Bharat Heavy Electricals Ltd. v. Commissioner (CESTAT Delhi)
The Hon’ble CESTAT, Delhi in M/s Bharat Heavy Electricals Ltd. v. Commissioner, Central Excise & CGST-Dehradun [Final Order No. 50958 / 2022] held that the Hotel accommodation service received by the appellant is an eligible input service under Rule 2(l) of the CENVAT Credit Rules, 2004 (“CCR”). Further, the CESTAT allowed the appeal and held that the assessee is also entitled to consequential benefits.
Facts:
M/s Bharat Heavy Electricals Ltd. (“the Appellant”) is a manufacturer of busduct along with other goods, registered with the Central Excise department. The Appellant was also registered under the service tax for providing output service of ‘Erection, Commissioning, and Installation of busduct, manufactured by the Appellant at the outstation sites of the buyers of the bus duct.
Further, the Appellant was availing cenvat credit of duty paid on the inputs and capital goods used in the manufacture of their final products and service tax paid on the input services used for providing the taxable output service. The service tax paid on the input service of ‘hotel accommodation’ used by the employees of the Appellant while on outstation duties for providing output service of ‘Erection, Commissioning and Installation’ was also availed by the Appellant.
Moreover, a show cause notice dated February 08, 2019, (“SCN”) was issued to the Appellant seeking to recover the cenvat credit amount along with interest and penalty as according to the revenue auditors the input service credit of service tax paid on accommodation service did not qualify as input service under Rule 2(l) of CCR.
This demand of cenvat credit along with interest and penalty was confirmed in the order in original (“OIO”), being aggrieved of same, the Appellant filed an appeal which was arbitrarily rejected in the order in appeal (“OIA” or “the Impugned order”).
Lastly, being aggrieved by the Impugned order, the Appellant filed an appeal before CESTAT.
Issue:
Whether credit on input service will be allowed on the ‘Hotel Accommodation Service’ received by the Appellant for rendering the output service of ‘Erection, Commissioning and Installation’ under Rule 2(l) of CCR?
Held:
The Hon’ble CESTAT, Delhi in Final Order No. 50958 / 2022 held as under:
Held that for rendering the taxable output service of ‘Erection, Commissioning and Installation’ the appellant has to send their employees to the site for rendering the services. For rendering such service at the site, the staff of the appellant needs to be necessarily accommodated at hotels situated nearby. Therefore, without such accommodation or any alternate accommodation provided to the staff, the taxable output service cannot be rendered.
Observed that the hotel accommodation service received by the appellant is an eligible input service under Rule 2(l) of CCR. Therefore, the CESTAT allowed the appeal, set aside the impugned order, and concluded that the Appellant is entitled to consequential benefits.
Our Comments:
Post- GST regime, registered person will be allowed to avail Credit on ‘Hotel Accommodation Service’ provided to the employees in pari materia case, as accommodation services availed is not for the personal use but in the course or furtherance of business.
Relevant Provisions:
Rule 2(l) of CCR
“Definitions
(l) “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, 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 up to 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 up to the place of removal”
FULL TEXT OF THE CESTAT DELHI ORDER
Heard the parties.
2. The issue involved in this appeal is whether ‘Hotel Accommodation Service’ received by the appellant for rendering the output service of ‘Erection, Commissioning and Installation’ whether the same is allowable input service under Rule 2(l) of CCR. The brief facts are as follows:
1. That the appellant is a manufacturer inter alia of busducts classifiable under Heading No. 8544 of the Central Excise Tariff Schedule and was registered with the Central Excise department during the period of dispute. The appellant was also registered under the Service Tax Rules for providing output service of ‘Erection, Commissioning and Installation’ of busduct, manufactured by the appellant at the outstation sites of the buyers of the busduct.
2. That the appellant was availing cenvat credit of duty paid on the inputs and capital goods used in the manufacture of their final products and service tax paid on the input services used for providing the taxable output service. The cenvat credit of service tax was availed by the appellant on the invoices issued by Input Service Tax distributed by their office. The said cenvat credit availed on invoices of ISD was declared in the relevant columns of the ST-3 returns filed by the appellant.
3. That service tax paid on the input service of ‘hotel accommodation’ used by the employees of the appellant while on outstation duties for providing output service of ‘Erection, Commissioning and Installation’ service w.r.to busducts, was also distributed by the office of the appellant and was availed by the appellant.
4. Learned Counsel for the appellant urges that- for the period April, 2014 to June, 2017. The Revenue auditors entertained the view that the input service credit of service tax paid on accommodation service used by company’s employees did not qualify as input service under rule 2(l) of the CENVAT Credit Rules, 2004. Accordingly, SCN dated 08.02.2019 was issued to the appellant seeking to recover cenvat credit amounting to Rs. 3,28,704/- along with interest and also proposing penalty under Rule 15 read with s. 11AC of the Central Excise Act, 1944.The appellant had contested the SCN and had filed defence reply and had also attended personal hearing before the adjudicating authority. However, the Assistant Commissioner confirmed the demand with interest and imposed equal penalty proposed in the SCN. Aggrieved with the OIO ,the appellant had filed appeal before the Commissioner (Appeals) which was arbitrarily rejected by the Commissioner (Appeals) vide impugned OIA. The appellant is in appeal against the said OIA before the CESTAT.
5. The appellant inter alia urges, that the ‘accommodation service’ used for providing taxable output service, namely, ‘Erection, Commissioning and Installation service’ w.r.to busducts, is well covered under the term “input service”, enacted under rule 2(l) of the CENVAT Credit Rules, 2004. Therefore, cenvat credit of the service tax paid on the hotel accommodation service is admissible to the appellant.
6. The above definition of “input service” u/r. 2(l)consists of three parts. First Part is the main part, second part is inclusive part and the third part covers specific exclusions. The appellant is both a manufacturer of excisable goods, namely, bus duct as well as service provider of taxable service, namely, “Erection, Commissioning and Installation” of bus duct, which is provided at buyer’s site in different parts of the country and for that purpose, staff/employees of the appellant have to go to the sites and stay there for completion of installation and lodge themselves in the hotel. Thus, the service of hotel accommodation availed by the appellant is an input service used by the appellant as a provider of output service for provision of taxable output service. The “hotel accommodation” service used for providing output service is not excluded by the exclusion part of the definition of “input service”. Further, the inclusive part of the definition cannot be used to take out from the main definition what is explicitly covered by the main part of the definition. The view taken by the authorities below is erroneous, arbitrary and perverse. The impugned order confirming demand of CENVAT credit is not sustainable and is liable to be set aside.
7. That in the case Aban Offshore Ltd. v. CCE, reported in 2020 (43) GSTL 213 (Tri.), where the crew working in offshore location for the appellant had to report one day prior to departure for the rig, for obtaining instructions from Rig master without which the crew would not be able to carry out their duties and further there were other exigencies like cancellation of chopper service, etc. and, therefore, putting crew in hotel was necessary for pro. viding output service. This Tribunal held that cenvat credit was admissible on the accommodation service under rule 2(l) of the CENVAT Credit Rules, 2004.
8. That the credit of service tax paid on “hotel accommodation” service was availed and utilized by the appellant for providing output service, namely, “Erection, Commissioning and Installation” service provided to clients w.r.to installation of busduct. Therefore, if it is presumed without admitting that any CENVAT Credit was recoverable, then in terms of Rule 14 of the CENVAT Credit Rules, 2004, recovery of CENVAT credit and interest can be done under rule 14 read with section 73 and 75 of the Finance Act, 1994, not under rule 14 read with section 11Aand section 11AA of the Central Excise Act, 1944 as done by the department. The demand of CENVAT credit and interest in the impugned order is illegal on this count only. Similarly, penalty could be imposed on the appellant Rule 15 of the CENVAT Credit Rules, 2004 read with section 78 of the Finance Act, 1994, not under rule 15 read with section 11AC as done by the department. The impugned order is not sustainable and is liable to be set aside.
9. Learned Counsel further urges that extended period of limitation has been wrongly invoked as the appellant is registered with the department, maintains proper records and have filed their respective ST-3 returns regularly, in which the availment of input credit had been disclosed including the input services distributed by the Input Service Distributor. Thus, there is no question of any suppression or mis-declaration or fraud etc. Hence, the show cause notice is bad for invocation of extended period of limitation. Accordingly, he prays for allowing the appeal with consequential benefits.
10. Learned AR for revenue relies on the impugned order.
11. Having considered the rival contentions, I find that the Adjudicating Authority observed in para 6.2 of his order that the appellant have submitted various documents in support of their claim. It is further observed that one to one co-relation is not possible so as to ascertain the correct amount of inadmissible credit. Further, I find that the learned Commissioner (Appeals) while rejecting the appeal have observed that there is no direct or apparent relationship between accommodation service and manufacturing of bus duct. It is further observed that appellant have failed to submit documents/records to the satisfaction of the Audit officers. Further, in para 6.3, it is observed by the learned Commissioner (Appeals) that the appellant have led the following evidences like debit note/invoice with respect to Cenvat credit of service tax, voucher, details of distribution of common input services and details showing summary of service tax paid by the Mumbai office-ISD.
12. I find that for rendering the taxable output service of ‘Erection, Commissioning and Installation’ appellant has to send their employees to the site for rendering the service. For rendering such service at the site, the staff of the appellant need to be necessary accommodated at hotels situated nearby. Thus, without such accommodation or any alternate accommodation provided to the staff, the taxable output service cannot be rendered. Accordingly, I hold that the Hotel accommodation service received by the appellant is an eligible input service under Rule 2(l) of CCR.
13. In view of my findings and observations, the appeal is allowed, impugned order is set aside and the appellant is entitled for consequential benefits.
(Order pronounced in the open court)
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(Author can be reached at [email protected])
