Refund of Unutilised CENVAT Credit Can’t Be Denied by Arbitrarily Treating Input Services as Ineligible: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside an order denying a substantial portion of refund claimed by Sutherland Global Services Pvt. Ltd., holding that authorities cannot reject refund of CENVAT credit by mechanically treating various input services as ineligible without proper reasoning. The bench of M. Ajit Kumar (Technical Member) and Ajayan T.V (Judicial Member) has observed that the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004 during the relevant period was broad and covered services used in relation to business activities. Accordingly, services such as transportation of employees, insurance, and architectural services used in the course of business could not be denied credit merely on a narrow interpretation. The appellant/assessee, Sutherland Global Services Pvt. Ltd., a provider of Information Technology Enabled Services (ITES) registered under the Service Tax regime, filed refund claims under Rule 5 of the CENVAT Credit Rules, 2004 seeking refund of unutilised CENVAT credit accumulated on input services used for export of services. The claims related to multiple periods between 2009 and 2011. The company contended that since it exported services and could not utilise the accumulated credit domestically, it was entitled to a refund of the unutilised credit under the statutory scheme. However, the adjudicating authority partially rejected the refund claims on several grounds, including treating certain input services such as rent-a-cab services, insurance services, architectural services, and auxiliary services as ineligible input services. Disallowing part of the claim for want of supporting invoices. Excluding certain turnover figures while applying the refund formula prescribed under the relevant notification. The Commissioner (Appeals) upheld the rejection, prompting the company to challenge the decision before the Tribunal. The Tribunal identified two key issues for determination: whether denial of refund of CENVAT credit relating to various input services was justified; and whether the formula adopted by the department for calculating the refund amount was correct. The Tribunal noted that during the relevant period prior to April 2011, the definition of “input service” was interpreted broadly and covered services used in relation to business activities. It observed that the department had disallowed credits without adequate reasoning and without demonstrating that the services were not used for business purposes. In particular, the Tribunal considered the company’s explanation that it employed around 11,000 employees, including a large number of women, and operated 24-hour ITES services, making employee transportation essential due to lack of public transport at night. In such circumstances, the Tribunal found that rent-a-cab services for employee transportation were integral to the provision of output services and could not be excluded from the definition of input service. Similarly, insurance services related to employee medical coverage and architectural services connected with office infrastructure were also linked to the business operations and therefore could qualify as eligible input services. The Tribunal also noted that the appellant had produced a Chartered Accountant’s certificate and supporting documentation, and there was no evidence that the department had issued a deficiency memo pointing out any shortcomings in the records. On the issue of the refund calculation, the Tribunal examined the formula prescribed under Notification No. 5/2006-CE (NT) for refund of unutilised input service credit. The department had taken the view that exports made from the company’s SEZ unit should not be included in the export turnover for the purpose of calculating refund for the STPI unit. The Tribunal, however, held that the refund mechanism under Rule 5 is intended to neutralise the tax burden on exported services, and the formula must be applied in a manner consistent with that objective. It found that the reasoning adopted by the appellate authority for excluding certain turnover components was not adequately supported by the provisions of the rules or the notification. Allowing the appeals, the Tribunal concluded that the findings declaring several services as ineligible input services were unsustainable and lacked proper reasoning. The authorities had failed to properly examine the evidence placed on record. The calculation of the refund amount required reconsideration. The Tribunal set aside the order to the extent it denied the refund and remanded the matter to the adjudicating authority for recomputation of the refund amount in accordance with the law and the observations made in the judgment. Case Details Case Title: Sutherland Global Services Pvt. Ltd. Versus Commissioner of GST and Central Excise Citation: JURISHOUR-325-CES-2026(CHEN) Case No.: Service Tax Appeal No.41444 of 2015 Date: 10.03.2026 Counsel For Appellant: Joseph Prabhakar, Advocate Counsel For Respondent: Anoop Singh, Authorised Representative Click Here To Read Order Read More: No Service Tax in Absence of Service Provider-Recipient Relationship: CESTAT

Refund of Unutilised CENVAT Credit Can’t Be Denied by Arbitrarily Treating Input Services as Ineligible: CESTAT

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