2023 (5) TMI 1025 - AT - Service Tax

Denial of CENVAT credit - service tax paid on hotel halls booked for business activity and hotel stay expenses - Nexus with output services (of market research) - HELD THAT - The show cause notice was issued by Revenue for denial of CENVAT Credit on above stated input services. Since, the show cause notice was issued by Revenue, burden of proof was on Revenue to establish that the hiring of halls and hotel rooms had no nexus with the output services. Whereas the finding as recorded by both the original and appellate authorities did not indicate that the burden of proof is discharged by Revenue. Both the Order-in-Original and Order-in-Appeal in the present matter are not sustainable. The above stated two activities are input services for the appellant for providing output services of market research and, therefore, service tax paid on above stated input services is admissible to the appellant for CENVAT Credit - appeal allowed.

Summary

Issues:
1. Denial of CENVAT Credit on service tax paid for hotel halls and stay expenses for market research activities.

Analysis:
The case involved the appellant, a market research agency holding Centralized Service Tax registration in Mumbai, facing a show cause notice denying credit of service tax paid on hotel halls booked for business activity and hotel stay expenses. The original authority disallowed the CENVAT credit claimed by the appellant, stating a lack of evidence to prove the expenses were incurred for the claimed activities. The Commissioner (Appeals) upheld this decision, emphasizing the absence of a direct nexus between hotel accommodation and market research output services. The Commissioner cited a CBEC Circular clarifying that certain services, including accommodation services, do not impact the quality of output services. The Commissioner also noted that case laws cited by the appellant were not applicable to the current scenario.

In the appeal before the Tribunal, the Learned Chartered Accountant for the appellant argued that the expenses were reimbursed by clients and were essential for conducting market research activities. The appellant contended that both hiring halls for interviews and hotel stay expenses were integral to providing market research services, thus justifying the claimed CENVAT credit. On the other hand, the Learned AR representing the Revenue maintained that there was no nexus between the activities and the services provided by the appellant, rendering them ineligible for credit.

Upon review, the Tribunal found that the burden of proof to establish the lack of nexus between the input services and output services rested on the Revenue, as they issued the show cause notice. However, both the original and appellate authorities failed to demonstrate that burden was discharged. Consequently, the Tribunal held that the denial of CENVAT credit was not sustainable. The Tribunal overturned the previous decisions, ruling that the hiring of halls and hotel rooms indeed constituted input services for the appellant's market research output services. Therefore, the service tax paid on these input services was deemed admissible for CENVAT Credit. The appeal was allowed in favor of the appellant.