Lemon Tree Premier Vs Commissioner of Central Tax Hyderabad-IV (CESTAT Hyderabad)
The CESTAT Hyderabad considered whether the appellant was entitled to the benefit of CENVAT credit on 16 specified input services while also claiming abatement under Notification No. 1/2006-ST dated 01.03.2006.
The appeal challenged the Order-in-Original dated 25.10.2013, by which the Commissioner, Customs, Central Excise & Service Tax, confirmed service tax demands of ₹26,98,168 under Restaurant Service and ₹65,40,315 under Short-term Accommodation Service under Section 73(2) for the period from 1 April 2011 to 30 September 2011 and 1 October 2011 to 31 March 2012. The demands were raised on the ground that the appellant had claimed abatement under Notification No. 1/2006-ST while discharging service tax liability by utilising accumulated CENVAT credit relating to 16 specified services under Rule 6(5) of the CENVAT Credit Rules, 2004.
The appellant submitted that the notification only prohibited availment of CENVAT credit on inputs and input services used for providing the taxable services specified in the notification. It contended that Rule 6(5) of the CENVAT Credit Rules, which permitted full credit on specified common input services, was omitted with effect from 1 April 2011. According to the appellant, the credit utilised during the disputed period had accumulated as on 31 March 2011, and once validly availed, there was no restriction on its utilisation. The Commissioner rejected these submissions and confirmed the demand.
Before the Tribunal, the appellant pointed out that the Commissioner had accepted in the impugned order that the appellant was eligible to take full CENVAT credit on the specified services used commonly for taxable and exempt services but nevertheless denied the benefit. The appellant further relied upon earlier decisions of the Hyderabad, Chennai and Mumbai Benches of the Tribunal in its own cases involving identical issues and different periods, where similar demands had been set aside.
The Revenue reiterated the reasoning contained in the impugned order.
The Tribunal examined the earlier Hyderabad Bench decision in the appellant’s own case, which had held that works contract, project management and architectural services used for construction of the hotel building qualified as input services because the building was used for rendering taxable output services. It observed that the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004, during the relevant period, expressly included services used for setting up, modernisation or renovation of the premises of the output service provider. The Tribunal also noted that reliance on CBEC Circular No. 98/1/2008-ST was erroneous because the circular went beyond the statutory definition. It further referred to the Gujarat High Court decision in Mundra Ports and Special Economic Zone Ltd. holding that service providers were entitled to CENVAT credit on inputs and input services used for creating immovable property employed in providing taxable output services.
The Tribunal also considered the Chennai Bench’s decision in the appellant’s own case. That decision held that Rule 6(5) of the CENVAT Credit Rules operated as a non obstante provision permitting credit on specified services so long as they were not used exclusively for exempt services. Since the appellant rendered taxable services such as cab operator, health club and fitness centre, internet café and dry-cleaning services, the specified services were not exclusively used for exempt services, making the credit admissible.
On the issue of abatement under Notification No. 1/2006-ST, the Chennai Bench had held that the notification only barred availment of credit on input services used for providing the specified taxable services. During the disputed period, the appellant had not availed credit on input services used for providing short-term accommodation and restaurant services. It merely utilised credit accumulated earlier for payment of service tax. The notification did not prohibit utilisation of accumulated credit, and the condition regarding non-availment of credit applied only to input services used for providing the specified taxable services. The Tribunal also referred to the decision in Bharat Heavy Electrical Ltd. v. CCE, Nagpur, which held that accumulated CENVAT credit arising from other contracts could be utilised to discharge service tax liability in contracts where abatement was claimed, provided no credit had been taken on the inputs or input services used in those contracts.
The Tribunal further noted that the Mumbai Bench, in the appellant’s Aurangabad unit’s case, had followed the Hyderabad and Chennai Bench decisions and similarly set aside the departmental demand.
Finding that the facts of the present appeal were covered by the earlier decisions of the coordinate Benches in the appellant’s own cases, the Tribunal found no reason to take a different view. It accepted the appellant’s submissions, allowed the appeal, set aside the impugned order and held that the appellant was entitled to consequential relief, if any.
Cases Discussed
- Mundra Ports and Special Economic Zone Ltd. v. CCE (Gujarat High Court), 2015 (39) S.T.R. 726 (Guj.)
- Bharat Heavy Electrical Ltd. v. CCE, Nagpur (CESTAT Mumbai), 2014 (34) S.T.R. 430 (Tri.-Mum.)
- Commissioner of Central Excise, Visakhapatnam-II v. Sai Sahmita Storages (P) Limited (Andhra Pradesh High Court), 2011 (270) E.L.T. 33 (A.P.) = 2011 (23) S.T.R. 341 (A.P.)
- Sangam Spinners Limited v. Union of India and Others (Supreme Court), (2011) 11 SCC 408 = 2011 (266) E.L.T. 145 (S.C.)
- Vandana Global Limited v. Commissioner of Central Excise, Raipur (CESTAT Larger Bench), 2010 (253) E.L.T. 440
FULL TEXT OF THE CESTAT HYDERABAD ORDER
1. Issue involved in this case is whether the appellant is eligible for benefit of Cenvat Credit on 16 specified services when they availed benefit of Notification No. 1/2006-ST dated 01.03.2006
2. The Appellant has challenged Order-in-Original No. 77/2013-Adjn (Commr) ST dated 25.10.2013, (Impugned Order) passed by Commissioner – Customs, Central Excise & Service Tax, confirming additional demands of Rs 26,98,168/- under the category of Restaurant Service, and Rs. 65,40,315/- under the category of Short-term Accommodation Service under Section 73(2) Act, as proposed in the Show Cause Notice O.R. No. 254/2012-Adjn. (Commr) ST dated 31.10.2012for the period from 1st April 2011 to 30th September 2011 and from 1st October 2011 to 31st March 2012, denying the benefit of abatement claimed under Notification No. 1/2006 dated 01.03.2006, while discharging service tax liability, on the grounds that instead of discharging liability in cash, it has utilised Input Tax Credit availed on account of 16 Specified services as provided under Rule 6(5) of the (CCR).
3. Appellant had stated in its reply to the SCN that the restriction imposed under notification, is that the service provider should not have availed CENVAT Credit of “Inputs and Input services” procured for providing the output services specifically listed in the Notification No. 1/2006. Restriction has been imposed on availment and subsequent utilization of the accumulated CENVAT credit of input services procured for providing output services listed under Rule 6(5) of the CCR. Rule 6(5) of CCR was omitted with effect from 01-04-2011. Appellant also submitted that they had utilized the accumulated CENVAT Credit as on 31-03-2011, because once CENVAT credit is admissible, there is no restriction on utilization thereof. However, the Learned Commissioner rejected Appellant’s submissions and confirmed the demand. Hence the Appellant is before us.
4. Appellant submits that Learned Commissioner while accepting appellant’s submissions in para 14 of the impugned order, has still rejected the submissions made by the Appellant. The relevant text of para 14 is as follows: –
“14………… .However this is subject to the condition that the Service provider has not taken CENVAT credit under the provisions of CENVAT Credit Rules, 2004 of duty on Inputs or Capital Goods or Cenvat Credit of Service Tax on input Services used for providing such taxable services………….. I am in the view that since the service provider has been providing both taxable as well as exempted services, he is eligible to take full CENVAT credit on the list of 16 services though the same is used in the provision……. I am of the view that they are eligible to take CENVAT credit on common inputs which are used for provision of taxable services and exempted services.”
5. Further, the Appellant has drawn our attention to the 1Final Order Nos. A/31079 & 31080/2017, dated 20-6-2017 in Appeal Nos. ST/716/2012 & ST/26265/2013 passed by a co-ordinate Bench of this Tribunal and 2Final Order No. 43404/2017, dated 28-11-2017 involving period of April, 2008 to September, 2009, for the period May, 2011 to March, 2012, in Appeal No. ST/40945/2014-DB, pronounced by Hon’ble Chennai Bench and 3Final Order No. A/85880/2018-WZB, dated 3-4-2018 in Appeal No. ST/86187/2015-ST(DB), passed by Hon’ble Mumbai Bench in Appellants own case.
6. In all the aforesaid appeals issue involved was of denial of benefit of abatement under Notification No. 1/2006 dated 01-03-2006 by the Department on the grounds that the Appellant was not entitled to avail the benefit of abatement, having availed and utilized the input tax credit of common input services as specified under Rule 6(5) that were procured for providing output services. The demands in all the aforesaid appeals were set aside.
7. Learned AR reiterated the reasoning recorded in the impugned order.
8. Heard both sides and perused the records.
9. We have gone through the orders placed on record by Appellant’s Counsel. In the precedent orders passed by the Co-ordinate Bench (Hyderabad) of this Tribunal, in – 4 Final Order Nos. A/31079 & 31080/2017, dated 20-6-2017 in Appeal Nos. ST/716/2012 & ST/26265/2013 (own case of appellant), in paras 6,7 and 8 is has been held that: –
“6. On careful consideration of the submissions made by both sides and perusal of records, we find that the issue that falls for consideration of this Bench is whether the service tax paid on Works Contract Services, Project Management and Architectural Professional Services can be considered as input services for the appellant when these services are used for construction of hotel.
7. It is undisputed that the services are utilized for brining to existence building which is used by the appellants for hospitability business and is used for rendering output services like mandap keeper and health club and fitness centre and dry cleaning service and internet cafe services. It is an unimaginable that a hotel can render these services without a building in its place. In our considered view, the input services are availed by the appellant in respect of Works Contract Services, Project Management Services and Architectural Professional Services used for construction of a building, which subsequently is put into use for rendering taxable output services. We find that the adjudicating authority was in error to rely upon the Board Circular No. 98/1/2008-S.T., dated 41-2008 in as much, the definition of input services during the relevant period does not bar availment of Cenvat credit of all input services. In order to appreciate correct position of law, the definition of input services under Rule 2(l) of the Cenvat Credit Rules, 2004 as was during the relevant period of these cases is reproduced:
input service means any service, –
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
It can be seen from the above reproduced sub-rule, that input services includes the services used in relation to setting up, modernization, renovation of premises of provider of output services. In the case in hand, the definition is reproduced as above categorically will apply and the clarification given by the Board in C.B.E. & C. Circular dated 4-1-2008 is going beyond the definition as reproduced is herein above. We find that similar issue as to eligibility to avail the Cenvat credit on design and engineering of pipe line, services rendered by the pipeline laying of contractors, was denied in the case of Reliance Gas Transportation Infrastructure Ltd., (supra), holding that these services were utilized for brining into existence an immovable property. The Bench after considering the definition of input services, held that the provisions of Section 2(l) of the Cenvat Credit Rules, 2004 very clearly indicate eligibility to avail Cenvat credit of the service tax paid on these services.
8. Views of the Tribunal have been fortified by decision of the Hon’ble High Court of Gujarat in the case of Mundra Ports and Special Economic Zone Ltd., (supra) the ratio is in paragraph No. 7, 8 & 9 which we with respect reproduce :-
7. It is not disputed that jetty was constructed and input credit was claimed on cement and steel. The aforesaid definition of Rule 2(k) was applicable and Explanation 2 did not provide that cement and steel would not be eligible for input credit. According to learned Counsel for the appellant, the appellant is not manufacturer and, therefore, the provisions of Explanation 2 of Rule 2(k) would be applicable only to the factory and manufacturer. The appellant is neither having any factory nor he is manufacturer. The appellant is a service provider of port. We need not go into this question as to whether the appellant is a factory or manufacturer or service provider in view of the fact that it is not disputed by Mr. Y.N. Ravani, learned counsel appearing for the Revenue in this Tax Appeal that the appellant provides service on port for which he is getting jetty constructed through the contractor and the appellant has claimed input credit on cement and steel. The cement and steel were not included in Explanation 2 from 2004 up to March, 2006. The Cenvat Credit Rules, 2004 were amended in exercise of the powers conferred by Section 37 of the Central Excise Act, 1944 with effect from 7-7-2009, the date on which it was notified by the Central Government from the date of the notification. According to learned Counsel for the appellant, this amended definition would apply only to the factory or manufacturer and would not apply to the service provider. According to him, either before the amendment made in the year 2009 or thereafter, the appellant was neither factory nor manufacturer and he has only constructed jetty by use of cement and steel for which he was entitled for input credit as jetty was constructed by the contractor, but the jetty is situated within the port area and the appellant is a service provider. According to the appellant, his case is squarely covered by the judgment of the Division Bench of the Andhra Pradesh High Court in Commissioner of Central Excise, Visakhapatnam-II v. Sai Sahmita Storages (P) Limited, 2011 (270) E.L.T. 33 (A.P.) = 2011 (23) S.T.R. 341 (A.P.) wherein in Paragraph 7, it has been clearly held that a plain reading of the definition of Rule 2(k) would demonstrate that all the goods used in relation to manufacture of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for Cenvat credit. It is not in dispute that the appellant is a taxable service provider on port under the category of port services. Therefore, the appellant was entitled for input credit and the decision of the Division Bench of the Andhra Pradesh High Court squarely applies to the facts of the case and answered the question on which the appeal has been admitted.
8. Mr. Y.N. Ravani, learned counsel for the Revenue has placed reliance on the decision of the Larger Bench of the Tribunal in Vandana Global Limited v. Commissioner of Central Excise, Raipur, 2010 (253) E.L.T. 440. We have carefully gone through the decision of the Larger Bench of the Tribunal. We do not find that amendment made in Cenvat Credit Rules, 2004 which come into force on 7-7-2009 was clarificatory amendment as there is nothing to suggest in the Amending Act that amendment made in Explanation 2 was clarificatory in nature. Wherever the Legislature wants to clarify the provision, it clearly mentions intention in the notification itself and seeks to clarify existing provision. Even, if the new provision is added then it will be new amendment and cannot be treated to be clarification of particular thing or goods and/or input and as such, the amendment could operate only prospectively. In our opinion, the view taken by the Tribunal is based on conjectures and surmises as the Larger Bench of the Tribunal used the expression that intention behind amendment was to clarify. The coverage under the input from where this intention has been gathered by the Tribunal has not been mentioned in the judgment. There is no material to support that there was any legislative intent to clarify any existing provision. For the same reason, as mentioned above, the decision of the Apex Court in Sangam Spinners Limited v. Union of India and Others, reported in (2011) 11 SCC 408 = 2011 (266) E.L.T. 145 (S.C.) would not be applicable to the facts of the instant case. 9. Mr. Ravani has also vehemently urged that since jetty was constructed by the appellant through the contractor and construction of jetty is exempted and, therefore, input credit would not be available to the appellant as construction of jetty is exempted service. The argument though attractive cannot be accepted. The jetty is constructed by the appellant by purchasing iron, cement, grid, etc., which are used in construction of jetty. The contractor has constructed jetty. There are two methods, one is that the appellant would have given entire contract to the contractor for making jetty by giving material on his end and then make the payment, the other method was that the appellant would have provided material to the contractor and labour contract would have been given.
The appellant claims that he has provided cement, steel, etc., for which he was entitled for input credit and, therefore, in our opinion, the appellant was entitled for input credit and it cannot be treated that since construction of jetty was exempted, the appellant would not be entitled for input credit. The view taken contrary by the Tribunal deserves to be set aside.
It can be seen from the above reproduced paragraphs of the judgment of the Hon’ble High Court of Gujarat the issue availment of Cenvat credit on the input services which are used for bringing into existence of immovable property are also eligible for availment of Cenvat credit.
9. In view of the foregoing, and the facts and circumstances of this case, we hold that the impugned order is unsustainable and liable to be set aside and we do so. The impugned order is set aside and the appeals are allowed with consequential reliefs, if any.”
9. In second order pronounced by Co-ordinate – Chennai Bench in 5Final Order No. 43404/2017, dated 28-11-2017 in Appeal No. ST/40945/2014-DB (appellant’s own case), co-ordinate Bench following the order pronounced by Hyderabad Bench, has held that: –
5.1 The first issue is with regard to wrong availment of Cenvat credit. It is brought out from the records that theappellants were rendering taxable services of cab operator’s service, health club and fitness centre service, internet cafe service and dry cleaning service. The input service credit was availed by appellant on construction services which were used for setting up of the premises from where the output services were rendered by the appellant. The department does not have a case that the above services were not rendered from the building constructed by the appellant for which the credit on construction activities was availed. Rule 6(5) as it stood during the relevant period states that credit is eligible on the services specified therein, if such services are not used exclusively for exempted services.
Even if we consider that prior to 1-5-2011, the output services of short-term accommodation services and restaurant services were not taxable services, the appellants were rendering other taxable services like health club and fitness service, internet cafe service etc. Since the services specified in Rule 6(5) were not used by the appellant exclusively for non-taxable services, the appellants are eligible for the credit. The said Rule starts with a non obstante clause wherein it is stated that notwithstanding anything contained in Rule 6(1), (2) and (3), the assessee will be eligible for credit on input services specified therein when it is not exclusively used for exempted services. The said Rule was omitted w.e.f. 1-4-2011. The credit is eligible on application of Rule 6(5) of CCR, 2004. The decision in the case of Asia Pacific Hotels Ltd. (supra) explains the same. The relevant portion is reproduced as under :- “6. We have carefully considered the submissions made by both the sides. The purpose and objective of Cenvat Credit Rules is to allow a manufacturer/output service provider not only to take the credit but also to utilise the same for the purposes specified in the said Rules. The respondents herein are output service providers who discharge service tax liability. Therefore, if they are allowed only to take credit and not to utilise the same, the objective of the Cenvat Credit Rules cannot be achieved. There is no reason for interpreting the term “allow” in a narrow and restrictive manner as urged by the Revenue. The said interpretation urged by the Revenue defeats the object and purpose of the Cenvat Credit Rules. Rules cannot be interpreted in such a way so as to make them nullity.”
5.2 Similar view was taken by the Tribunal in the case of Tidel Park Ltd. (supra), the relevant portion of the decision is reproduced as under :-
“2. I have heard both sides and find merit in the submission of the assessees that they are entitled to the whole of the credit of the service tax paid on taxable service as specified in 17 specified categories covered by Rule 6(5) as such service is not used exclusively in or in relation to the providing of exempted services. Rule 6(5) is a non obstante clause and therefore completely widens the restriction contained in Rule 6(3)(c). It is not the case of the Revenue that the taxable service on which service tax has been paid is not one of 17 categories specified in Rule 6(5) of Cenvat Credit Rules, 2004. I, therefore, set aside the impugned order by accepting that the assessees are entitled to entire credit, and allow the appeal with consequential relief due to the appellants in accordance with law.
5.3 The second issue for consideration is the eligibility of abatement under Notification No. 1/2006-S.T. The Ld. Counsel for the appellant has much stressed on the words “such services” in the condition stated under the said Notification”. The condition is reproduced as under:-
“Provided that this notification shall not apply in cases where, –
(i) the Cenvat credit of duty on inputs or capital goods or the Cenvat credit of service tax on input services used for providing ‘such taxable service’, has been taken under the provisions of the Cenvat Credit Rules, 2004;”
5.4 We find merit in this argument. During the disputed period (March 2011-2012 for this demand) the appellant has not availed any credit of input services used for providing short-term accommodation services and restaurant services. The credit already availed in 2009 was used to discharge the service tax liability. The Notification No. 1/2006-S.T. does not say that assessee cannot avail any credit at all. The condition is that the abatement would be available only if input service credit is not availed on input services used for providing such services specified in column 2 of the notification. In the appellant’s own case reported as 2017 (7) TMI 799 (CESTAT-Hyderabad), the co-ordinate Bench of the Tribunal at Hyderabad had considered the very same issue on identical facts by relying upon the judgment of the Hon’ble High Court of Gujarat in the case of Mundra Ports and Special Economic Zone Ltd. v. CCE – 2015 (39) S.T.R. 726 (Guj.) and held (reproduced herein above)
5.5 In the case of Bharat Heavy Electrical Ltd. v. CCE, Nagpur – 2014 (34) S.T.R. 430 (Tri.-Mum.), the Tribunal had occasion to analyse a similar issue with regard to availability of abatement under the Notification No. 1/2006-S.T. The Tribunal observed as under :-
“4.2 A plain reading of the Notifications clearly shows that the condition relating to non-availment of Cenvat credit on inputs/input services applies to “case” where Cenvat credit is taken either on the ‘input’ or ‘input service’, then the abatement under the aforesaid Notifications would not be available. In a “case” where the Cenvat credit on input/input service is not taken then the benefit of abatement would be available. The Notification uses the expression “in cases where”. In other words, the Notification does not stipulate that in all cases, the condition of non-availment of Cenvat credit should be satisfied uniformly without exception. Therefore, in respect of a contract where the assessee has not taken input credit prior to 1-3-2006 and input/input service tax credit on or after 1-3-2006, the assessee would be rightly entitled for the benefit under the Notification No. 15/2004-S.T. as replaced by Notification No. 1/2006, dated 1-3-2006. In a case where the assessee avails Cenvat credit, then in such cases the assessee is not entitled for abatement and the service tax liability will have to be discharged on the full value of the contract. There is nothing in these Notifications which prevents an assessee from not availing Cenvat credit and paying service tax on 100% of the contract value in respect of one particular contract and availing abatement and not availing Cenvat credit in respect of another contract. In other words, there is no stipulation in the Notification that the option to avail/non-avail Cenvat credit has to be exercised uniformly in respect of all the contracts executed by the assessee. It is for the assessee to choose which formulation he wants to follow in a given contract. 4.4 The next issue for consideration is in a case/contract where abatement benefit is availed under Notification 15/2004 or 1/2006, without taking Cenvat credit on inputs or capital goods or input service and service tax liability is discharged on the reduced value, whether for the purpose of discharge of service tax liability, accumulated Cenvat credit arising from some other case/contract can be utilised or not. In our view, there is no such bar or restriction/prescribed in the notification. The notification only stipulates that in respect of a case/contract, where abatement is availed, no Cenvat credit on inputs, capital goods or input services shall be taken. So long as this condition is satisfied, abatement is permissible. Discharge of Service Taxliability on the non-abated portion of value is a totally different matter. Hence there is no bar/restriction in discharging Service Tax liability through accumulated Cenvat credit so long as no Cenvat credit is taken on the inputs/capital goods or input services used in the rendering of the service in the given case or contract and we hold accordingly.” 6. Following the above decisions and after considering the facts and evidences presented before us, we hold that the demand raised in respect of wrong availment of credit and wrong availment of abatement cannot sustain. The impugned order to the extent of demand raised on these issues is set aside without disturbing the demand of Service Tax on Convention services. The appeal is allowed in above terms.
10. In third 6 Final Order No. A/85880/2018-WZB, dated 03.04.2018 in Appeal No. ST/86187/2015-ST(DB) in the appellant’s Aurangabad Unit, Coordinate Bench following ratio of the final orders passed by this Tribunal (Hyderabad) and also by CHENNAI Bench has set aside the demand raised by the department with consequential relief.
11. Therefore, in view of the facts placed on record and the precedent orders by Co-ordinate Bench of this Tribunal and Co-ordinate Benches at Chennai and Mumbai, in appellant’s own case, we find no reason to entertain a different view and are in agreement with the submissions made by the learned Counsel for the Appellant. Accordingly, we allow the appeal and set aside the impugned order. Appellant is entitled to consequential relief, if any.
(Order Pronounced in open court on 08.04.2024__)
Notes:
1 2018 (10) G.S.T.L. 241 (Tri. – Hyd.)
2 2018 (13) G.S.T.L. 305 (Tri. – Chennai)
32018 (364) E.L.T. 1078 (Tri. – Mumbai)
4 2018 (10) G.S.T.L. 241 (Tri. – Hyd.)
5 2018 (13) G.S.T.L. 305 (Tri. – Chennai)
