2018 (10) TMI 28 - AT - Service Tax

Reversal of CENVAT Credit - providing services at concessional rate of service tax / abatement - common input services used for providing taxable as well as exempt service - non-maintenance of separate records - Rule 6(3) of the CENVAT Credit Rules - Held that - The appellant is not providing any exempted service because his case does not fall in the definition of exempted service. However, the appellants are only availing the benefit of abatement in respect of the accommodation service as per Notification No.26/2012 dt. 20/06/2012 and as per the said Notification, 40% of the value of the accommodation service has been exempted from the levy of service tax on the condition that the CENVAT credit on inputs and capital goods has not been taken - In the present case, the appellant has not taken any CENVAT credit on inputs and capital goods. Further there is no restriction with respect to availment of CENVAT credit on input services. As far as restaurant services are concerned, it is found that the appellant is not availing the abatement notification and as per Rule 2C of Service Tax (Determination of Value) Rules, 2006, only 40% of the total value is taxable and the only condition attached with this is that CENVAT credit on inputs classified under Chapter 1 to 22 of the CETA, 1985 is not availed. When the statute itself prescribed certain percentage of total value as the value of service, the remaining portion of the value would neither be considered as an abatement nor as an exemption and consequently the restaurant services would not be covered under the definition of exempted services and hence the provisions of Rule 6 of CCR is not applicable in the present case. The appellants are not required to comply with the provisions of Rule 6 of CENVAT Credit Rules - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is providing exempted services and thus required to maintain separate accounts under Rule 6(3) of the CENVAT Credit Rules.
2. Whether the impugned order rejecting the appeal and upholding the Order-in-Original is sustainable in law.

Analysis:
1. The appellant, a public limited company running five-star hotels, was providing taxable services during the relevant period. They were issued a show-cause notice alleging the provision of exempted accommodation and restaurant services, violating CENVAT Credit Rules by not maintaining separate accounts. The Additional Commissioner confirmed a demand for non-reversal of CENVAT credit, interest, and penalty. The appellant contended they were not providing exempted services and, therefore, Rule 6 of CCR did not apply. The definition of exempted services under Rule 2(e) of the CCR was crucial, and the appellant argued that they did not fall under this definition. They highlighted the abatement benefit for accommodation services and the absence of restrictions on availing CENVAT credit on input services for restaurant services.

2. The appellant's counsel argued that the impugned order was unsustainable as it did not consider the facts and laws properly. They emphasized that the appellant was not providing exempted services based on the definition provided under Rule 2(e) of the CCR. The counsel pointed out that the appellant had not availed CENVAT credit on inputs and capital goods for accommodation services, and there were no restrictions on input services for restaurant services. The learned AR supported the impugned order's findings. After analyzing the definitions and provisions, the Tribunal found that the appellant did not provide exempted services as per the defined criteria. The appellant's compliance with abatement for accommodation services and non-availing of CENVAT credit on inputs and capital goods led to the conclusion that Rule 6 of CCR did not apply. The Tribunal also noted a dropped demand in a subsequent period for identical grounds in the appellant's case.

In conclusion, the Tribunal held that the appellant was not obligated to comply with Rule 6 of the CENVAT Credit Rules as they were not providing exempted services. Consequently, the impugned order was deemed unsustainable in law, and the appeal was allowed with any consequential relief.