By TIOL News Service

MUMBAI, APR 04, 2016: M/S Indian Hotels Company Ltd. (IHCL) are providing hospitality Services and are having their chain of hotels and resorts all over the world. IHCL provided taxable service under “Management or Business Consultant's Service” to the appellant and paid service tax thereon.

Being the recipient of such service, the appellant took credit of service tax paid on such services under Rule 6(5) of CCR, whereunder input services covered under specified clauses of Section 65(105) of Finance Act, 1994, were eligible for 100% credit, even if used partly for exempt goods/exempt output services.

A SCNwas issued to the appellant for denying the credit on the ground that the services provided by IHCL are covered under Business Auxiliary Service under Section 65(105)(zzb) and not under Management Consultancy Service under Section 65(105)(r) as claimed by IHCL .Inasmuch as it is alleged that the appellants are not entitled to take 100% CENVAT credit of service tax paid by them & they were directed to reverse the CENVAT credit to the extent of 80% of service tax availed by them up to 31.3.2008 and thereafter the service tax attributable to exempted services.

The CCE, Nasik confirmed the demand along with penalties and interest on 31.03.2011 and, therefore, the appellant is before the CESTAT. [ST/432/11]

Incidentally, SCNswere also issued to IHCL , proposing to change the classification of the service from “Management Consultancy Service” to “Business Auxiliary Service” although service tax registration dated 08.09.2001 was issued under the head Management Consultancy Service.

The allegation leveled under the said SCNs was confirmed by the CST, Mumbai-I by his order dated 25.02.2015.

IHCL has filed appeal No. ST/86184/15.

It is pertinent to note that in the matter of the stay application filed by the appellant, the Bench had by its order [2012-TIOL-829-CESTAT-MUM] granted waiver of pre-deposit by observing thus -

Applicant taking credit of service tax paid by service provider The Indian Hotels Company Ltd. under the category of ‘Management Consultancy Services' - department alleging that the classification of services provided is incorrect - it is a settled law that issue of classification is to be decided by the Commissioner of Service Tax at the end of service provider and not by the Commissioner who is dealing with the service recipient - applicant has a strong prima facie case in favour - Pre-deposit waived: CESTAT [para 3]

Both the appeals were heard recently.

Before the CESTAT, the appellants placed reliance on a plethora of decisions and submitted that the classification of the services is apt &since the classification provided by IHCL cannot be changed retrospectively, the credit availed by the appellant cannot also be denied and, therefore, both the Orders are not sustainable. [Relied upon - RPG Enterprise Ltd. 2008-TIOL-643-CESTAT-MUM ; Shervani Indus Syndicate - 2009-TIOL-250-CESTAT-DEL ; Federal Express - 2013-TIOL-1137-CESTAT-MUM ; Casino Hotel - 2010-TIOL-109-CESTAT-BANG ; CCE v. Cotspun Ltd. - 2002-TIOL-187-SC-CX ; Avenue Regent - 2010-TIOL-121-CESTAT-BANG ; Taj View Hotel -2014-TIOL-1128-CESTAT-DEL .]

The AR while reiterating the findings of lower authorities emphasized that the sole intention behind classifying the services under ‘Management or Business Consultancy Service' was to enable their own arm to avail 100% credit of CENVATin terms of Rule 6(5) of CCR, 2004.

The Bench, after considering the submissions, observed -

+ The nature of service provided by IHCL is of the kind of advice, consultancy and assistance which are directly in connection with management of the respective hotels. It is clear from the submissions and the records that IHCL is not managing or conducting the hotel business of Piem on their behalf, but are only providing the management consultancy and advice by posting only key senior personnel to assist Piem to conduct their hotel business with their own infrastructure and manpower.

+ Further, it is noticed that IHCL is not providing any service on behalf of Piem to Piem's customers, nor are IHCL promoting the hotel business of Piem. Therefore, the services provided by IHCL to Piem cannot be termed as Business Auxiliary Service and the services provided by IHCL is squarely covered under Management or Business Consultant's Service, classifiable under Section 65(105)(r) of Finance Act, 1994.

+ In any case, we are of the view that the change of classification at the end of IHCL would be prospective and cannot have retrospective operation , as held by this Tribunal in various judgments cited supra.

+ Since Piem Hotels have taken credit durin g the period April 2005 to September 2010 and the classification has been changed at IHCL's end, through impugned Order-in-Original dated 25.02.2015, such change in classification would not affect the credit taken by Piem during the period prior thereto.

+ Therefore, the jurisdictional authorities at Piem Hotels have committed an apparent error in denying the credit and it is well settled position of law that jurisdictional officers at recipient's end are not empowered to question or change the classification or valuation at supplier's end based on various judgments of Apex Court.

+ Since we are allowing the appeals mainly on the ground that the services provided by IHCL is correctly and appropriately classifiable under Management & Business Consultant's Services and not under Business Auxiliary Service and the jurisdictional officers at recipient's unit are not empowered to review or revise the classification at supplier/ provider's end, we are not discussing various other propositions made by both sides.

Both the Appeals were allowed.

In passing: Also see 2016-TIOL-671-CESTAT-MUM.

(See 2016-TIOL-788-CESTAT-MUM)