2018 (8) TMI 325 - AT - Service Tax

CENVAT Credit - input services - painting and polishing work carried out in the Hotel - denial of credit on the ground that the hotel rooms were exempted from service tax during the relevant period - Held that - Rule 6(5) of the Cenvat Credit Rule stipulates that no credit shall be allowed on input services which are used exclusively for output service which is exempted or not liable to payment of service tax - In the present case, it cannot be stated that the construction service of painting has been used exclusively for rendering exempted service and hence the demand for reversal is not justified. In addition, it is seen from the record that the appellant has been proportionately reversing the credit on inputs/ input service as per Rule 6(3) of the Cenvat Credit Rules, 2004. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availment of input service credit for painting and polishing work in a hotel
- Denial of cenvat credit due to exempted status of hotel rooms
- Applicability of Rule 6(5) of the Cenvat Credit Rules, 2004
- Proportionate reversal of cenvat credit under Rule 6(3) of the Cenvat Credit Rules, 2004
- Time-barred demand for reversal of cenvat credit

Analysis:

The case involved a dispute regarding the availment of input service credit by a hotel for painting and polishing work carried out by a contractor. The tax department denied the cenvat credit on the grounds that the hotel rooms were exempted from service tax during the relevant period, leading to a demand for reversal of the credit. The appellant contended that the painting work was not exclusively for the exempted rooms but also for other areas where taxable services were provided, such as Mandap Keeper Services and Convention Centre Service.

The appellant argued that they had availed credit for the painting activities only to the extent of a specific amount, not the entire demand. Additionally, they highlighted that Rule 6(5) of the Cenvat Credit Rules, 2004 prohibits credit on input services used exclusively for exempted services. However, they maintained that the painting service was utilized for both exempted and taxable services, justifying the credit availed.

Moreover, the appellant pointed out that they had already proportionately reversed cenvat credit under Rule 6(3) for using input services for both exempted and taxable services. They argued that this proportionate reversal adequately addressed the situation where input services were utilized for a mix of taxable and exempted services.

The Tribunal, after considering the submissions, ruled in favor of the appellant. They held that the construction service of painting was not exclusively used for rendering exempted services, thus rejecting the demand for reversal of the entire cenvat credit availed on the painting activity. The Tribunal emphasized that the proportionate reversal of credit as per Rule 6(3) adequately addressed the situation, and there was no justification for demanding the reversal of the entire service tax credit.

In conclusion, the appeal filed by the appellant was allowed, and the decision was pronounced on July 18, 2018.