CESTAT Chennai Sets Aside Service Tax Demand: CENVAT Credit on Common Input Services Permissible Despite Abatement Claim
Case Overview
Apeejay Surendra Park Hotels Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, delivered a significant ruling in favour of the assessee — a luxury hotel operator — by setting aside a service tax demand that had been confirmed by the Commissioner of Central Excise, Puducherry, vide Order-in-Original No. 38/2015 (C) (ST) dated 04.12.2015. The central controversy revolved around whether an assessee who avails CENVAT credit on common input services can simultaneously claim the benefit of abatement under Notification No. 1/2006-ST dated 01.03.2006 in respect of outdoor catering, mandap keeper and Goods Transport Agency (GTA) services.
Background and Factual Matrix
The assessee, engaged in hotel operations, was registered under multiple taxable service categories and provided services including Business Auxiliary Service (BAS), Business Support Service (BSS), outdoor catering, mandap keeper services, and Goods Transport Agency (GTA) services.
During the scrutiny of the assessee's records for the period 2008-09 to 2010-11, the Department raised two primary allegations:
Allegation 1: Wrongful Availment of Full CENVAT Credit
The Department alleged that the assessee had availed and utilised full CENVAT credit on common input services by classifying them as Management Consultancy and Intellectual Property Rights services under Rule 6(5) of the CENVAT Credit Rules, 2004 (CCR, 2004). The Department's case was that these were actually BAS/BSS services and that the assessee had failed to reverse credit proportionately attributable to exempt services. This was claimed to have resulted in excess CENVAT credit of ₹1,07,29,311/-, recoverable under Rule 14 of the CCR, 2004.
Allegation 2: Wrongful Claim of Abatement
The Department further alleged that the assessee had simultaneously claimed abatement under Notification No. 1/2006-ST dated 01.03.2006 for outdoor catering, mandap keeper, and GTA services, while availing CENVAT credit on common inputs and input services. This dual benefit, the Department argued, was impermissible and resulted in short payment of service tax amounting to ₹37,74,164/-.
Commissioner's Order
Following adjudication, the Commissioner partly accepted the assessee's submissions. On the classification issue, it was held that the jurisdictional officers of the recipient could not dispute the supplier's classification — thereby giving relief on the first allegation and the Rule 6(3) violation charge.
However, on the abatement issue, the Commissioner ruled against the assessee, confirmed the service tax demand of ₹37,74,164/- along with applicable interest, and imposed a penalty under Section 78 of the Finance Act, 1994. The assessee challenged this confirmation before CESTAT Chennai.
Submissions by the Assessee
The assessee's counsel advanced the following key contentions before the Tribunal:
- Restricted reading of the Notification proviso: The proviso to Notification No. 1/2006-ST limits the restriction on credit only to input services used specifically for providing the taxable service in respect of which abatement is claimed. It does not impose a sweeping prohibition on availment of all CENVAT credit.