CESTAT Allows 100% CENVAT Credit to Rambagh Palace Hotel, Holds IHCL Services Were Management Consultancy [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) allowed 100% CENVAT credit to Rambagh Palace Hotel, holding that the services received from IHCL qualified as Management Consultancy Services.

Rambagh Palace Hotel Pvt. Ltd appellant-assessee, was registered to provide several taxable services like Mandap Keeper, Internet Café, Outdoor Catering, Health Club, Dry Cleaning, Banking, Renting of Property, Business Auxiliary Services, Transport of Goods, and Tour Operator Services. The assessee claimed CENVAT credit on service tax paid for input services, including operation and management services from IHCL, Taj Mahal Hotel, Mumbai. The department found that the appellant did not follow Rule 6(3)(ii) of the Cenvat Credit Rules, 2004.

The contract showed that IHCL provided comprehensive services to run and maintain the hotel, with IHCL controlling operations. These services were classified as "Business Auxiliary Services," not as "Management or Business Consultancy" services as claimed by the assessee.

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Since these services were used for both taxable and exempted services and did not fall under exceptions in the CENVAT Credit Rules, the assessee was not entitled to full CENVAT credit. From April 1, 2008, the assessee had to reverse the credit related to exempted services and could only use the remaining credit for taxable services.

Two Show Cause Notices were issued demanding reversal of the excess credit claimed. The demand was confirmed in the original order dated February 4, 2022. The appeal against this order was rejected, and the assessee approached the tribunal.

The two member bench comprising Dr.Rachna Gupta(Judicial Member) and Hemambika R.Priya (Technical Member) heard both parties and observed that there was no denial that the assessee received taxable services from IHCL and others named in the Show Cause Notice. This confirmed that the assessee was entitled to claim Cenvat credit on those services. The issue was regarding the availment of 100% Cenvat credit when the assessee also received various non-taxable services.

Read More: 100% Cenvat Credit can be taken on Input Service under the head of Management or Business Consultancy Service: CESTAT

The appellate tribunal noted that this issue of claiming full Cenvat credit despite receiving several collaborative services in the hospitality industry had already been addressed by this Bench and other decisions. It was observed that Rule 6 of the Cenvat Credit Rules, 2004, did not apply to certain services, including Management Consultancy Service.

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Under the rule, 100% credit was allowed on Management Consultancy Services even if partially used for exempted services, and such credit was not liable for proportionate reversal.

The original adjudicating authority had acknowledged that the assessee was entitled to 100% credit on Management Consultancy Services regardless of their use in taxable or non-taxable services for the period in question.

However, relief was denied based on a notification dated March 1, 2011, which omitted sub-rule (5) of Rule 6 with effect from April 1, 2011. Since the period under dispute was March 2010 to March 2011, the notification was wrongly applied to deny credit.

In light of these findings, the tribunal set aside the demand for Cenvat credit on Management Consultancy Services for 2010-11, modified the demand for April to June 2012, and upheld the demand for July 2012 to March 2013. Consequently, the order under challenge was partly allowed.

The decision was upheld by the Apex Court in Commissioner vs. Piem Hotels Limited (2019), which held that Management Consultancy Services received by a hotel company from IHCL could not be treated as Franchisee services, and the assessee was entitled to 100% Cenvat credit without restriction under Rule 6(3).

Considering these precedents and the fact that the period involved in the present appeal was up to March 2010, when the activity was not covered under Business Auxiliary Services, the CESTAT held that the demand was wrongly confirmed and set aside the order under challenge. The appeal was allowed.

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