The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has upheld the eligibility of Kalyan Jewellers to avail CENVAT credit on aircraft running expenses and executive jet hiring charges, holding that such services were used for legitimate business purposes and qualified as “input services” under the CENVAT Credit Rules, 2004. 

The Bench of P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) has observed that the department had failed to establish deliberate suppression of facts, fraud, willful misstatement, or intent to evade payment of tax—essential ingredients necessary for invoking the extended limitation period. Mere audit detection of the credit availment was insufficient to establish suppression in the absence of supporting evidence. 

Kalyan Jewellers is engaged in the manufacture and distribution of gold jewellery across India through an extensive network of retail showrooms and regional offices. Besides manufacturing activities, the company also provided taxable output services such as business auxiliary services and renting of immovable property.

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During an audit covering the period from April 2015 to June 2017, the department alleged that the company had wrongly availed CENVAT credit on several aviation-related services, including ground handling charges, landing charges, navigation charges, airworthiness management services, helicopter landing services, pilot and cabin crew training, and hiring charges of a nine-seater executive jet. A show cause notice was issued seeking recovery of the alleged inadmissible credit along with interest and an equivalent penalty. 

The adjudicating authority confirmed the demand. However, the Commissioner (Appeals) reversed the order, holding that the services were integrally connected with the company’s manufacturing and business activities and that the department had failed to establish suppression of facts necessary for invoking the extended limitation period. The Revenue challenged this appellate order before the Tribunal. 

The department argued that the aviation-related services did not qualify as eligible input services under Rule 2(l) of the CENVAT Credit Rules. According to the department, maintenance and repair of vehicles not qualifying as capital goods were specifically excluded from the definition of input services, and therefore the related credits were inadmissible.

The department further contended that the company had suppressed material facts regarding the availment and utilization of CENVAT credit, which justified invocation of the extended limitation period and imposition of penalties. It submitted that the irregular availment of credit surfaced only during departmental audit and that the company had failed to correctly self-assess its tax liability. 

The company submitted that the aviation services were exclusively used for official business purposes. It explained that the executive aircraft was utilized for transporting high-value gold from its central hub at Thrissur to showrooms across India, facilitating travel by directors and senior executives for supervising nationwide operations, inaugurating new showrooms, and enabling brand ambassadors to attend promotional events.

The company also produced invoices demonstrating that the services had been procured in its own name and that service tax had been duly paid on those services before claiming CENVAT credit. It argued that these services directly related to business operations and sales promotion and therefore squarely fell within the inclusive definition of “input service.”

Reliance was also placed on earlier Tribunal decisions recognizing aviation services used for official business travel as eligible input services. 

The Tribunal agreed with the findings of the Commissioner (Appeals) and observed that the definition of “input service” under the CENVAT Credit Rules was broad enough to cover services used directly or indirectly in relation to manufacture as well as activities relating to business.

It noted that the aviation service invoices were issued in the name of Kalyan Jewellers and that the company had discharged the applicable service tax. Importantly, the department had failed to produce any evidence showing that the aircraft or related services were used for personal or non-business purposes.

The Bench observed that in the absence of any admissible evidence demonstrating misuse of the services, the denial of CENVAT credit could not be sustained. It further held that previous Tribunal rulings had consistently recognized aviation services used for official business travel as eligible input services.

The Tribunal also found no reason to interfere with the Commissioner (Appeals)’ conclusion that the extended period of limitation had been wrongly invoked.

The CESTAT upheld the order of the Commissioner (Appeals), affirming that Kalyan Jewellers was entitled to avail CENVAT credit on executive jet hiring charges and aircraft running expenses as eligible business input services. 

The Tribunal concluded that the department had failed both to prove misuse of the services and to justify invocation of the extended limitation period.

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