Shriram Automall India Ltd vs CST Ch - II

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH – COURT No. I

Service Tax Appeal No. 41405 of 2017
(Arising out of Order-in-Appeal No. 77/2017 (STA-II) dated 10.03.2017 passed by
Commissioner of Service Tax (Appeals-II), Newry Towers, Plot No. 2054, I Block, II Avenue,
Anna Nagar, Chennai – 600 040)


M/s. Shriram Automall India Ltd. ...Appellant
Mookambika Complex, 4,
Lady Desika Road, Mylapore,
Chennai – 600 004.
Versus
Commissioner of GST and Central Excise ...Respondent
Chennai Outer Commissionerate,
Newry Towers, No. 2054-I,
nd th
2 Avenue, 12 Main Road,
Anna Nagar,
Chennai – 600 040.

APPEARANCE:
For the Appellant : Ms. Mathangi G., Advocate
For the Respondent : Ms. K. Vijaya Sree, Authorised Representative

CORAM:
HON’BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
HON’BLE MR. AJAYAN T.V., MEMBER (JUDICIAL)

FINAL ORDER No. 41178 / 2026

DATE OF HEARING : 15.07.2026
DATE OF DECISION : 11.11.2026

Per Mr. VASA SESHAGIRI RAO

This appeal is filed by M/s. Shriram Automall
India Limited, hereinafter referred to as “the appellant”,
against Order-in-Appeal No.77/2017 (STA-II) dated
10.03.2017 passed by the Commissioner of Service Tax
(Appeals-II), Chennai. The appellant is engaged in operating

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Automalls and in facilitating/trading in used commercial
vehicles and was registered with the Service Tax Department
under the taxable category of Business Auxiliary Service.
During departmental audit of its records, Show Cause Notice
No.09/2015 dated 23.01.2015 was issued proposing
recovery of Rs.17,43,459/- towards alleged short reversal of
CENVAT credit attributable to trading under Rule 6 of the
CENVAT Credit Rules, 2004, denial of CENVAT credit of
Rs.88,309/- towards allegedly ineligible input services and
recovery of Rs.23,68,320/- towards credit allegedly availed
on expenditure treated by the Department as capital-goods
expenditure, together with interest and penalty. The Original
Authority confirmed the disputed demands by Order-in-
Original No.19/2015-16/ST-II dated 20.07.2016 and
imposed penalty under Section 78 of the Finance Act, 1994
read with Rule 15 of the CENVAT Credit Rules, 2004. A
corrigendum dated 02.08.2016 was thereafter issued in
relation to appropriation of the amount already paid by the
appellant. In appeal, the Commissioner (Appeals) upheld the
Rule 6 demand of Rs.17,43,459/- insofar as it related to
2010-11, remanded for computation for 2011-12 for re-
determination under the applicable formula, remanded the
Rs.66,950/- component of the input-service dispute,
sustained the remaining Rs.21,359/- and treated the
Rs.23,68,320/- issue as academic on the ground that the

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appellant had already reversed the amount. Aggrieved by
the said order, the appellant is before this Tribunal.

2.1 The Ld. Advocate Ms. G. Mathangi for the
appellant, submitted that the proceedings arose from audit
of the appellant’s books and statutory records, which were
regularly maintained and disclosed. The appellant had filed
ST-3 returns, made proportionate reversals and had also
paid Rs.11,66,784/- with interest in January 2013. The
dispute was essentially interpretational and concerned the
statutory treatment of trading under the CENVAT Credit
Rules, without any concealment or intent to evade.

2.2 On the trading-related demand, learned Counsel
submitted that prior to 01.04.2011 the treatment of trading
as an “exempted service” under Rule 6 was itself disputed,
and the Explanation expressly including trading was
introduced only with effect from 01.04.2011. Reliance was
placed on Super Packs v. Commissioner of Central Excise,
Service Tax & Customs, Bangalore-II, 2019 (370) E.L.T. 691
(Tri.-Bang.), Assistant Commissioner of GST & Central Excise
v. Shriram Value Services Pvt. Ltd., 2019 (368) E.L.T. 928
(Mad.), etc . For 2011-12, it was submitted that the statutory
formula prescribed from 01.04.2011 had to be correctly
applied and that the Department could not mechanically

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adopt 10% of sales. The appellant also claimed credit for
reversals already made. It was further submitted, relying on
Super Packs, that services covered by Rule 6(5), during the
period when that provision was in force, were protected from
the general restrictions under Rule 6(1) to (3).

2.3 In respect of the Rs.88,309/- input-service
credit, learned Counsel submitted that the disputed services
were connected with the appellant’s business and included
CBRE property-valuation services relating to leased
Automalls, company-secretarial services, employee group
insurance, publicity connected with the Panvel Automall
launch and other related services. Reliance was placed on
Cadmach Machinery Co. (P) Ltd. v. Commissioner of Central
Excise, Ahmedabad, 2013 (31) S.T.R. 33 (Tri.-Ahmd.),
Commissioner of Service Tax, Bangalore v. Yodlee Infotech
(P) Ltd., 2015 (39) S.T.R. 695 (Tri.-Bang.) and
Commissioner of Central Excise, Bangalore-III v. Stanzen
Toyotetsu India (P) Ltd., 2011 (23) S.T.R. 444 (Kar.),
contending that business-related and employee-related
services could not be excluded without examining their
statutory nexus and purpose.

2.4 As regards Rs.23,68,320/-, the Ld. Advocate
submitted that the Department had wrongly treated the

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credit as relating to “capital goods”. The amount represented
Service Tax paid on input services such as rent,
engineering/space-design, installation, modernisation and
communication services used for establishing and operating
Automalls. Capitalisation in the accounts, it was submitted,
could not convert a service into “capital goods” under Rule
2(a). Reliance was placed on Commissioner of Central
Excise, Delhi-III v. Bellsonica Auto Components India Pvt.
Ltd., 2015 (40) S.T.R. 41 (P&H) and Cadmach Machinery Co.
(P) Ltd., supra.

2.5 On limitation and penalty, learned Counsel
submitted that the disputed transactions, payments and
reversals were reflected in the appellant’s books, CENVAT
records and statutory returns, with no fraud, wilful
misstatement, suppression or intent to evade Service Tax.
Reliance was placed on Assistant Commissioner of GST &
Central Excise v. Shriram Value Services Pvt. Ltd., 2019
(368) E.L.T. 928 (Mad.); Cosmic Dye Chemical v. Collector of
Central Excise, Bombay, 1995 (75) E.L.T. 721 (S.C.); R.R.
Polymers v. Commissioner of GST & Central Excise, Madurai,
2025 (1) TMI 1375 (CESTAT Chennai); Pallipalayam Spinners
Pvt. Ltd. v. Commissioner of GST & Central Excise, Salem,
2025 (1) TMI 388 (CESTAT Chennai); and Hindalco
Industries Ltd. v. Commissioner, Central GST, Central Excise

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& Customs, Jabalpur, 2019 (5) TMI 1620 (CESTAT New
Delhi), in support of the submission that bona fide belief and
availability of the relevant records, despite subsequent audit
detection, did not justify invocation of the extended period or
consequential penalty.

3. The Ld. Authorized Representative Ms. K. Vijaya
Sree appearing for the Revenue, supported the impugned
order and submitted that trading was required to be treated
as an exempted service under Rule 6, necessitating reversal
of common input-service credit attributable thereto. The
Revenue defended the computation for 2010-11 and
contended that the statutory formula applicable from
01.04.2011 had been correctly applied thereafter. It was
further submitted that the disputed input services lacked
sufficient nexus with the appellant’s output service and that
group critical-illness insurance was covered by the exclusion
under Rule 2(l)(C). As regards Rs.23,68,320/-, the Revenue
contended that the expenditure had been capitalised and was
therefore ineligible for credit. On limitation, the invocation of
the extended period was supported on the ground that the
discrepancies were detected only during departmental audit.

4. On consideration of the rival submissions and the
records, the following questions arise for determination: -

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i. Whether there is any justification for invoking extended
period of limitation in the facts of this appeal?
ii. Whether the demand of Rs.17,43,459/- towards
reversal of CENVAT credit attributable to trading is
sustainable under Rule 6 of the CENVAT Credit Rules,
2004?
iii. Whether the denial of Rs.88,309/- towards input-
service credit and the demand of Rs.23,68,320/-
relating to alleged capital-goods credit are sustainable?

Issue No. (i): -LIMITATION, INTEREST and PENALTY
5. Since limitation goes to the very recoverability of
the demand, we consider it appropriate to examine this issue
first. The Show Cause Notice dated 23.01.2015 covers, inter
alia, the financial years 2010-11 and 2011-12, invoking the
extended period. During the entire disputed period, Section
73(1) of the Finance Act, 1994 prescribed a normal period of
one year from the relevant date. The demands for the said
periods must, therefore, be tested against the normal
limitation of one year and can survive beyond that period
only if the extended period under the proviso to Section
73(1) is validly invoked.

6. On limitation and penalty, the appellant
submitted that the proceedings originated from departmental

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audit of its books of account, ST-3 returns filed and other
records and that the transactions, CENVAT credit, payments
and reversals were reflected therein. It was contended that
the appellant had acted under a bona fide belief regarding
the eligibility and computation of credit, particularly in view
of the statutory changes relating to trading and input-service
credit. Reliance was placed on Assistant Commissioner of
GST & Central Excise v. Shriram Value Services Pvt. Ltd.,
2019 (368) E.L.T. 928 (Mad.); Cosmic Dye Chemical v.
Collector of Central Excise, Bombay, 1995 (75) E.L.T. 721
(S.C.); M/s. R.R. Polymers v. Commissioner of GST & Central
Excise, Madurai, 2025 (1) TMI 1375 (CESTAT Chennai); M/s.
Pallipalayam Spinners Pvt. Ltd. v. Commissioner of GST &
Central Excise, Salem, 2025 (1) TMI 388 (CESTAT Chennai);
and Hindalco Industries Ltd. v. Commissioner, Central GST,
Central Excise & Customs, Jabalpur, 2019 (5) TMI 1620
(CESTAT New Delhi), in support of the submission that
availability of the relevant records and subsequent audit
detection did not establish suppression, wilful misstatement
or intent to evade. It was accordingly submitted that the
extended period and consequential penalty were
unsustainable.

7. We find that the present proceedings arose from
an audit of the appellant’s records and that the trading

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activity, input services, credit entries and expenditure in
question were available in those records, from which the
Department itself made the disputed computations. The
appellant had also paid Rs.11,66,784/- with interest in
January 2013 and claimed further reversals through its ST-3
returns, well before issuance of the Show Cause Notice.
These circumstances materially militate against a finding that
the relevant transactions or credit were deliberately withheld
from the Department. Further, the dispute relating to trading
involved interpretation of Rule 6, as reflected in the decisions
relied upon by the appellant, particularly Assistant
Commissioner of GST & Central Excise v. Shriram Value
Services Pvt. Ltd., 2019 (368) E.L.T. 928 (Mad.), and Super
Packs v. Commissioner of Central Excise, Service Tax &
Customs, Bangalore-II, 2019 (370) E.L.T. 691 (Tri.-Bang.).
Likewise, the disputes concerning input-service credit
involved interpretation of the statutory definition and
business nexus. The substantive question whether any credit
was reversible is distinct from the independent requirement
of establishing fraud, wilful misstatement, suppression of
facts or contravention with intent to evade for invoking the
extended period.

8. We now turn to the normal period of limitation.
Section 73(6) of the Finance Act, 1994 prescribed the

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relevant date with reference to the filing of the periodical
return and, where no return was filed, the last date
prescribed for filing such return. In the present case, the
relevant ST-3 returns were ultimately filed only on
09.06.2015, after issuance of the Show Cause Notice.
Accordingly, the statutory dates prescribed for filing the
respective returns have to be considered for examining the
limitation applicable when the notice was issued. The returns
for April-September 2010 and October 2010-March 2011
were due on 25.10.2010 and 25.04.2011 respectively, while
those for April-September 2011 and October 2011-March
2012 were due on 25.10.2011 and 25.04.2012 respectively.
Each of these dates was more than one year prior to the
Show Cause Notice dated 23.01.2015. The subsequent filing
of the returns on 09.06.2015 cannot retrospectively extend
the limitation applicable to a notice which had already been
issued.

9. We therefore find that the demands relating to
the disputed periods could survive only if the proviso to
Section 73(1) was validly invoked. On the material available,
we find no sufficient evidence of fraud, collusion, wilful
misstatement, suppression of facts or contravention with
intent to evade payment of Service Tax. Mere detection
during audit of discrepancies arising from records maintained

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by the appellant, particularly where payments and reversals
had already been made and the dispute substantially
involved interpretation, cannot by itself establish the
requisite ingredients of the extended period. We accordingly
hold that the extended period is not invocable and that the
entire demand is barred by limitation.

Issue No. (ii) – TRADING AND RULE 6
10. At the outset, it may be noted that, in the
preceding paragraphs, we have already held that the entire
demand is not recoverable on the ground of limitation.
Consequently, examination of the remaining issues is, strictly
speaking, academic. However, since detailed submissions
were advanced by both sides on the merits of the trading-
related demand and as the matter has been argued at
length, we deem it appropriate to briefly examine the same,
without disturbing the finding already recorded on limitation.

11. As regards the trading-related demand of
Rs.17,43,459/-, the statutory position for 2010-11 and
2011-12 has to be considered separately. The Explanation
treating trading as an exempted service became operative
with effect from 01.04.2011. Further, Notification
No.13/2011-C.E.(N.T.) dated 31.03.2011 modified the
manner of determining the value of trading for the purposes

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of Rule 6. Therefore, for the period from 01.04.2011, the
computation had to conform to the statutory formula
applicable during that period.

12. The appellant's reliance on Super Packs v.
Commissioner of Central Excise, Service Tax & Customs,
Bangalore-II, 2019 (370) E.L.T. 691 (Tri.-Bang.), is relevant
in this context. The decision recognised the independent
operation of Rule 6(5), where applicable, notwithstanding the
general restrictions under Rule 6(1) to (3), and also
emphasised that any reversal attributable to trading has to
be determined in accordance with the applicable statutory
mechanism.

13. On the material available, the Department has
not satisfactorily demonstrated that the demand of
Rs.17,43,459/- was correctly quantified after giving due
effect to the applicable statutory formula, the reversals
already made by the appellant and the claim under Rule
6(5). The issue of correct quantification therefore also gives
rise to a substantive dispute. However, since the entire
demand has already been held to be barred by limitation, we
do not consider it necessary to record a final determination
on the substantive liability.

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14. In view of the finding already recorded on
limitation, the demand of Rs.17,43,459/- cannot be
recovered. The demand confirmed for 2010-11 and the
consequential remand for 2011-12 therefore do not survive.
The discussion in the foregoing paragraphs is only an
alternative examination of the merits and shall not dilute or
alter the finding that the demand fails on limitation.

Issue No. (iii) — Input Services and Capital Goods
15. As already held in the preceding paragraphs, the
entire demand in the present proceedings is not recoverable
on the ground of limitation and so again examination of the
present issue is also therefore largely academic. However,
since both sides advanced detailed submissions on the
merits, we deem it appropriate to briefly examine the
disputed input-service and capital-goods credits as well.

16. The demand of Rs.88,309/- comprises different
input services which have to be examined with reference to
their actual nature and use. The record includes CBRE
property-valuation services relating to the appellant's leased
business properties, professional services of B. Chandra,
Practising Company Secretary, expenditure relating to the
Panvel Automall launch and group critical-illness insurance,
besides other residual services.

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17. The CBRE valuation services and the company-
secretarial services have a discernible business nexus. The
appellant relied upon Cadmach Machinery Co. (P) Ltd. v.
Commissioner of Central Excise, Ahmedabad, 2013 (31)
S.T.R. 33 (Tri.-Ahmd.), and Commissioner of Service Tax,
Bangalore v. Yodlee Infotech (P) Ltd., 2015 (39) S.T.R. 695
(Tri.-Bang.) , in support of the proposition that input services
having a nexus with the assessee's business cannot be
denied merely because they are not directly used in
providing the output service. On the material available, the
Department has not established that these services were
wholly unrelated to the appellant's business.

18. The expenditure relating to the Panvel Automall
launch was also connected with publicity and promotion of
the appellant's business. Advertisement and sales promotion
were specifically covered within the definition of input service
applicable during the relevant period. The Department has
not brought on record sufficient material to establish that
this expenditure had no nexus with the appellant's business.

19. The group critical-illness insurance requires
separate consideration. The two relevant invoices carry
Service Tax of Rs.6,532/- and Rs.5,950/-, aggregating to

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Rs.12,482/-. On the material available, the appellant has not
established that these policies fell outside the statutory
exclusion applicable to life or health insurance used primarily
for personal use or consumption of employees. We therefore
do not disturb the denial of this component on merits. At the
same time, the amount is not recoverable in the present
proceedings since the extended period has already been held
to be unavailable.

20. As regards the remaining portion of the
Rs.88,309/- demand, the invoices have to be examined
according to the nature and purpose of the respective
services. The Commissioner (Appeals)'s description of the
entire residual amount of Rs.21,359/- as group critical-illness
insurance does not appear to correspond with the invoice-
wise details, since the two insurance invoices themselves
account for only Rs.12,482/-. In any event, having regard to
the finding on limitation, no further recovery can arise from
this component in the present proceedings.

21. The other dispute concerns Rs.23,68,320/-,
which the Department treated as credit relating to capital-
goods expenditure. The underlying documents, however,
include engineering/design, installation, communication and
rental-related services. The Space Design invoice dated

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25.06.2010, for instance, relates to professional engineering
services for the Chennai Automall. The record also contains
documents relating to the appellant's leased business
premises.

22. Capitalization of expenditure in the books of
account is only an accounting treatment and does not, by
itself, convert a service into “capital goods” within the
meaning of Rule 2(a) of the CENVAT Credit Rules, 2004.
Where the underlying invoices are for services, their
eligibility has to be examined with reference to the applicable
definition of “input service”. The Department has not
established that the disputed Rs.23,68,320/- represented
specified goods falling within the statutory definition of
capital goods. The principle relied upon by the appellant in
Commissioner of Central Excise, Delhi-III v. Bellsonica Auto
Components India Pvt. Ltd., 2015 (40) S.T.R. 41 (P&H), is
relevant in this regard.

23. The appellant had also reversed Rs.23,68,320/-
on 30.04.2011. Such reversal, by itself, cannot determine
the original admissibility of the credit. The finding that the
amount represented inadmissible capital-goods credit is
therefore not sustainable on the material available. Since, in

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any event, the demand is barred by limitation, this finding is
recorded only as an alternative examination of the merits.

24. In view of the finding that the entire demand is
barred by limitation, the consequential interest under Section
75 cannot survive. The penalty imposed under Section 78 of
the Finance Act, 1994 read with Rule 15 of the CENVAT
Credit Rules, 2004 also cannot be sustained, particularly
when the ingredients necessary for invoking the extended
period have not been established.

25. In view of the foregoing, the entire demand
being barred by limitation, the demand of Rs.17,43,459/-
towards trading is not recoverable. On merits, the CBRE
valuation, company-secretarial and Panvel Automall
promotional services have sufficient business nexus, the
denial of group critical-illness insurance is not disturbed, and
the finding treating Rs.23,68,320/- as capital-goods credit is
unsustainable; these are only alternative findings.

26. The amounts already paid or reversed, including
Rs.11,66,784/- with interest and Rs.23,68,320/- reversed on
30.04.2011, shall receive consequential treatment in
accordance with the law without double recovery.
Accordingly, Order-in-Appeal No.77/2017 (STA-II) dated

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10.03.2017, arising from Order-in-Original No.19/2015-
16/ST-II dated 20.07.2016 and corrigendum dated
02.08.2016, is set aside to the extent challenged.

27. The appeal is allowed with consequential relief, if
any, in accordance with law.
(Order pronounced in open court on 11.11.2026)



Sd/- Sd/-
(AJAYAN T.V.) (VASA SESHAGIRI RAO)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)

MK