The Hyderabad Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has held that the notifications in question being conditional exemption notifications issued under Section 93(1) of the Finance Act, 1994, are required to be construed strictly. Where an appellant has availed Cenvat credit on input services during the period covered by such conditional notifications, which expressly prohibit such availment, the benefit of abatement under those notifications cannot be extended, irrespective of whether the services were exclusively or only partly used for providing the taxable output services.
In the absence of cogent and substantive evidence demonstrating that the input services had no nexus whatsoever with the taxable services provided, the conditions of the notification must be held to have been violated, added the Tribunal.
The Division Bench comprising Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) observed that in the ST-3 return for the period prior to 30.06.2012, the appellants had clearly mentioned that they had taken credit in respect of “input”. Although the appellants claimed this was an inadvertent entry, the Adjudicating Authority had examined the matter and established that the said entry was a clerical mistake and that it was, in fact, input services and not input. The invoices pertained to the period prior to 30.06.2012 and therefore, these services were used for that period.
The Tribunal further observed that credit in respect of such services was availed and therefore the appellants were clearly not fulfilling the conditions of the notifications. The notifications being exemption notifications issued under Section 93(1) of the Finance Act, 1994, were required to be construed strictly, and the burden lay on the appellant to justify that those services were not used by them.
The Tribunal found it inconceivable that services like Maintenance and Repair, Internet, and Courier Services had no nexus with RS or AS in the context of a hotel, as maintenance is directly relatable to the provision of accommodation or maintenance of a restaurant. In the absence of any cogent and substantive evidence that these services were not used, whether partly or exclusively, for providing the impugned services, the benefit of the notifications could not be extended.
Briefly, the appellant, engaged in providing various services including Restaurant Services (RS) and Accommodation Services (AS), were availing the benefit of abatement under Notification No. 01/2006-ST dated 01.03.2006, as amended vide Notification No. 34/2011-ST dated 01.05.2011. The Department noticed that while availing these notifications, the appellants were simultaneously availing and utilizing Cenvat credit for discharging their service tax liability, which was in direct contravention of the condition of the said notifications, which clearly prohibited the taking of Cenvat credit on inputs, capital goods, or input services used for providing such taxable services.
A Show Cause Notice (SCN) was issued by the Department, and after examining the provisions of Notification No. 01/2006-ST as amended by Notification No. 34/2011-ST, the Adjudicating Authority noted that prior to amendment, the notification covered inputs, capital goods, and input services, whereas with effect from 01.07.2012, the said notifications were rescinded and abatements were regulated by Notification No. 26/2012-ST dated 20.06.2012, which only covered inputs or capital goods.
In respect of RS, abatement was available by virtue of insertion of Rule 2C in the Service Tax (Determination of Value) Rules, 2012 under Notification No. 24/2012-ST dated 06.06.2012, subject to the condition that the provider shall not take Cenvat credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985. Accordingly, out of a total demand of Rs. 1.27 crores, the Adjudicating Authority confirmed a demand of Rs. 33.54 lakhs and imposed penalty under Sections 76 and 77(2) of the Finance Act, 1994, granting relief in respect of RS and AS for the period July 2012 to March 2013.
Appearances:
Sameer Sood, Advocate for the Appellant/ Taxpayer
V.R. Pavan Kumar, AR for the Respondent/ Revenue
