Restaurant Service & CENVAT credit - a dissertation

For services provided by air-conditioned restaurants, there is no exemption to part-value of service subject to condition of not taking credit on inputs and input services. Actually, service portion has been valued as 40% of total amount charged without granting exemption. Therefore, services provided by such restaurants (except trading) cannot said to be ‘exempted service’ as per the provisions of rule 2(e)(3) of CCR, 2004.

In case of abatement granted under Notification 26/2012-ST, where the condition is of non availment of credit on inputs and input services, and the assessee avails benefit of this Notification, such services become exempted service in terms of Rule 2(e)(3). For example, service provided by Goods Transport Agency and Transport of passengers by a Contract carriage. In such case, assessee should not take Cenvat Credit on inputs and input services used for providing such services in terms of Rule 6(1) of CCR, 2004. If he takes credit on common input services used for such exempted services as well as for other taxable services, for which separate accounting is not possible, he should pay the amount (reverse credit) under Rule 6(3). If he do so, as per Rule 6(3D) payment of amount under Rule 6(3) deemed to be considered as Cenvat credit not taken.

In case of abatement to other services under this Notification, where there is no condition regarding non availment of credit on inputs and input services, such services for which partial exemption has been granted, cannot be said as ‘exempted service’.

However, it may be noted that Cenvat credit can be taken only on ‘input’, ‘input service’ and ‘capital goods’. If any portion of common input services went into an activity, where the output is not covered under definition of ‘final product’ or ‘output service’, such portion of services cannot be treated as ‘input service’ as it is not used for manufacture of final product or for provision of output service. So, proportionate Cenvat credit attributable to such portion is deniable in view of CESTAT Order in case of Orion Appliances Ltd. - 2010-TIOL-752-CESTAT-AHM.

Export of goods under bond is covered under Rule 6(6)(v) of CCR,2004, and therefore provisions of Rule 6(1) to 6(4) ibid are not applicable.

These are personal views.

Shvetal Parikh 16/07/2015