Refuting 'CENVAT Credit reversal' towards Investments in Securities

June 11,2018
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Sudipta Bhattacharjee, Partner, Advaita Legal
Rajat Mittal, Senior Associate
Tushar Joshi, Associate






In today’s day and age, most companies have a Treasury division which undertakes various treasury related transactions to meet the fiscal demands, facilitate trade and manage the working capital requirements of the company.

Treasury divisions often invest in shares, stocks, mutual funds and other types of securities which constitute non-core activities for the company but help strengthen the finances of the company.

As per recent media reports, tax authorities have sent notices to various companies seeking reversal of proportionate CENVAT Credit by such companies - As per the tax authorities, ‘trading in securities’ constitutes an ‘exempt service’, therefore CENVAT credit on input/input services to the extent the said input service is exclusively or commonly attributable to ‘trading in securities’ is required to be reversed.

The main controversy pertains to erstwhile indirect tax regime i.e., the period prior to the introduction of GST – apropos erstwhile CENVAT Credit Rules, 2004 (CCR). Our analysis in the backdrop of relevant statutory provisions is as under:

Relevant Statutory Provisions

As per the scheme of CCR, CENVAT credit is allowed only to the extent the same is being used for provision of taxable goods or services. If the input/ input services are being used for the provision of an exempted goods or services, CENVAT credit on the said input/ input service is not admissible. Rule 6(1) of the CCR clearly disallows CENVAT Credit on input/ input services used in the manufacture of exempted goods or for provision of exempted services.    

Rule 2(e) of the CCR defines ‘exempted service’, relevant extract of which is reproduced as under:

‘Exempted service’ means a –

(1)   Taxable service which is exempt from whole of the service tax leviable thereon; or

(2)   Service, on which no service tax is leviable under Section 66B of the Finance Act; or



Thus, ‘exempted service’ includes services on which service tax is not leviable under Section 66B of the Finance Act.


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