The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit of Service Tax was admissible on Brokerage and Commission, Detention Charges, Insurance Services and Membership Fees, while upholding the denial of credit relating to Rent-a-Cab services and Staff Welfare expenses.

The bench of S.K. Mohanty (Judicial Member) upheld the reduction of penalty to 10% of the irregularly availed CENVAT credit in respect of the two categories of services on which the credit was ultimately held inadmissible.

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The appellant/assessee was engaged, inter alia, in the manufacture of electronic and electrical goods falling under Chapter Headings 8528, 8450, 8529 and 8415 of the First Schedule to the Central Excise Tariff Act, 1985.

During the relevant period, the company availed CENVAT credit of Central Excise duty paid on inputs and Service Tax paid on input services, which was used for payment of Central Excise duty on its final products.

The dispute concerned CENVAT credit claimed on Service Tax paid in relation to Brokerage and Commission, Detention Charges, Insurance Services, Membership Fees, Conveyance/Rent-a-Cab services and Staff Welfare expenses.

The Department disputed the eligibility of these services as ‘input services’ under Rule 2(l) of the CENVAT Credit Rules, 2004. The issue was initially raised by the Department’s audit wing, following which two Show Cause Notices dated January 11, 2018 and May 15, 2018 were issued.

The adjudicating authority confirmed the proposals in the Show Cause Notices through an order dated December 18, 2018. On appeal, the Commissioner (Appeals) upheld the demands, while reducing the penalty to 10% of the confirmed CENVAT demand. MIRC Electronics thereafter approached the CESTAT.

The appellant contended that the disputed services fell within the definition of ‘input service’ under Rule 2(l) of the CENVAT Credit Rules, 2004, and had a nexus with the manufacture and sale of its final products.

With respect to Brokerage and Commission, the company submitted that these services were used in connection with the sale of its final products and therefore came within the scope of ‘sales promotion’, which was specifically included in the definition of input service.

As regards Detention Charges, the company submitted that the charges were incurred because imported raw materials remained stored in warehouses at docks or airports beyond the prescribed grace period. Since the imported goods were raw materials used in manufacturing, the appellant argued that the related charges qualified as input services.

On Insurance Services, MIRC Electronics stated that the insurance premiums related to cargo, factory buildings, plant and machinery and other business assets. It relied upon a Chartered Accountant’s certificate dated May 12, 2026, which certified that the insurance premiums were not paid for the personal benefit of employees but related to equipment and machinery and other business assets.

Regarding Membership Fees, the appellant submitted that memberships of various associations and federations enabled participation in exhibitions and sales-promotion activities, besides helping the company procure raw materials at competitive rates and promote manufacture and sale of its products.

However, concerning Rent-a-Cab services, the appellant fairly accepted that CENVAT credit was not available and stated that the credit had already been reversed.

For Staff Welfare expenses, the appellant argued that certain facilities, including canteen and transportation facilities, were provided in compliance with statutory obligations under the Factories Act, 1948, and therefore the associated Service Tax should qualify for CENVAT credit.

The appellant also challenged the penalty, arguing that there was no mens rea in availing the disputed credit and therefore the penal provisions under Rule 15 of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act should not apply.

The Department defended the impugned order and particularly contested the eligibility of CENVAT credit relating to Staff Welfare expenses.

The Revenue argued that expenses incurred towards canteen facilities and transportation of workers to the factory could not be treated as input services for CENVAT purposes.

Reliance was placed on the Karnataka High Court judgment in Toyota Kirloskar Motor Pvt. Ltd. v. Commissioner of Central Tax, Bangalore, which was subsequently upheld by the Supreme Court.

The Tribunal examined the definition of ‘input service’ under Rule 2(l) of the CENVAT Credit Rules, 2004.

The definition covered services used by a manufacturer, directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal. It also contained an inclusive portion covering, among other things, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment, quality control, business exhibition, legal services and transportation of inputs or capital goods.

At the same time, certain specified services were excluded, including services used primarily for personal consumption of employees.

The Tribunal observed that the definition effectively contained three components: the main part, the inclusive part and the exclusionary part. The inclusive part expanded the scope of services eligible for CENVAT credit, while services falling within the specified exclusions were disqualified.

On Brokerage and Commission, the Tribunal found that the services were connected with sales promotion of the goods manufactured by MIRC Electronics.

The Tribunal noted that ‘advertisement or sales promotion’ was expressly covered by the inclusive portion of the definition of input service.

It further took note of the amendment effective from February 3, 2016, through Notification No. 02/2016-C.E. (N.T.), under which an explanation was added clarifying that, for the purpose of the relevant clause, sales promotion included services involving the sale of dutiable goods on a commission basis.

Since the disputed period was January 2016 to June 2017, the Tribunal held that the amended explanation was applicable. It concluded that the commission paid by the appellant qualified as an input service even independently of the broader inclusive portion of the definition.

The Tribunal similarly accepted the claim concerning Membership Fees.

It found that the memberships were obtained from associations and federations with the objective of enhancing sales-promotion activities and increasing sales volume.

Since the services were connected with advertisement or sales promotion of the goods manufactured by the appellant, and sales promotion was specifically covered within the inclusive definition, the Tribunal held that the membership-related services qualified as input services for purposes of CENVAT credit.

The Tribunal also ruled in favour of the appellant on Detention Charges.

It noted that MIRC Electronics had procured imported raw materials for use in its manufacturing operations. The detention charges arose because the goods were not cleared within the stipulated period while stored in warehouses and were subsequently transported to the factory.

Importantly, the Tribunal noted that the detention charges had been incurred in connection with imported goods and raw materials intended for manufacturing and that the cost had been included in the value of the goods or raw materials for accounting purposes.

On that basis, the Tribunal held that the charges qualified as an input service under the main part of the definition contained in Rule 2(l).

The Tribunal also accepted the appellant’s claim relating to Insurance Services.

The insurance policies covered plant and machinery installed at the factory, stock of goods held at godowns and warehouses, and goods in transit.

The appellant had specifically denied that the insurance premiums were paid for the benefit of employees. The Tribunal took note of the Chartered Accountant’s certificate dated May 12, 2026, which certified that the insurance premiums were paid to insure business assets against risks including theft, fire and burglary.

The Tribunal therefore held that the insurance services did not fall within the exclusion applicable to services used primarily for the personal benefit or consumption of employees. Consequently, the credit was held admissible.

On Rent-a-Cab services, the Tribunal recorded that the appellant had accepted that CENVAT credit was not available and had already reversed the credit.

Since the liability had been accepted by the appellant, the Tribunal did not express any further opinion on the issue and left the matter to be dealt with by the original authority.

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