Practice being adopted by leading Hotel chains to utilize Cenvat Credit beyond permissible limits - reg. - Service Tax - Dy. No.62/Comm (ST)/2009

Dy. No.62/Comm (ST)/2009 Government of India Ministry of Revenue Central Board of Excise Customs Dated : March 20, 2009 Sub : Practice being adopted by leading Hotel chains to utilize Cenvat Credit beyond permissible limits - reg. Please find enclosed herewith a copy of letter C.No.06-Zone 14-S. Tax-2009 dated 05.03.2009 received from Chief Commissioner of Customs and Central Excise, Chandigarh on the above subject, which is self explanatory. This is clear case of mis classification of taxable service for undue availment of Cenvat Credit. This issue has all India ramifications. It is requested that the modus operadi adopted by the assessee in the instant case, may please be circulated to field formations. Gatam Bhattacharya Commissioner (ST) Office of the Chief Commissioner Customs Central Excise: Chandigarh Zone Central Revenue Building Sector 17C, Chandigarh C.No.06-Zone 14-S.Tax-2009 Dated: March 5, 2009 Sub : Practice being adopted by leading Hotel chains to utilize Cenvat Credit beyond permissible limits - reg. Please find enclosed herewith a copy of letter C.No.675/Hqrs/Audit/08/506 dated 27.2.2009, issued by the Commissioner, Central Excise, Chandigarh on the above mentioned subject. 2. It has come to the notice that Taj GVK, owner of Taj Hotel Chandigarh, providing output taxable services in the categories of mandap keeper, internet cafe, outdoor catering, health club fitness service, dry cleaning, banking and other financial services and beauty parlour, have appointed Indian Hotel Company Limited as operators and managers of the hotel. IHCL is paying service tax on the service charges received from TAj GVK and Taj GVK is taking credit of the entire amount of service tax paid by IHCL even though services of IHCL are being used for providing of taxable as well as exempted services. 3. It is the claim of Taj GVK that services provided by IHCL are in the nature of business or management consultancy services on which 100% credit is allowed even if their services are used providing both taxable and exempted services under clause (5) of Rule 6 of Cenvat Credit Rules, 2004. However, examination of the agreement entered into by Taj GVK and IHCL shows that the services provided by IHCL are not 'business or management consultancy service' but are of the nature of BAS or BSS, which are not covered in the exclusion clause referred above. This mis-classification of service had led to utilization of Cenvat Credit of significant amount beyond the permissible limit as laid down in clauses (1) to (3A) of Rule 6 of Cenvat Credit Rules, 2004. 4. The 'Management Consultants Services' basically cover the services in the nature of any advice, consultancy or technical assistance. The services rendered by M/s. Indian Hotel Company Limited in the capacity of a full fledged operator of the Hotel and managing everything including catering, rooms maintenance, promoting the business of the Hotel and providing all services relevant to a Five Star Hotel of comparable standing, do not get covered under the category of 'Management Consultant Services'. On the other hand, they appear to be rightly covered under Business Auxiliary Services or Business Support Services as mentioned in the reference received from the Commissioner, Central Excise, Chandigarh. 5. You are, therefore, requested to examine this modus operandi and circulate the same to the other field formations as the issue is likely to have all India ramifications.