The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai has quashed a Rs. 24.08 lakh service tax demand and a Rs. 10 lakh penalty, holding that only common input service credit used for both taxable and exempt services is subject to reversal—not the entire CENVAT credit availed.
The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that the entire dispute has arisen only on account of interpretation of formula in Rule 6(3A) of the of CENVAT Credit Rules, 2004 and not on the merits of service tax applicability
The appellant, Sify Technologies, a prominent player in the Indian IT sector, had exercised the option under Rule 6(3)(ii) to reverse proportionate credit rather than maintain separate accounts. The department’s challenge was based on its interpretation of the calculation method under Rule 6(3A), which was refuted by the company using judicial precedents and technical arguments.
The case stemmed from a demand raised by the Commissioner of GST and Central Excise, Chennai LTU Commissionerate, for the financial year 2011–12. The department alleged that Sify had wrongly availed CENVAT credit on input services that were attributable to exempted activities—specifically, its trading in software and hardware, which were classified as ‘exempted services’ under Rule 2(e) of the CENVAT Credit Rules, 2004.
The department’s computation, which included the total input service credit availed (₹37.04 crore), was contested by Sify, which argued that only common input services—used for both taxable and exempted services—should be considered for reversal under Rule 6(3A) of the CENVAT Credit Rules.
The Tribunal upheld that Secure Socket Layer Certificates and Digital Signature Certificates supplied by Sify were indeed exempt from tax during the disputed period, based on its earlier ruling in 2018.
The Tribunal ruled that only common input services credit is to be considered for proportionate reversal and not the total CENVAT credit. This aligned with multiple judicial precedents including Reliance Industries Ltd. and Honda Motor India Pvt. Ltd., which clarified that amendments to Rule 6(3A) made in 2016 were retrospective and merely clarified existing law.
Given that Sify had provisionally reversed ₹5.4 lakh during the disputed period and had engaged with the department in good faith, the Tribunal found no justification for the ₹10 lakh penalty imposed earlier. It emphasized that interest and penalty cannot be levied where there is no misutilization or suppression.
While the Tribunal set aside the department’s demand, it remanded the case back to the original adjudicating authority to recompute the amount of common input service credit, if any, that needs to be reversed in accordance with the clarified legal position.
Case Details
Case Title: M/s. Sify Technologies Limited Versus Commissioner of GST and Central Excise
Case No.: Service Tax Appeal No. 42110 of 2015
Date: 24.07.2025
Counsel For Appellant: G. Natarajan, Advocate
Counsel For Respondent: N. Satyanarayanna, Authorised Representative
