2019 (7) TMI 774 - AT - Service Tax

Abatement claim - short term accommodation services - restaurant services - appellant was alleged to have evaded an amount of ₹ 83,59,428/- during the period from October, 2013 to March, 2014 on the ground that since the appellant has availed the cenvat credit on input services, the benefit of abatement to Notification No. 26/2012 ST dated 20.06.2012 is not available to them - benefit was also denied on the basis of Rule 2C of Service Tax (Determination of Value) Rules, 2006 - HELD THAT - The condition for availment of abatement qua the services of short term residence/ lodging the credit on inputs and capital goods should not have been availed. Admittedly, the said credit has not been availed. The condition is absolutely silent about availment of credit on input services. Hence, we are of the opinion that the Adjudicating Authority below has committed an error while considering the availment of credit on input services as the condition for denial of the benefit of said Notification. Rule 2(c) of Service Tax (Determination of Value) Rules, 2006 - services provided by the restaurant - HELD THAT - Perusal of rule makes it clear that 40% abatement on total amount is availed in case of restaurant services. Explanation 2 thereof clarifies that the provider of taxable service shall not take the cenvat credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 i.e. the availment of credit only on goods as mentioned above is the condition for availment of the said abetment qua restaurant services. Apparently and admittedly, cenvat credit was availed on input services hence denial of the benefit of the impugned Notification qua restaurant services is also held as unreasonable rather illegal. Proportionate availment of cenvat credit - HELD THAT - Once the appellant has followed the proportionate method for availment of credit on common input services, it cannot be said that appellant has availed any credit on input services used in providing exempted services. The same is otherwise permissible in terms of Rule 6 of Cenvat Credit Rules, 2004. The Commissioner has committed an error while not referring any findings qua the said issue. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against denial of abatement claim for short term accommodation and restaurant services based on cenvat credit availed.

Analysis:
1. The appellant was denied abatement claim for short term accommodation and restaurant services due to alleged evasion of amount during a specific period. The denial was based on the appellant availing cenvat credit on input services, which was considered as a ground for ineligibility for abatement under Notification No. 26/2012. The appellant contended that no credit was availed on inputs or capital goods, as required by the Notification, and that the credit availed was only on input services. The appellant argued that the denial of benefit was unreasonable and unsustainable, citing a previous case in their favor.

2. The Tribunal examined Notification No. 26/2012, which specified conditions for availing abatement for services like short term residence/lodging. The condition stated that credit on inputs and capital goods should not have been availed, without mentioning anything about credit on input services. The Tribunal concluded that the Adjudicating Authority erred in considering the availment of credit on input services as a reason for denying the abatement benefit under the Notification.

3. Regarding restaurant services, Rule 2(c) of Service Tax (Determination of Value) Rules, 2006 was analyzed. The rule provided for a 40% abatement on the total amount for restaurant services, with a condition that the provider of taxable service should not take cenvat credit on specific goods. It was found that the denial of abatement for restaurant services based on availing credit on input services was unreasonable and illegal, as the condition was limited to goods under specific chapters of the Central Excise Tariff Act, not input services.

4. The Tribunal also addressed the issue of proportionate availment of cenvat credit on input services. While the Adjudicating Authority acknowledged the proportional availment, there was no explicit finding in the order. The Tribunal referred to settled law and a previous case involving the appellant, which established that following a proportionate method for credit availment on common input services did not constitute availing credit on input services used for exempted services. The Commissioner was deemed to have erred by not addressing this issue in the order.

5. Consequently, the Tribunal set aside the challenged order and allowed the appeal in favor of the appellant. The decision was made after considering the relevant legal provisions, notifications, and precedents to determine the eligibility of the appellant for abatement claims in relation to short term accommodation and restaurant services.