Whether classification of service can be changed in the hands of service recipient?

PJ/Case Law/2014-15/2126

Case:-M/s PIEM HOTELS LTD Vs C.C.E. & ST, LUCKNOW

Citation:-2014-TIOL-268-CESTAT-DEL

Brief Facts:-The appellant is engaged in the business of providing mandap keeper, is holding service tax registration and was discharging the service tax liability in respect of various services provided by them. For the purpose of running their business, they were availing services from Indian Hotels Limited, under the cover of service tax invoices showing payment of service tax by Indian Hotels Limited, under the category of "Management or Business Consultancy". The appellant were availing the cenvat credit of service tax paid by Indian Hotels Limited. Inasmuch as the said Management or Business Consultancy is one of the specified services in terms of provisions of Rule 6(5) of Cenvat Credit Rules, the appellant was availing 100% of the credit of tax paid by M/s Indian Hotels Limited. Revenue entertained a view that the service rendered by Indian Hotels Limited were not Management or Business Consultancy services but were franchisee services. Inasmuch as franchisee services are not specified services in terms of Rule 6(5), the appellant was entitled to avail 20% of the credit upto 31.03.2008 and w.e.f. 1.4.2008, he is required to follow the provisions of Rule 6(3)(i) or (ii). In terms of the said rule the appellant is required to either reverse the proportionate credit availed in respect of the goods or the services which were totally exempted or to pay a particular percentage on the value of the exempted goods. Inasmuch as the appellant did not follow the said provision, demands were raised against them. As far as the demand is concerned, the same stands primarily denied on the ground that the services provided by M/s Indian Hotels Limited cannot be held to be Management or Business Consultancy. They are the franchisee services and as such are not covered as per the provisions of Rule 6(5).

The second issue was that the appellant, while providing mandap keeper services, have availed the abatement as also the input service tax credit, which is not in consonance with the provision of Notification No.21/97 ST. It stands argued by the revenue that the appellant was providing hall hire charges, in which case no abatement was available. It is only when the said hall hire services were provided alongwith the catering services, the abatement was being availed.

The third issue was that the appellant has deposited service tax in respect of services of mandap keeper, internet, beauty parlour etc. under the category of health and fitness of business support service.

Further demand confirmed in respect of the cenvat credit availed in excess of 20% is not disputed by the appellant.

Reasoning of Judgment:-The Tribunal heard both the parties and considered in first issue that it is a well settled proposition of law that classification cannot be changed in the hands of the service recipient. The Tribunal also noted that the Tribunal in the appellant's own case involving the same issue has granted unconditional stay. As such by following the same the Tribunal find prima-facie case in respect of demand on the same matter. Accordingly, the Tribunal dispense with the pre-deposit of the same.

The Tribunal further finds in the second issue that the provision of Notification No.21/97-ST dated 26.06.1997, as amended by Notification No.12/2004-ST dated 10.09.2004, it stands contended that the debar in the said notification was only in respect of availment of credit for duty paid on input or capital goods and not of service tax paid on input services. The Tribunal have seen the said Notifications and find that the condition of the Notification relates to non availment of credit of duty paid on inputs or capital goods and there is nothing in the said Notification to debar the availment of the cenvat credit in respect of input services. The said debarring was introduced w.e.f. 1.3.2006 vide Notification No.1/2006-CE dated 1.3.2006. As such the appellant has a good prima-facie case for the period prior to 1.3.2006. However, as the demand also falls under March 2006 period, we are of the view that the appellant is required to deposit the said demand. The Tribunal accordingly directed the appellant to deposit Rs.3 lakhs towards the said demand.

The Tribunal also finds in third issue that there is no dispute about the fact that the service tax stand discharged by the appellant under separate categories of mandap keeper, internet and beauty parlour service etc and as such confirmation of demand on the same services under a different head would not be justified. The Tribunal, accordingly, dispense with the condition of pre-deposit of the said demand. Similar is the position in respect of duty on the Vodafone Tower Rental.

The Tribunal further finds in last issue that demand confirmed in respect of the cenvat credit availed in excess of 20% is not disputed by the appellant. Accordingly, the Tribunal feel that the appellant is liable to deposit on the said count. As regards the demand, the same stands confirmed in respect of GTA services by applying the formula envisaged by Section 72 of the Finance Act. The Tribunal find that the appellant has discharged their duty liability on the said services and incorrect invoices produced by them stands subsequently replaced with the correct invoices. As such, the Tribunal find no justification for demand of any deposit in respect of the said demand.

In view of the foregoing, the Tribunal directed the appellant to deposit an amount of Rs.3.50 lakhs in total within a period of six weeks from today and report compliance by 11.03.2014. Subject to the deposit of the above amount, the condition of pre-deposit of balance amount of duty and entire amount of penalty and interest shall stand waived and its recovery stayed till the disposal of the appeal.

Decision:-Stay partly granted.

Comment:- The essence of the case is that classification cannot be changed in the hands of the service recipient. When the service provider has paid service tax under the category of “Management Consultancy Service which is available for 100% credit, it cannot be contended at the service recipient’s end that the service is better classifiable under “Franchisee Services” and so the service recipient should restrict the credit availment upto 20%. Hence service recipient is not liable to reverse cenvat credit in case of wrong classification. One more ratio was laid that the debar in the abatement notification during the relevant period was only in respect of availment of credit for duty paid on input or capital goods and not of service tax paid on input services. Therefore, the assessee can avail the benefit of cenvat credit in respect of input service prior to 1/03/2006.

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PJ/Case Law/2014-15/2126

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