Chennai CESTAT Sets Aside ₹23.74-Lakh Tax on HMIL Tool Charges, Says Production-Tool Work Fell Outside 2009 Business-Support Definition

Hiteco provided tool-management services to Hyundai Motors India Ltd. (HMIL) under an agreement covering the supply and availability of production tools, procurement, storage, handling, regrinding, coating, maintenance and manpower.

For April and May 2009, Hiteco treated tool-hire charges as subject to VAT and paid service tax on tool-service charges.

Following an audit, the Department demanded ₹23,74,847 in service tax, alleging that the services were taxable as Business Support Service (BSS).

It also demanded reversal of ₹2,63,985 in CENVAT credit on capital goods removed as such, including goods exported under bond/LUT.

The adjudicating authority confirmed the demands with interest and penalty; the Commissioner (Appeals) rejected Hiteco’s appeal.

Hiteco also did not contest the separate credit demand relating to a printer and cartridge.

Hiteco appealed to the Tribunal.

Section 65(104c) of the Finance Act, 1994, as applicable during the relevant period, governed the scope of BSS; the later expansion of that definition effective 1 May 2011 could not be applied retrospectively absent statutory authority.

Classification depended on the contract, actual activities and the statutory definition in force, not solely on invoice descriptions; a composite arrangement did not, by itself, establish BSS.

The Tribunal relied on *CIT v. Vatika Township Private Limited* on the presumption against retrospective application of an amendment, and on *Air Liquide North India (P) Ltd. v. CCE* and *Welspun Syntex Ltd. v. Commissioner of Central Excise & Customs* in distinguishing manufacturing-related activities from BSS.

Under Rule 3(5) of the CENVAT Credit Rules, 2004, credit on capital goods removed as such was at issue; CENVAT credit is a statutory benefit subject to prescribed conditions, not an unconditional right, as reflected in *State of Karnataka v. M.K. Agro Tech Pvt. Ltd.* and *Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd.*

The Tribunal also considered *Glass and Ceramic Decorators v. CCE* and the Supreme Court’s decision in *Betts India Pvt. Ltd. v. Commissioner of Central Excise* concerning export, reversal and rebate.

The scope of proceedings was confined to the allegations in the show-cause notice.

Invocation of the extended period and penalty required satisfaction of the applicable statutory conditions; discovery during audit alone neither established nor excluded suppression.

The Tribunal found that the agreement principally concerned the procurement, management and maintenance of production tools and the provision of labour for their use in HMIL’s manufacturing operations.

Those activities had no apparent nexus with marketing, and the broader BSS wording introduced in 2011 could not govern services rendered in 2009.

Neither the integrated nature of the agreement nor the division of invoices established that the services fell within the BSS definition then in force; the BSS demand therefore failed.

The Tribunal also declined to permit a fresh classification because the show-cause notice had proposed BSS alone.

On CENVAT credit, the Tribunal distinguished the permissibility of export under bond from the question of reversal under Rule 3(5), and considered the authorities on reversal and rebate.

In the circumstances—including revenue neutrality, the export context, the small amount and the lapse of time—it concluded that remand would serve no useful purpose and set aside the capital-goods demand.

Finally, it held that the Revenue had not discharged its burden of proving suppression, and that penalty could not be imposed mechanically.

It also found the extended-period demand and penalty unsustainable for failure to establish suppression.

Hiteco was held eligible for consequential relief in accordance with law, and the appeal was disposed of accordingly.