2018 (5) TMI 1715 - AT - Service Tax

Claim of benefit of Abatement while availing Cenvat Credit - restaurant and short term accommodation services - Held that - The appellant does not deny the fact that they have availed the credit on input services. A part of the input services is exclusively used for provision of taxable services for which service tax is payable at full rate. Since such cenvat credit has been used only for payment of service tax on taxable service at full rate, there can be no objection to allow the same - the appellant has followed the proportionate method for availment of credit on common input services. It cannot be said that the appellant has availed any credit on input services used in providing exempted service - Further, the reversal of credit satisfies the requirement of non availment of credit laid down in the Notification No. 1/2006-ST ibid. The procedure prescribed in Rule 6(3A) of the Credit Rules is only to make the provisions of Rule 3 workable. By means of proportionate reversal the requirement of Rule 6(3) has been substantially satisfied. This is also provided in Rule 6(3D) of the Cenvat Credit Rules which was introduced at a later date - benefit of abatement cannot be denied. Demand of service tax - open restaurant (without air conditioning) in the Hotel - Department was of the view that service tax was liable to be paid for the service carried out in the open air restaurant, since the facility of air conditioning was available in certain other parts of the hotel establishment - Held that - It is undisputed that the open air restaurant does not have the facility of airconditioner. Hence, such restaurant cannot be said to be covered within the definition of the service - the CBEC Circular No. 139/8/2011-TRU dated 10.05.2011 clarifies that within the same entity, if there are more than one restaurants, which are clearly demarcated the one with A/C alone will be liable to service tax - there is no justification to demand service tax on the income from open air restaurant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of abatement under Notification No. 1/2006-ST for hotel services.
2. Liability of service tax on income from open air restaurant.

Analysis:
1. The appellants, hotels in Rajasthan, part of the Oberoi Group, filed appeals against orders from jurisdictional authorities for the period May 2001 to March 2012. The appeals involved common issues regarding the denial of abatement under Notification No. 1/2006-ST and the demand for full service tax payment due to availing cenvat credit on input services. Additionally, the issue of service tax liability for the open air restaurant was raised. Both sides presented arguments, with the appellant claiming proportionate credit utilization and reliance on case laws, while the Revenue argued against abatement due to cenvat credit availed on common input services and justified service tax levy for the open air restaurant due to air conditioning in other parts of the hotel.

2. The Tribunal considered the appellant's claim for abatement under Notification No. 1/2006-ST. It was noted that the appellant availed cenvat credit on input services but used part of it exclusively for taxable services, paying full service tax rate. For common input services, the appellant followed a proportionate credit utilization method, treating turnover from taxable services as exempted. The Tribunal found the appellant's approach compliant with the non-availment condition of the notification, supported by legal precedents. The proportionate reversal of credit at a later date satisfied the requirement of non-availment of credit, as per Rule 6(3A) and Rule 6(3D) of the Cenvat Credit Rules.

3. Regarding the issue of service tax on income from the open air restaurant, the Tribunal analyzed the definition of taxable restaurant service, which includes the requirement of air conditioning. As the open air restaurant lacked air conditioning, it did not fall under the taxable service definition. The Tribunal referenced a CBEC Circular clarifying that only air-conditioned restaurants within the same entity are liable to service tax. Consequently, the demand for service tax on income from the open air restaurant was deemed unjustified. The Tribunal set aside the impugned orders and allowed all three appeals, emphasizing compliance with abatement conditions and service tax liability criteria.

This detailed analysis of the legal judgment highlights the key issues, arguments presented, legal interpretations, and the final decision rendered by the Appellate Tribunal CESTAT NEW DELHI.