By TIOL News Service

MUMBAI, APRIL 16, 2018: THE issue before the Bench is as to whether the appellant, being a hotel, is entitled for CENVAT credit in respect of 'Construction service' used for constructing additional rooms and repairing of some hotel rooms.

In appeal before the CESTAT, the appellant submitted that in their own case the Chennai Bench had allowed the credit - 2017-TIOL-1190-CESTAT-MAD. Reliance is also placed on the decision in Prakruti Resorts - 2014-TIOL-2087-CESTAT-MUM and Board's letter F.No. 137/203/2007-Cx-4 dated 01/10/2007.

The AR, while reiterating the findings of the impugned order, clarified that the appellant is paying service tax only in respect of few services, namely, 'rent-a-cab service', 'internet cafe', 'convention service', 'mandap keeper service', 'outdoor catering service', 'health and fitness service' and 'dry cleaning service' and these services have no nexus with the construction service which was exclusively used for non-taxable activity. Inasmuch as the provisions of rule 6(5) of CCR, 2004 shall not apply.

The said sub-rule (before being omitted w.e.f 01.04.2011, notfn. 3/2011-CE(NT)) read thus -

"(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services."

The Bench observed -

+ Appellant have availed CENVAT credit in respect of 'construction service' which is used for constructing additional rooms, renovation of the rooms in the hotel. They discharge service tax in respect of various services such as 'rent-a-cab service', 'internet cafe', 'convention service', 'mandap keeper service', 'outdoor catering service', 'health and fitness service' and 'dry cleaning service'.

+ The only issue is whether CENVAT credit in respect of construction service is available in terms of Rule 6(5) of CENVAT Credit Rules, 2004. The contention of Revenue is that the output service has no nexus with the construction service. Therefore, construction service was exclusively used for non-taxable service.

+ We do not agree with the contention of Revenue for the reason that the overall hotel business is rendered within the common hotel building and the construction service received in respect of construction of any part of the hotel is a common input service which has nexus with overall hotel business. Therefore, even though some part of the hotel business is not taxable, but it cannot be said that the construction service was used exclusively for non-taxable service. The hotel building is common for all taxable and non-taxable service. Therefore, the construction service is squarely covered under Rule 6(5) and credit is admissible.

Noting that in an identical issue, in the appellant's own case, the Chennai bench had extended the benefit, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-1202-CESTAT-MUM)