Quick answer: In The Commissioner of GST & Central Excise, Chennai South Commissionerate v. M/s Ascendas IT Park (Chennai) Ltd. (2026:MHC:4190, CMA No. 1374 of 2018), decided on 12 October 2026, a Division Bench of the Madras High Court (Dr. Justice Anita Sumanth and Justice C. Kumarappan) held that Rule 6(5) of the CENVAT Credit Rules, 2004 allows credit of the whole of the service tax paid on the input services it lists, and that the credit is lost only if the service is used exclusively in or in relation to exempted services. An IT park operator that provided both taxable and exempted output services therefore kept its credit for the period 16 June 2005 to 1 June 2007. For the period after 1 June 2007, when renting of immovable property became taxable, the Court rejected reliance on Board Circular No. 98/1/2008-ST dated 4 January 2008. On the fourth question, however, it ruled for the Department: payment of VAT on fit-out charges does not exclude service tax on the same consideration, and no proof of VAT payment had been produced.
Key Takeaways
- Rule 6(5) is a code in itself. On the Bench’s reading, it overrides sub-rules (1), (2) and (3) of Rule 6 for the listed services, so a provider need not maintain separate accounts or apportion credit for them.
- “Exclusively” means exclusively. An assessee that renders even some taxable services, and uses the credit across all its output services, does not trigger the bar in Rule 6(5) (paragraphs 20–22).
- Nexus, not the character of the property, decides eligibility. The Court endorsed reasoning that the right question is whether an input service bears a nexus to the output service of renting immovable property, not whether immovable property itself bears duty or tax (paragraphs 23–24).
- A circular does not bind the Tribunal. The reasoning the Court accepted treats the 2008 Board clarification as erroneous and as not binding on the Tribunal.
- VAT paid does not mean service tax is not due. The same transaction can attract both levies if the foundational requirements of each are met, and an assessee must prove the VAT payment it relies on (paragraphs 31–32).
- The ratio is regime-bound. It concerns the CENVAT Credit Rules, 2004 and the Finance Act, 1994, and should not be carried into the Central Goods and Services Tax Act, 2017 without separate analysis.
1. Introduction
The respondent, Ascendas IT Park (Chennai) Ltd., develops and maintains an information technology park. It held service tax registration for Real Estate Agent, Management, Maintenance or Repair (MMR) and Renting of Immovable Property (RIP) services. The Department disallowed the credit the assessee had availed, on the footing that the credit related in part to exempt RIP services. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) disagreed, and the Department appealed to the High Court under Section 35G of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994.
Credit allocation between taxable and exempt output is one of the most contested questions in indirect tax. Under the service tax regime it was governed by Rule 6 of the CENVAT Credit Rules, 2004 (the “2004 Rules”), whose sub-rules offered several methods of allocation. The Court answered four substantial questions of law. It decided the first two for the assessee, left the third unanswered because no submissions were made on it, and decided the fourth for the Department. This article sets out the facts, examines the reasoning on each question, and considers what the judgment means for credit claims and for disputes about the interaction of VAT and service tax. It also identifies points on which the judgment is brief and on which a careful reader should hesitate before treating it as a broad authority.
2. Case summary and background
The assessee and the notices
The assessee is a company engaged in the development and maintenance of an IT park (paragraph 12). Two show cause notices were issued, for the periods 16 June 2005 to 1 June 2007 and April 2009 to March 2010, on 22 April 2010 and 8 October 2010 respectively (paragraph 4). Among other proposals, the assessee was called on to show cause why credit for those periods should not be disallowed and recovered with interest under Rule 14 of the 2004 Rules, read with the proviso to Section 73(1) and Section 75 of the Finance Act, 1994, with penalty under Rule 15 of the 2004 Rules and Sections 76 and 78 of the Finance Act, 1994 (paragraph 5). The judgment does not state the quantum of credit or tax in dispute.
The assessee did not maintain a bifurcation of credit by service. It availed the credit in full, relying on Rule 6(5) of the 2004 Rules (paragraphs 6 and 14). An Order-in-Original dated 25 January 2012 rejected that reliance and disallowed the credit. The assessee appealed, and CESTAT, South Zonal Bench, Chennai allowed the appeal by Final Order No. 40110/2018 dated 17 January 2018 in Appeal No. ST/249/2012-DB. The Department’s appeal was admitted on 2 July 2018 on four substantial questions of law (paragraph 2).
The four questions
The questions, as framed by the Court, were these. First, whether CESTAT was correct in allowing credit availed on input services for providing exempted services during 16 June 2005 to 1 June 2007. Second, whether CESTAT erred in treating Board Circular No. 98/1/2008-ST dated 4 January 2008 as erroneous and irrelevant for the period after 1 June 2007. Third, whether CESTAT was justified in applying the Supreme Court’s decision in Safety Retreading Co. (P) Ltd. v. Commissioner of C.Ex., Salem, reported at (48) S.T.R. 97 (SC). Fourth, whether the erroneous payment of sales tax on fit-out charges immunised the assessee from service tax legally due.
The parties’ positions
Senior standing counsel for the Department argued that Rule 6(5) was inapplicable. The Rules, he said, prescribe a method of bifurcation for assessees engaged in both taxable and exempt services. While the assessee was entitled to credit on MMR services, it had availed credit relating to RIP services, which were exempt, and the assessing authority had rightly disallowed it (paragraphs 7 and 8). Counsel for the assessee took the Court through the scheme of Rule 6 and, in particular, Rule 6(5), under which the assessee claimed entitlement to full credit; the judgment records only that counsel “cited a slew of several judgments” (paragraph 9). On questions 2 to 4 the Department relied on the Order-in-Original (paragraph 10).
The holding
On the first question the Court held that Rule 6(5) is “a code by itself” and that the condition of exclusivity was not attracted, since the assessee rendered taxable services as well (paragraphs 20–22). On the second it concurred with the Tribunal, which had disregarded the circular (paragraphs 23–24). On the third it returned the question unanswered (paragraph 24). On the fourth it found “both factual as well as legal errors” in the Tribunal’s conclusion and ruled for the Department (paragraphs 30–32). The appeal was thus allowed in part in substance, although the Court’s closing direction records simply that it was “ordered as above”, with no costs (paragraph 33).
3. Legal analysis
3.1 The scheme of Rule 6 and the place of sub-rule (5)
The Court began with the architecture of Rule 6, which it described in paragraphs 16 to 19. Rule 6(1) provides that the manner of claim is that set out in sub-rule (2). Rule 6(2) requires a service provider to maintain separate accounts for the receipt, consumption and inventory of inputs and input services, so that credit can be correlated with taxable and exempted services. Rule 6(3) lays down the method of claim where the provider chooses not to maintain separate accounts, and identifies cases where a claim may be made even without separate accounts. Rule 6(4) restricts credit on goods used exclusively in the manufacture of exempted goods or the provision of exempted services, which the Court understood as the rule for capital goods.
Rule 6(5), reproduced at paragraph 19, begins with a non obstante clause: “Notwithstanding anything contained in sub-rules (1), (2) and (3)”. It allows “credit of the whole of service tax paid on taxable service” falling within a list of sub-clauses of Section 65(105) of the Finance Act, 1994, “unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services”. The Court noted that the assessee’s MMR services fell under clause (zzg) of Section 65(105).
The conclusion that Rule 6(5) “is a code by itself” (paragraph 20) follows from the opening words. The sub-rule is an exception to the apportionment scheme of sub-rules (2) and (3). Once a service is within the list, the default is full credit. The Department’s argument, that an assessee providing both taxable and exempt services must bifurcate, would reinstate the very machinery that the non obstante clause displaces.
3.2 “Exclusively”: a literal reading, and its consequence
The decisive step is in paragraphs 21 and 22. It was “admitted” that the assessee also rendered RIP services that were exempt for the period in question, and that the credit had been used across all output services, “including MMR and RIP services, and not exclusively in relation to RIP services alone”. The Court reasoned that “even assuming that some portion of the credit relates to RIP Services”, the phrase in Rule 6(5) is “exclusively in relation to the provision of exempted services”, and since the assessee also rendered taxable services, “the condition of ‘exclusivity’ is not attracted and the assessee thus succeeds.”
Two observations temper the breadth of the holding. First, the result depends on an admission about how the credit was used. An assessee that could show an exclusive link between a particular input service and an exempted output service would stand on a different footing, and the Court did not suggest otherwise. Second, the Court’s own recitation of the rule has a mismatch that the judgment does not resolve. Rule 6(5) lists input services by reference to the taxable service categories in Section 65(105), and paragraph 20 identifies clause (zzg), MMR, as the relevant category “rendered by this assessee”. Paragraph 8, however, records the Department’s position as being that credit was availed on RIP services, which suggests that the Department was treating RIP as the service on which credit had been taken. The judgment does not clarify which particular input services supplied to the assessee were in issue, or how the listed categories applied to them. A reader who wants to rely on the case should read the Tribunal’s order to see how that was resolved, because the High Court proceeded on the assumption that the sub-rule applied.
3.3 The Board circular and the period after 1 June 2007
The second question concerns the period after 1 June 2007. The Court recorded in paragraph 23 that for this period the receipts from RIP services “was taxable”, and that credit had been denied on the basis of Board Circular No. 98/1/2008 dated 4 January 2008. The judgment then reproduces reasoning, which it describes as the basis on which reliance on the circular had been rejected “and referring to the decision of the Andhra Pradesh High Court in CCE Visakhapatnam v. Sai Sahmita Storages (P) Ltd.”, reported at 23 STR 341 (AP). The extract states that the circular, while concerned with the eligibility of certain input services for the output service of renting of immovable property, had “veered into a proposition that ‘immovable property’ neither being subjected to Central Excise duty nor Service Tax, therefore input credit cannot be taken”. That was an error of focus. The clarification “should have been on eligibility of such input services for output service ‘Renting of Immovable Property’”. The extract adds that “[i]n any case, it is not binding on this Tribunal”, and that what must be seen is “whether the input services have the necessary nexus with the output services and whether it is falling within the ambit of the definition of ‘input services’ in Rule 2(l)” of the 2004 Rules as it stood at the time.
The Court said it “concur[red] with the conclusions of the Tribunal” and answered questions 1 and 2 against the Department (paragraph 24). It is not entirely clear from the layout of paragraph 23 whether the extracted passage is the Tribunal’s own text, which drew on the Andhra Pradesh decision, or text of the Andhra Pradesh High Court itself. For the purposes of this article, the safer statement is that the Court endorsed the reasoning as set out, and that the Andhra Pradesh decision is the authority to which paragraph 23 refers. The Court did not analyse the Andhra Pradesh decision separately.
The substantive point is sound in principle. The distinction between the input service’s nexus to the output service and the nature of the property rented is real. Renting of immovable property was taxed as a service from 1 June 2007, and a landlord who pays tax on the maintenance of the building it lets out is not using the service to produce an untaxed thing. The tax is on the renting, which is the output service, and the correct question is whether the input service is used in providing it. On that question the Board’s reasoning, that land and buildings are not subject to duty or tax, answered a different inquiry.
3.4 The third question: left unanswered
Question 3 asked whether the Tribunal was right to apply Safety Retreading Co. (P) Ltd., reported at (48) S.T.R. 97 (SC). The Court recorded that “no submissions have been made” and returned the question “as unanswered” (paragraph 24). The case appears only in the framing of the question. The Court did not apply it, distinguish it or describe its holding, and the article draws no inference about it. Practitioners should not cite this judgment for any proposition about Safety Retreading.
3.5 Fit-out charges: VAT and service tax on the same consideration
The fourth question concerned service tax on fit-out charges for the period after 1 June 2007, as paragraph 13 identifies. The facts, from paragraphs 26 to 30, are that the lease agreement obliged the owner to provide the leased properties “with the fit-outs morefully enlisted in Annexure – A”, that fit-out rent was payable separately for seven years from commencement of the lease, and that base rentals and operations and maintenance charges remained payable during the fit-out rent-free period. The adjudicating authority concluded that the fit-outs were necessary infrastructure such as work stations, cabins and meeting rooms provided in the rented office space, and that their provision formed part of the value of the immovable property rented out.
The Tribunal had reversed on the footing that the fit-outs were movable items such as chairs and tables, that VAT had been paid on that consideration, and that VAT and service tax were mutually exclusive. The Court rejected this on three grounds. First, on facts, the fit-outs “did not relate only to movables but other infrastructure such as workstations and the like”, and since they formed part of the lease agreements, a portion of the consideration had to be earmarked for them (paragraph 30). Second, on law, “mere payment of VAT would not lead to the conclusion that no services tax is payable” (paragraph 31). For this it drew support from Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes & Others, cited in the judgment as 2008 (1) TMI 2 (Supreme Court), which it understood to hold that service tax and VAT assessments were both possible on the same transaction if the foundational requirements of each were satisfied on the facts. Third, and in addition, the authorities had noted that there was “no proof produced in support of the submission that VAT had been paid on the fit-outs” (paragraph 32).
3.6 Survival after amendment, and a critique
The credit holding rests on Rule 6(5) as it stood for the period 16 June 2005 to 1 June 2007. The judgment does not discuss later amendments. Rule 6 was recast in 2011, and the sub-rule on which the assessee succeeded is not the operative provision for later periods. The decision’s ratio on the word “exclusively” is therefore a construction of a historical text, and its value for current periods is correspondingly limited.
Under the Goods and Services Tax regime, the corresponding question arises under Section 17 of the CGST Act, 2017, which requires credit attributable to exempt supplies to be apportioned, and the rules made under that Section. The statutory language and structure are different. The judgment draws no analogy with GST, and none should be attributed to it.
On the merits, the Bench is persuasive on the plain meaning of “exclusively”. It is less satisfactory elsewhere. Its treatment of the Board circular is compressed to the point where the reader cannot tell what the Court itself concluded and what it borrowed, and question 1 was answered on an assumption (“even assuming that some portion of the credit relates to RIP Services”) without a finding of how much did. The case decides an admitted pattern of use. An assessee with a different record cannot assume the same outcome, and on fit-outs the strongest ground was the absence of proof of VAT payment, so documentary evidence matters more than the abstract argument that the two taxes exclude each other.
4. Practical significance
Credit claims under legacy provisions. For assessees whose disputes still concern the period before Rule 6 was recast, the judgment offers a clear textual argument. If the input service falls within the list in Rule 6(5) and the assessee also renders taxable services, the Department cannot insist on apportionment merely because some exempt output exists. The assessee should be ready to show that the credit was not used exclusively for exempted services. The admitted facts in this case, that credit was used across all output services, did the work. Those who maintain no bifurcation should check that their records actually support that statement.
Reliance on circulars. The reasoning endorsed by the Court treats Board Circular No. 98/1/2008-ST as wrongly focused and not binding on the Tribunal. For disputes pending before CESTAT or a High Court, this supports a challenge to a circular that conflates the nature of the property let with the nexus between the input service and the output service. Before a departmental adjudicating officer, the argument has less force, and the assessee should pursue it in the appellate forums.
VAT and service tax on composite lettings. Landlords and property managers who bill separately for fit-outs, furniture or equipment should keep documentary proof of VAT paid, the schedule of fit-out items, and a rational allocation of consideration. The Court’s reasoning suggests that a lease which obliges the owner to deliver fitted-out premises, with fit-out rent calculated as part of the lease, will be seen as one in which the fit-outs form part of the consideration for the letting, and VAT will not by itself answer a service tax demand.
Choice of forum and procedure. The route in this case was an appeal under Section 35G of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994, confined to substantial questions of law. The Court answered only the questions as framed and left one unanswered. Counsel for a party who wishes the High Court to decide a point must make submissions on it. The third question went unanswered because no submissions were made on it.
5. Conclusion
Ascendas IT Park (Chennai) is a modest judgment with a clear core. Rule 6(5) of the 2004 Rules grants full credit on the services it lists unless they are used exclusively in or in relation to exempted goods or services, and an assessee with taxable output that spreads the credit across all its services is outside the exclusion. The Court applied the word in its ordinary sense, and in doing so it declined to restore through interpretation the apportionment that the sub-rule’s opening words set aside.
Its limits are as important as its holding. It concerns a legacy provision, for a period ending in June 2007, and the sub-rule has since been superseded. It resolved an admitted pattern of use, not a contested one. It endorsed a circular-related analysis without exploring it in the Court’s own words, and it left a question unanswered for want of submissions. On fit-outs, it confirmed the unremarkable principle that VAT and service tax are not mutually exclusive categories, and it rested that ruling on an evidentiary gap as well as on law.
For practitioners, the judgment is most useful as a reminder of the discipline that credit disputes require: identify the precise sub-rule, map the input services to it, document the actual use of the credit, and bring proof of any other tax paid. As disputes under the older regimes run down and GST apportionment disputes take their place, the textual method the Bench used is likely to be of more lasting value than its particular result.
Authorities and provisions
Applied or relied on by the Court:
- Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes & Others, cited in the judgment as 2008 (1) TMI 2 (Supreme Court) — service tax and VAT assessments are both possible on the same transaction if the foundational requirements for each are met.
- CCE Visakhapatnam v. Sai Sahmita Storages (P) Ltd., 23 STR 341 (AP) — referred to at paragraph 23 in connection with the rejection of Board Circular No. 98/1/2008-ST.
Referred to in the framing of the questions only (not applied or discussed by the Court):
- Safety Retreading Co. (P) Ltd. v. Commissioner of C.Ex., Salem, (48) S.T.R. 97 (SC).
Legislation, rules and instruments:
- Rule 6 (sub-rules (1) to (5)), Rule 2(l), Rule 14 and Rule 15, CENVAT Credit Rules, 2004.
- Section 65(105), clauses (zzg) and others, Finance Act, 1994 (taxable service definitions as they stood for the periods in issue).
- Sections 73(1), 75, 76, 78 and 83, Finance Act, 1994 — https://www.indiacode.nic.in/
- Section 35G, Central Excise Act, 1944 — https://www.indiacode.nic.in/
- Board Circular No. 98/1/2008-ST dated 4 January 2008.
- Section 17, Central Goods and Services Tax Act, 2017 (mentioned for comparison only; not considered by the Court) — https://www.indiacode.nic.in/
Judgment: Madras High Court, CMA No. 1374 of 2018, 2026:MHC:4190, decided 12 October 2026 — https://indiankanoon.org/doc/34352648/
Frequently Asked Questions
Does Rule 6(5) of the CENVAT Credit Rules, 2004 require separate accounts for taxable and exempted services? Not for the services it lists. The Court treated the sub-rule as a code by itself that applies despite sub-rules (1), (2) and (3), so full credit is available unless the service is used exclusively for exempted services.
What does “exclusively” mean in Rule 6(5)? On this judgment, the exclusion applies only where the input service is used solely for exempted goods or services. If the assessee also renders taxable services and uses the credit across its output services, the exclusion is not attracted.
Does paying VAT on fit-out charges avoid service tax on them? No, not by itself. The Court held that payment of VAT does not lead to the conclusion that no service tax is payable, and noted that proof of VAT payment on the fit-outs had not been produced.
Does the decision apply under GST? The judgment construes the CENVAT Credit Rules, 2004 and the Finance Act, 1994. It makes no finding on Section 17 of the Central Goods and Services Tax Act, 2017, and should not be treated as authority on it.
This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.