to commercial activities

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involving the provision of services. Accordingly, CENVAT was
introduced with effect from 12.05.2000, followed by the CENVAT Credit
Rules, 2001 and 2002 and the Service Tax Credit Rules, 2002. Finally
the CENVAT Credit Rules, 2004 integrated these schemes, permitting
cross-utilisation of credit of excise duty and service tax on inputs,
capital goods and input services to mitigate the cascading effect of
taxation. However, such integration does not make credit an
unconditional right. It remains a statutory benefit subject to the
conditions and restrictions prescribed under the applicable Rules.
6.3 In Glass and Ceramic Decorators Vs CCE, Mumbai-I [2014
(305) E.L.T. 133 (Tri.-Mumbai)], a Coordinate Bench examined
whether it was required to reverse CENVAT Credit on the capital goods
exported.
“5. We have carefully considered the submissions made by
both sides.

5.1 It is not in dispute that the capital goods imported by
the appellant have been exported. On export of capital
goods, the appellant is eligible for rebate of the duty
paid thereon under Rule 18 of the Central Excise Rules
or the appellant can export the goods without
payment of duty under bond under Rule 19 of the said
Rules. In respect of the goods on which credit has been
taken, Circular issued by Board in 1996 as well as in 2000,
clearly says that the manufacturer assessee is entitled to
clear the inputs or capital goods for export (on which credit
has been taken) under bond without payment of duty. The
decision of the Tribunal in the case of Videocon International
Ltd. (supra) also confirms this view.

5.2 We also note that in the case of Essel Propack Ltd.
decided vide Order No. A/1023/13/EB/C-II dated
20.11.2013, an identical issue came up for consideration
before this Tribunal, where the capital goods procured
on which credit was taken was subsequently re-
exported without reversal of credit and this Tribunal
in the said case held that the appellant is not required
to reverse CENVAT Credit on the capital goods
exported.

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6. Following the ratio in the above decision, in the present
case also, we hold that the appellant is not required to
reverse CENVAT Credit taken on the capital goods, which
was procured and subsequently re-exported. Accordingly,
we allow the appeal for consequential relief, if any, in
accordance with law.”
(emphasis added)


6.4 The Bombay High Court (Goa Bench), in Betts India Pvt. Ltd.
Vs Commissioner of Central Excise , [Excise Appeal No. 4 of 2009,
dated 24.09.2019], upheld the demand for reversal of CENVAT credit,
following Cummins India Ltd. Vs Commissioner of Central Excise ,
[2007 (219) E.L.T. 911]. It also referred to Union of India Vs Sterlite
Industries (I) Ltd . [2017 (354) E.L.T. 87], which held that “removed
as such” means removal in the same form as when brought into the
factory, normal wear and tear not altering the character of the goods.
Where duty-paid capital goods are subsequently exported, prior use
does not, by itself, affect the applicable duty treatment or the
assessee’s right to claim rebate. On appeal by the assessee the
Supreme Court, in Betts India Pvt. Ltd. Vs Commissioner of
Central Excise , 2022 (381) E.L.T. 749 (S.C.), held that the 2007
proviso to Rule 3(5) of the CENVAT Credit Rules, 2004, providing for
reduction of credit on removal of used capital goods, was clarificatory
and applicable retrospectively. This being the position, the appellant
was entitled to take benefit of the said proviso and make an adjustment
as per the said proviso and later claim rebate. However, it expressly
left open the question whether “removed as such” covers capital goods
removed after use.

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6.5 The above judgment supports reversal of credit on goods
removed for export, while also recognising the eligibility of the goods
for rebate. Since export under bond without payment of duty is also
permissible, the matter is revenue neutral. Although statutory
procedures must ordinarily be followed, considering the small tax
amount involved, the export incentives intended to ensure that taxes
are not exported, and the long lapse of time, it is felt that remand
would serve no useful purpose. The appeal on this issue is, therefore,
merits acceptance on revenue neutrality and the demand relating to
capital goods removed as such needs to be set aside, considering the
facts of this case.
C. Extended Period, Interest and Penalty
7. The Appellant contends that the extended period under Section
73 of the Finance Act, 1994, is not invocable because the dispute
involves interpretation of the law and the relevant facts, including
payment of VAT and export under bond, were disclosed during audit.
It relies on Pushpam Pharmaceuticals Co. Vs CCE , 1995 (78) E.L.T.
401 (S.C.); Cosmic Dye Chemical Vs CCE, 1995 (75) E.L.T. 721
(S.C.); Continental Foundation Jt. Venture Vs CCE, 2007 (216)
E.L.T. 177 (S.C.); and Anand Nishikawa Co. Ltd. Vs CCE , 2005
(188) E.L.T. 149 (S.C.).
7.1 We find that invocation of the extended period requires
satisfaction of the statutory conditions applicable to the relevant
provision. A dispute involving interpretation of law does not, by itself,
establish suppression, just as the discovery of a discrepancy during
audit does not, by itself, exclude suppression. The penalty under

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Section 78 must likewise be considered in accordance with its statutory
requirements and cannot be imposed mechanically merely because a
demand has been confirmed. As per the discussions the burden of
proving suppression has not been discharged by Revenue.
Conclusion
8. In view of the foregoing discussion, the impugned order is set
aside. The Appellant is eligible for consequential relief if any as per law.
The appeal is disposed of in the above terms.
(Order pronounced in open court on 29.10.2026)




Sd/- Sd/-
( M. AJIT KUMAR ) ( P. DINESHA )
Member (Technical) Member (Judicial)




Rex