CASE STUDY

 

Prepared By: CA Neetu Sukhwani &

CA Preksha Jain

 

 

Introduction:

 

The assessee, M/s Jai Mahal Palace was issued show cause notice no. V (H) Adj.-I/177/2012/1902 dated 28.09.2012. It was alleged that the appellant have wrongly availed the benefit of notification no. 01/2006-ST dated 01.03.2006 as the notification provided abatement when no cenvat credit is taken of the duty paid on inputs or capital goods or input services used for providing such taxable services whereas the appellant took credit with respect to some common inputs used in providing the services of restaurant and short term accommodation. It was also alleged that the appellant has not paid service tax on the services of Restaurant Phulwari/Giardino and so service tax demand totaling to Rs. 1,04,82,263/- was proposed to be recovered from them along with interest and penalties under section 76, 77 and 78 of the Finance Act, 1994. It was submitted that the credit taken by the appellant on some of the common input services mistakenly was being reversed by them by filing revised ST-3 returns and so the technical lapse should not be taken to deny the rightly admissible benefit of the abatement notification to them. As such, the credit reversed amounts to “non-taking of cenvat credit” and there has not been any violation of the condition of the abatement notification no. 01/2006-ST dated 01.03.2006. the allegation is raised to levy the service tax on the Restaurant Giardino, Phulwari/pool side. As the name indicates, these are the open air restaurants. As such, the condition of having the facility of Air conditioning is not satisfied in these restaurants. Thus, the services provided by them do not fall under the definition of taxable services and so no service tax is leviable on the services provided from Giardino and Phulwari. The applicant also places reliance on the clarifications issued by Board Circular no. 139/8/2011-TRU dated 10.05.2011 and Board Circular No. 173/82013-ST dated 07.10.2013 in support of their contention that no service tax is leviable on the restaurant services provided via Giardino/Phulwari.

 

M/S JAI MAHAL PALACE [FINAL ORDER NO. 55116/2017 dated 13.07.2017]

 

Relevant Legal Provisions:

 

 

Section 65(105)(zzzzu) of the Finance Act, 1994:-

 

Taxable service means any service provided or to be provided to a buyer, by a builder of a residential complex, or a commercial complex, or any other person authorised by such builder, for providing preferential location or development of such complex but does not include services covered under sub-clauses (zzg), (zzq), (zzzh) and in relation to parking place.

 

Explanation.- For the purpose of this sub clause, “preferential location” means any location having extra advantage which attracts extra payment over and above the basic sale price.

 

Further, sub- clause (zzg) is in relation to Management, maintenance or repair services; sub clause (zzq) is for services in relation to commercial or industrial construction and sub clause (zzzh) is for services in relation to construction of complex.

 

Notification no. 1/2006-ST dated 01.03.2006:-

 “G.S.R. 115(E). – In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of the description specified in column (3) of the Table below and specified in the relevant sub-clauses of clause (105) of section 65 of the Finance Act, specified in the corresponding entry in column (2) of the said Table, from so much of the service tax leviable thereon under section 66 of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (5) of the said Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditions specified in the corresponding entry in column (4) of the Table aforesaid.”

Board Circular no. 139/8/2011-TRU dated 10.05.2011

 

Board Circular No. 173/82013-ST dated 07.10.2013

 

Issue Involved:

 

The issue involved in this case before the adjudicating authority was that-

1.    Taxability of service tax for Phulwari/Giardino Restaurant.

2.    Applicability of Exemption Notification-Notification no. 01/2006-ST dated 01.03.2006.

 

Brief Facts:

 

M/s Jai Mahal Palace, Jacob Road, Civil Lines, Jaipur are holding Service tax registration No. AAACT3957GSD055 issued under Section 69 of the Chapter V of the Finance Act 1994 read with Rule 4 of the Service Tax Rules, 1994. M/s Jai Mahal Palace are leading hoteliers providing the taxable service namely “Mandap keeper service, health club and fitness centre services, Dry cleaning, Internet Café, Renting of Immovable Property, Management Consultant, Banking & Financial Services, Business Support, Maintenance & Repairs, Restaurant and Short term accommodation services, etc.

The Department issued show cause notice no. V (H) Adj.-I/177/2012/1902 dated 28.09.2012. It was alleged that the appellant have wrongly availed the benefit of notification no. 01/2006-ST dated 01.03.2006 as the notification provided abatement when no cenvat credit is taken of the duty paid on inputs or capital goods or input services used for providing such taxable services whereas the appellant took credit with respect to some common inputs used in providing the services of restaurant and short term accommodation. It was also alleged that the appellant has not paid service tax on the services of Restaurant Phulwari/Giardino and so service tax demand totaling to Rs. 1,04,82,263/- was proposed to be recovered from them along with interest and penalties under section 76, 77 and 78 of the Finance Act, 1994..

The appellant replied to the above show cause notice vide their letter no. PJ/SCN/J-14/12-13/2766 dated 20.11.2012. The submissions of the appellant were not adhered to and the impugned order in original no. JAI-EXCUS-001-COM-062-13-14 dated 23.09.2013, issued on 25.10.2013 was passed wherein the demand of Rs. 1,04,82,263/- was confirmed along with interest. Equal penalty of Rs. 1,04,82,263/- was imposed under section 78 of the Finance Act, 1994 along with penalty at the rate of Rs. 200/- per day under section 77 (1)(c)(iii) of the Finance Act, 1994. However, the penalty under section 76 was dropped.

 

 

Apeallant’s Contention: The assessee made following submissions before the adjudicating authority:- 

 

 

The assessee submitted that for deciding the issue whether the appellant is eligible for availment of benefit of Notification No. 01/2006-ST when they have availed and utilized cenvat credit simultaneously, the impugned order has produced the relevant provisions. By quoting the provisions of notification no. 1/2006-ST, it has been interpreted that the condition of non availment of credit in this notification is unambiguous and clearly worded. It has been concluded that the abatement is available under this notification provided no cenvat credit has been availed. It was further stated that it is settled principle of law that notification has to be strictly construed as per the wording of the notification and neither anything has to be added in that notification nor anything has to be read beyond what is specifically stated in the notification. In this context, reliance was also placed on certain decisions wherein it has been held that if any of the conditions laid down in the notification is not fulfilled, the assessee is not entitled to the benefit of that notification. Moreover, it was held that this notification is a conditional notification and in order to avail the benefit of this notification, the person availing should prove beyond doubt that they fulfill the conditions in toto.

 

Before proceeding to give their submissions on this point, the appellant reproduced the said condition for the sake of convenience:-

 

“Provided that this notification shall not apply in cases where, -

(i)            the CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of the CENVAT Credit Rules, 2004; or

 

The analysis of above condition prescribed in the notification makes it ample clear that the benefit of abatement will be allowed only if the Cenvat credit on the inputs/capital goods/input services USED FOR PROVIDING such service is not taken. The language used in this condition is that the credit should not be taken in respect of inputs/capital goods/input services USED FOR PROVIDING THE SERVICE on which abatement is claimed. This condition has not been violated by the appellant. They have not taken Cenvat Credit on any inputs/capital goods/input services which are used solely in providing the services of Restaurant and accommodation. Moreover, initially cenvat credit on certain common input services were also taken by mistake that pertained to the provision of restaurant and accommodation services but the same was subsequently reversed by filing the revised service tax return. It is submitted that no cenvat credit has been taken by the appellant that pertain to provision of restaurant and accommodation services and therefore the contention of the impugned order in original is not tenable and is liable to be set aside. It is also worth mentioning that the common credit alleged to have been availed by them with respect to restaurant and accommodation services is nothing but that pertaining to services mainly comprising of tent, mike, projectors, etc. that are input services for providing the output service of “Mandap Keeper Services” on which service tax @12.36% is being paid by the appellant. As such, the denial of the benefit of the abatement notification is based on illogical and absurd findings and is liable to be quashed. 

 

Furthermore, it was also submitted that even if the contention of the impugned order in original is accepted for the sake of argument only, then too, it is not viable as it will make the use of words “USED FOR PROVIDING” in the above notification as redundant. Therefore, such an interpretation which makes any part of notification or legal provision as redundant is not sustainable. It has been held by the hon’ble Supreme Court that any interpretation which results in rendering any portion of rule or legislation redundant should be avoided. This has been decided in the case of Amrit Paper vs. CCE, Ludhiana [2006 (200) ELT 365] and also in the case of Rajesh Kumar Sharma vs. UO [2007(209) ELT 0003(SC).]. In both of these cases, the highest court of India has decided that the interpretation which results in rendering any portion of rule or legislation redundant should be avoided. Therefore, in the light of these two decisions, the contention of impugned order in original that cenvat credit availed by the appellant is liable to be recovered as the abatement notification specifically states that the cenvat credit of duty on inputs or capital goods or the cenvat credit of service tax on input services, used for providing such taxable service, has not been taken under the provisions of the Cenvat Credit Rules, 2004 is not sustainable as the credit taken by the appellant is not the credit used for providing the taxable service of restaurant and accommodation. The proviso prohibits the availment of cenvat credit availed on all the inputs/input services used for providing taxable service of which abatement is being taken and if the credit that is not used for the purpose of providing the services of restaurant and accommodation is also demanded, it will make the use of words “USED FOR PROVIDING SUCH TAXABLE SERVICE” as redundant. Therefore, the impugned order in original issued by taking such an interpretation is not sustainable and is liable to be set aside.

In continuation to the above submissions, it was also submitted that erroneous reliance has been placed on the decisions wherein it has been held that the notification has to be strictly construed and if any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The appellant submits that in view of the above explanations, it has been clarified that no cenvat credit has been taken that has been used for providing the taxable services of restaurant and accommodation. Therefore, the condition of non availment of credit on inputs, capital goods and input services used for providing the output service (on which abatement is claimed) is not violated. Since the condition of the notification is not violated, its benefit cannot be denied. Accordingly, the case laws cited by the impugned order denying the benefit of notification on account of non-fulfillment of its condition are not applicable here. Thus, the reliance placed on the above decisions is totally misplaced and the same is not relevant in the facts and circumstances of the present appeal. Therefore, the impugned order in original is not tenable and should be quashed and the appeal should be allowed.

 

It was held in the impugned order that the appellant had admitted that they have taken cenvat credit on common service and also reflected this fact in their ST-3 return but, later on they had filed revised ST-3 return wherein the cenvat credit of common input services was reversed and was not taken into account. It was held that the appellant had admitted that they had availed cenvat credit on common input services, however, they have neither provided any quantification of the total cenvat credit availed on such common input services nor has provided any quantification regarding the benefit of such common input services not taken in their revised return which pertained to short term accommodation and restaurant services. It was held that the common input services on which cenvat credit was availed were tent house, telephones, banquet hiring, mike, projector hiring, etc. and the appellant have not confirmed and provided evidence that the cenvat credit availed by them on input services whether as a whole or partially were not used for short term accommodation and restaurant services.

In this respect, the appellant had submitted that the contention of the impugned order that they have not provided any quantification of the total cenvat credit availed by them is not sustainable. The appellant had provided all the details as were required under the law and had also submitted the copies of the service tax returns both the original and the revised returns along with the reply to show cause notice. Also, comparative chart was prepared in the reply showing the abstracts from both the returns. These charts were clear enough to show that the credit availed mistakenly by the appellant was subsequently reversed and its effect was duly shown in the revised return. However, the impugned order has not commented anything on the submission of these details and copies of original and revised ST-3 returns. Thus, the impugned order has turned out to be a non speaking order which has confirmed the demand without considering the submissions of the appellant. Such a decision is not sustainable in view of the following judgment:-

•          CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]:-

“CESTAT is required to pass reasoned speaking orders - while setting aside the order of the Commissioner the Tribunal has not recorded any finding as to in what manner the findings recorded by Commissioner are erroneous or as to why it was required to take a different view.

It is a matter of regret that the Tribunal still continues to ignore the same: Despite there a being plethora of precedents holding that an appellate authority is required to record facts, contentions as well as reasons for arriving at its conclusions, it is a matter of regret that the Tribunal still continues to ignore the same and pass orders like the present one without recording facts or reasons.

In the above decision, hon’ble High Court has held that the order should consider and comment on the submissions given by the appellant. An order passed without considering the submissions of the appellant is a non speaking order which is not sustainable. In the instant case, the impugned order has failed to discuss the abstracts of credit details in original and revised return which clearly established that the credit taken mistakenly was reversed subsequently. Therefore, the impugned order is not sustainable and is liable to be set aside.

In continuation to above it was submitted that the service tax return does not have any column to show the individual details of the credit availed, so the amount of differential credit could not be compared service wise. However, if the adjudicating authority was not satisfied or if the comparative charts were not understandable to him, he would have sought clarification on the same. But this has not been done, rather the impugned order has been passed on the justification that the proof of reversal was not given. This is not sustainable in the light of following decision:-

 

•          CC Vs E-Merck (India) Ltd [2013-TIOL-1561-CESTAT-MUM]

 

Crying fire is of no avail if one cannot show even a streak of smoke - Revenue appeal dismissed.

Refund - doctrine of unjust enrichment - grievance of the department is that the lower authorities did not take into consideration the fact that in the year 2003 the respondent had shown in their books of account that an amount of Rs.496 lakhs was receivable but had not shown that the said amount covered an amount of Rs.13.09 lakhs which was to be refunded - undoubtedly the amount of Rs.496 lakhs covers Rs.13.09 lakhs - if the department had any doubt, nothing prevented them from investigating and establishing that the refund amount is not covered under the head receivable - remand sought by AR will not serve any purpose as no step taken before or after filing appeal by Revenue -appeal is devoid of merits, hence dismissed: CESTAT [para 7] - Revenue appeal dismissed : MUMBAI CESTAT

 

In the above decision, the department had preferred appeal against the order sanctioning the refund claim to the assessee on the grounds of unjust enrichment. The assessee had pleaded that they have shown the amount of refund of Rs. 13.09 lakhs as a receivable and so the refund claim was not governed by the principle of unjust enrichment. However, the revenue department preferred appeal on the grounds that the amount shown in the Balance Sheet under receivables head was Rs. 496 lakhs and the assessee was not able to show that the said amount covered the amount of refund. However, hon’ble Tribunal dismissed the appeal of department on the grounds that if the department had doubt that the said amount of refund was not included in the amount shown in the Balance sheet, it could have investigated the same and could have obtained the clarification from the assessee. It was held by the Tribunal that contesting the refund claim sanctioned at appellate stage without asking for clarification earlier at the adjudication stage was not sustainable. In the instant case also, the appellant had given the comparative charts abstracted from the original as well as the revised returns. Also the copies of returns were also enclosed which proved the fact that the credit shown as availed in the revised return was lower than that shown in the original return. In other words, lower amount of credit was carried forward in the revised return. Therefore, the stand of appellant that the credit availed on the common input services was reversed subsequently was clearly reflected on analysis of both of the returns. But no such analysis was done, no clarification was sought from the appellant on the same; but the impugned order was passed denying their submissions. Thus, the ratio of above cited decisions is squarely applicable in their case and the impugned order deserves to be set aside.

 

It is further submitted that the impugned order is further alleged Shri Virendra Jain, Financial Controller and Authorized Signatory of the assessee in his statement has admitted that they are availing Cenvat credit on common input services in a pre-determined ratio in terms of Rule 6 (3A) of the Cenvat Credit Rules, 2004. It was further held that the provision of Rule 6 (3A) of the Cenvat Credit Rules, 2004 are not applicable in the instant case because this Rule is applicable in the cases where a manufacturer of dutiable and exempted goods or provider of taxable and exempted services is availing Cenvat credit on common inputs and common input services. It has been alleged that in this case, it is incorrect to state that restaurant and short term accommodation are exempted services.

 

In this respect it is submitted that the contention of the impugned order that the restaurant and short term accommodation cannot be considered as exempted service is wholly and totally absurd and against the existing legal provisions. It is worth mentioning here that the definition of exempted services as given in rule 2(e) of the Cenvat Credit Rules, 2004 during the period in issue reads as follows:-

 

(e) “exempted services” means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act and taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable services, shall be taken”

 

The above definition says that the exempted services includes those taxable services whose “Part of value” is “exempted” “on the condition” that “no credit of inputs and input services shall be taken”. The accommodation and restaurant services during the period in issue were partly exempted on the condition that the Cenvat credit should not be taken. Thus, according to the above referred definition, these two services clearly fall in the definition of “exempted services” as per rule 2(e) of the Cenvat Credit Rules, 2004. Therefore, the contention of the impugned order that these two services cannot be considered as exempted services is not sustainable and is liable to be set aside.

 

It was further alleged in the impugned order that from the ST-3 return of the assessee it is found that it provides consolidated availment and utilization of Cenvat credit and not in respect of individual service. It was held that the assessee could not prove that they have not availed or utilized any Cenvat credit of the input services pertaining to short term accommodation/restaurant services and therefore, they are not entitled for the benefit of the notification no. 1/2006-ST dated 01.03.2006.

 

In this regard, it is submitted that there is no legal requirement to give individual details of the credit availed. The service tax return allows submission of consolidated availment and utilisation of cenvat credit and not in respect of individual service and so the same was not furnished. However, the appellant is now providing the details regarding the credit availment with respect to specific service and to justify their claim that the cenvat credit on inputs/input services is being availed only with respect to the provision of fully taxable output services that are without any benefit of exemption.

 

It was further submitted that the reliance placed on the decision given in the case of Chandrapur Magnet Wires Pvt. Ltd. [1996 (81) E.L.T. 3 (S.C.)] has been rejected by contending that reliance was placed in the decision on the Board’s Circular that was issued taking into consideration the difficulties faced by such assessees who were using common inputs for manufacture of dutiable and exempted goods and in such situations it was reasonably impossible for the assessees to fulfill the condition of not availing the credit on exempted goods. The assessees cannot be asked to fulfill an impossible condition and therefore the court has held that in case the assessee reverses the credit taken on inputs as involved in the exempted final product before their removal, it would amount to credit not availed. Whereas, in the case in hand, there was no such condition which was not possible for the assessee to fulfill. The assessee simply chose to ignore the said clearly worded condition and availed the notification incorrectly. Besides, the reversal was not made before claiming the abatement and payment of tax and in fact was utilised for payment of tax. The credit was taken and utilised and therefore the condition of non availment was violated.

 

In this respect, the appellant submits that the condition of the abatement notification no. 01/2006 that no cenvat credit should be taken was introduced so as to avoid the double benefit to the assessees of claiming percentage deduction in the taxable service tax rate as well as availing the input credit. However, subsequently the benefit of input service tax credit has been extended to the service providers providing the accommodation services vide notification no. 26/2012-ST dated 20.06.2012. The amendment made vide the said notification clearly depicts the intention of the legislature that credit of input services used in providing the accommodation services should be admissible to the service providers. Moreover, the appellant have not taken credit of the inputs/input services solely used in providing the taxable services and the credit attributable to common input services taken mistakenly has also been reversed by them. As such, it cannot be said that double benefit has been availed by the appellant and so the benefit of abatement notification no. 01/2006 should not be denied on technical lapse when the substantial conditions for claiming the said benefit stands satisfied by them. As such, the impugned order in original denying the benefit of the abatement notification should be set aside and the appeal should be allowed.

 

In continuation to above it is also submitted that the decision of Chandrapur Magnet Wires Pvt. Ltd. places reliance on the board circular as referred in the above text produced from this decision. This circular gives the following clarification:-

 

“3. The credit account under MODVAT rules may be maintained chapter wise, MODVAT credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products.”

 

On analysing the above clarification, it is concluded that when common inputs are being used for manufacture of dutiable and exempted final products then the manufacturer may claim the whole credit subject to reversal of credit pertaining to exempted final products before their removal. In simple words, the exempted final products may be cleared without payment of duty subject to the condition that the input credit availed for manufacture of exempted products has been reversed before their removal. It is further submitted that on account of difference in the concepts regarding liability to pay excise duty and service tax, there is practical difficulty in implementing the said board circular strictly. The appellant submit that in case of excise duty, the liability to pay excise duty arises on the clearance of goods and so it is possible to reverse the credit pertaining to inputs/input services used in the manufacture of such goods. However, in case of provision of services it is not possible to first reverse the credit pertaining to input services and then avail the benefit of abatement notification. Take for an example, credit was mistakenly availed on the telephone services that are commonly used for the provision of exempted and taxable services and was subsequently reversed in the revised return. It is submitted that it was practically not possible to first reverse the credit of input services first and then avail the benefit of the abatement notification as telephone bills are received on monthly basis and so it is not possible to first reverse the credit and then provide the exempted services. As such, it is submitted that as the appellant have mistakenly availed credit on common input services, and have reversed the credit pertaining to common input services in the revised return, the benefit of abatement notification should not be denied on the procedural lapse. As such, no double benefit has been availed by the appellant, the reversal of credit taken on common input services should be treated as “no availment of credit” for the purpose of extending the benefit of the abatement notification and consequently the appeal should be allowed.

 

The appellant also submits that reliance has been placed on the decision given by the Hon’ble Apex Court in the case of CCE, Bombay-I Vs. Bombay Dyeing & Mfg. Co. Ltd. reported in 2007 (215) E.L.T. 3 (S.C.) wherein while rejecting the department appeal it has been held that:-

 

“There is no merit in this civil appeal. Under the notification, mode of payment has not been prescribed. Further, exemption is given to the final product, namely, grey fabric. Under the Central Excise Act, 1944, levy is on manufacture but payment is at the time of clearance. Under the Act, payment of duty on yarn had to be at the spindle stage. However, when we come to the Exemption notification no. 14/2002-C.E. the requirement was that exemption on grey fabrics was admissible subject to the assessee paying duty on yarn before claiming exemption and subject to the assessee not claiming cenvat credit before claiming exemption. The question of exemption from payment of duty on grey fabrics arose on satisfaction of the said two conditions. In this case, payment of duty on yarn on deferred basis took place before clearance of grey fabrics on which exemption was claimed. Therefore, payment was made before the stage of exemption. Similarly, on payment of duty on the input (yarn), the assessee got the credit which was never utilised. That before utilisation, the entry has been reversed which amounts to non taking of credit. Hence, in this case, both the conditions are satisfied. Hence, item no. 1 of the table to Notification no. 14/2002-CE would apply and accordingly the grey fabrics would attract nil rate of duty.”   

 

In the above case, the emphasis was again on the reversal of credit before utilisation and before clearance of the exempted goods, only then it will amount to not taking the credit. Further, reliance was also placed on the judgment of the Hon’ble CESTAT, New Delhi in the case of Uttam Industries Vs. CCE, Panchkula [2004 (03) LCX. 0177] wherein the condition for availing the benefits under notification no. 135/94-CE is that circles are to be cleared for intended use in the manufacture. Condition of not availing credit not fulfilled therefore benefit of the notification was not allowed. In this respect, the appellant reiterate that it has been explained in the above paragraph that it is practically not possible to follow the approach of reversing the credit pertaining to the common input services first and then provide output exempted service. As the irregularity of availment of cenvat credit pertaining to common input services occurred by mistake and the same has been rectified vide revised returns, the impugned order in original denying the abatement notification for such technical lapse when the substantial conditions of the notification have been satisfied is not tenable and the appeal should be allowed.

 

It was further mentioned in the impugned order in original that the assessee is seeking shelter of serial no. 1 of the Board’s Circular no. 139/8/2011-TRU dated 10.05.2011 and has argued that since all these restaurant i.e., Phulwari/poolside are non-air conditioned but belong to the same entity in a complex, i.e., M/s Jaimahal Palace, therefore it is not liable to tax. It was stated in the impugned order that as per sub clause no. (zzzzv) of clause (105) of Section 65 of the Finance Act, 1994 which provides the definition of “Restaurant Services” states that for a taxable restaurant service, there should be air-conditioning in any part of the establishment (emphasis) at any time during a financial year and should have license to serve alcoholic beverage in its premises. It has been held that the word establishment is important, the assessee is an establishment which is having air conditioning facility and serves alcoholic beverage. The assessee had not provided any evidence that any of the part of the establishment i.e., assessee’s premises was not air conditioned or that they did not have the license to serve the alcoholic beverage. It was further held that the assessee is misconstruing the language of the service as the assessee by no stretch of imagination can be treated as complex.

 

In this regard, the appellant wishes to clarify that the revenue has misinterpreted the definition of the taxable service and the same is explained as follows.

 

As per section 65 (105) (zzzzv) of the Finance Act, 1994,-

 

“Any service provided or to be provided   to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises”.

The analysis of above makes it clear that the services provided by a restaurant are taxable if all of the following conditions are satisfied:-

 

•          The service provider should be a restaurant.

•          The restaurant should have the facility of Air conditioning.

•          The facility of AC can be in any part of the restaurant and at any time during the financial year.

•          The restaurant has licence to serve alcoholic beverages.

 

Thus, if all of the above conditions are satisfied, the service tax is levied on the services provided by the restaurant. In the instant case, the allegation is raised to levy the service tax on the Restaurant Giardino, Phulwari/pool side. As the name indicates, these are the open air restaurants. As such, the condition of having the facility of Air conditioning is not satisfied in these restaurants. Thus, the services provided by them do not fall under the definition of taxable services as reproduced here above. Since the service tax is leviable on the restaurant services only if ALL the conditions mentioned here above are satisfied, due to absence of facility of air conditioning, the services provided there from will not fall under the category of taxable services. Thus, no service tax is leviable on the services provided from Giardino and Phulwari. As such, the impugned order in original is not tenable and is liable to be quashed.

 

Furthermore, it was submitted that to substantiate the above interpretation, the appellant had placed reliance on the Board’s Circular no. 139/8/2011-TRU dated 10.05.2011, wherein it was clarified that if there are more than one restaurants belonging to the same entity in a complex, out of which only one or more satisfy both the criteria relating to air conditioning and license to service liquor, service tax is leviable on the service provided by the restaurant which satisfies the two conditions. Moreover, it was also clarified that within the same entity, if there are more than one restaurant which are clearly demarcated and separately named, the one which satisfy the criteria is only liable to service tax. In the present case also, the appellant submits that a number of restaurants are being operated in the same entity, M/s Jai Mahal Palace and the appellant is regularly paying service tax on the restaurant that satisfies the above two conditions and that they are not liable to pay service tax on the Phulwari/Giardino/poolside restaurants. They submit that it is not disputed that the Phulwari/Giardino restaurants are separately demarcated and are separately named and are also separately billed. Therefore, these poolside restaurants cannot by any stretch of imagination be treated as an “extension” of the restaurant that satisfies the condition for leviability of service tax. In order to have a clear picture of the issue under consideration, the appellant wishes to explain the kinds of restaurants maintained in their premises. The appellant have two types of restaurants, one that is having air conditioning facility that is being named as “The Marble Arch” on which the appellant is duly paying service tax also. The other type of restaurant is named as “Giardino” that is an Italian restaurant situated near the pool side and is clearly demarcated from the restaurant “The Marble Arch”. The restaurant “Giardino” is not having any air conditioning facility and is a sort of an open air restaurant. Furthermore, as far as “Phulwari” is concerned, it is not a restaurant and rather it is merely serving of food and beverages at the pool side. It is further worth mentioning that there is separate kitchen for the restaurant “The Marble Arch” and that for the restaurant “Giardino” which clearly indicates that the two restaurants are clearly demarcated and the restaurant “Giardino” cannot be considered as an extension of the restaurant “The Marble Arch”. Moreover, both the two restaurants are also separately named. Therefore, the present case clearly falls under the serial no. 1 of the Board Circular no. 139/8/2011-TRU dated 10.05.2011 and no service tax is leviable on the poolside restaurants as contended by the impugned order in original. However, instead of extending the benefit of the cited circular, the impugned order has to the contrary held that as the appellant is not a “complex”, it does not falls under serial no. 1 of the cited circular. In this respect, it is submitted that the learned Commissioner has literally interpreted the language used in the circular and that the meaning of the expression “more than one restaurants belonging to the same entity in a complex” denotes more than one restaurant in the same premises only and the present case squarely gets covered by the serial no. 1 of the circular. Therefore, the impugned order in original narrowing the expression and literally interpreting the same is totally erroneous and is liable to be set aside.

 

The impugned order further alleges that the circular cited by the assessee clarifies by the entry subsequent to that cited by the assessee. The entry no. 2 “Service provided by restaurants” clarifies that the open area of a hotel attached to a restaurant is leviable to service tax. It was contended by the order that this entry is in consonance with the definition of the restaurant service and assessee’s case is squarely covered by this entry. Therefore, it is found that they are liable to pay service tax on food and beverages sold from these restaurants.

 

In this respect, it was submitted that the present case is not covered by the serial no. 2 of the cited board’s circular as alleged in the impugned order in original. The language of the serial no. 2 is produced as follows for better understanding of the clarification.

 

“The taxable services provided by a restaurant in other parts of the hotel eg. Swimming pool, or an open area attached to the restaurant are also liable to service tax as these areas become the extension of the restaurant.”

 

On perusal of the above language, it is very clear that this serial covers the situation when a restaurant that is liable to pay service tax also provides services in other parts of the hotel like swimming pool or open area attached to the restaurant, then such areas also become the extension of the restaurant. In the present case, this situation would come into play if the restaurant liable to pay service tax i.e. “The Marble Arch” provided restaurant services to the open area attached to “The Marble Arch” or swimming pool, thereby meaning that there is no demarcation between the open area and the restaurant. However, this is not the case in the present appeal. In the present situation, the restaurant “The Marble Arch” is different and separate from the Italian open air restaurant, “The Giardino” and is separately demarcated. Moreover, the kitchen is also separate for both the restaurants and there is separate billing for the service recipients in both the restaurants. As such, the restaurant “Giardino” cannot be considered as an extension of the restaurant “The Marble Arch”. Hence, the impugned order has placed erroneous reliance on the serial no. 2 of the cited board circular and consequently, the impugned order in original confirming the service tax demand on “Giardino” and “phulwari” is liable to be quashed. The appeal should be allowed.

 

Aligning with the above submission, the appellant also wishes to place reliance on the latest clarification issued vide Board Circular No. 173/82013-ST dated 07.10.2013 which on analyzing clears the following points:-

 

•          The term ‘Specified Restaurant’ used herein denotes that having the facility of air conditioning or central air heating in any part of the establishment at any time during the year. [Note: Prior to 01.07.2012, the restaurant services were taxable if the restaurant had air conditioning facility and also had license to serve alcoholic beverages. However, with effect from 01.07.2012, the condition of having license to serve alcoholic beverages has been dispensed with.] In simple words, the specified restaurant is that which is leviable to service tax.

 

•          The serial no. 1 clarifies that if in a complex, there is more than one restaurant which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in non air-conditioned or non-centrally heated restaurant will not be liable to service tax. Similarly, in the present case, the restaurant “The Marble Arch” and “Giardino” are clearly demarcated and are separately named with separate billing system. Moreover, both the restaurants have separate kitchen while this clarification even exempts the non-air conditioned restaurant if food is sourced from a common kitchen. In light of the above clarification, it is crystal clear that no service tax is leviable on the restaurant “Giardino” that is open air restaurant not having the facility of air conditioning and also separately demarcated from the restaurant “The Marble Arch”.

 

•          It was also submitted that this circular clarifies that if the restaurant services are provided by a specified restaurant in other areas, eg. Swimming pool or an open area attached to the restaurant, service tax will be leviable. However, the restaurant “Giardino” is not attached to the specified restaurant “The Marble Arch” and is separately demarcated. Moreover, there is even separate kitchen for the restaurant “Giardino” and no service is being provided by the restaurant “The Marble Arch” to the restaurant “Giardino”. In any case, no service tax is leviable on the services provided by the restaurant “Giardino”.

 

In light of the above clarifications, the benefit of the board circular no. 173/82013-ST dated 07.10.2013 is extendable to the appellant and the impugned order in original demanding service tax on the restaurants without facility of Air conditioning is liable to be set aside and the appeal should be allowed.

 

It was further submitted that the Board Circulars are binding on the department and they are supposed to extend their benefit to the assessees. In the instant case the Circular no. 139/8/2011-TRU dated 10.5.2011 says that service tax cannot be levied on the restaurants which do not satisfy both the criteria of license to serve liquor and AC. This circular further says that if more than one restaurant is situated in the same area and are demarcated and separately named, the condition is to be checked per restaurant. Moreover, Board Circular No. 173/82013-ST dated 07.10.2013 also clarifies on leviability of service tax on restaurant services provided by specified restaurants in other areas of the hotel.  Thus, in the light of these circulars, service tax cannot be levied on the sales affected from restaurant Giardino and Phulwari since the condition of having AC is not satisfied. But the impugned order in original has confirmed the service tax demand in contradiction to these circulars which is not justified in the light of decision of Collector of Central Excise, Vadodara vs Dhiren Chemical Industries [2002 (139) ELT 3 (SC)]. In this decision hon’ble Supreme Court has held that the order passed by the Revenue in contravention to the clarifications given by the Board is void ab initio. In this case it is held as follows:-

 

“Departmental clarification - C.B.E. & C. Circulars binding on Revenue even if placing different interpretation then Supreme Court - Regardless of the interpretation that the Court have placed on the phrase “on which the appropriate amount of duty has already been paid”, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue - Section 37B of Central Excise Act, 1944.”

           

The analysis of this decision makes it clear that while deciding any case, the Board Circulars are to be kept in mind. Since the impugned order in original has confirmed service tax demand in contradiction to the above stated Circulars, it should be set aside and the appeal should be allowed.

It has been further alleged that the assessee had taken cenvat credit and also abatement on short term accommodation and restaurant service by suppression of facts in contravention to the provisions of section 67, 68(1), and 70 of the Finance Act, 1994 read with Rule 6 & 7 of the Service Tax Rules, 1994 with intend to evade payment of service tax because they did not disclose such facts in their ST-3 returns. It was also alleged that they even at the time of submission of reply could not provide the quantum of Cenvat credit pertaining to above two services. They also did not provide the place and manner of use of input services on which Cenvat credit was taken. Also, they had not paid service tax on the restaurant service provided from their Giardino, Phulwari/poolside restaurant by suppression of facts as they did not declare its value in their ST-3 return, and despite a specific clarification in the circular dated 10.5.2011, they continued to evade payment of service tax on the Giardino, Phulwari/pool side restaurant services, therefore, the demand was found confirmable on them.

In this respect, it was submitted that nothing was ever suppressed from the department as it is beyond doubt that the appellant has been regularly filing ST-3 returns and even departmental audits have been conducted of the appellant wherein they have fully cooperated with the revenue authorities. It is submitted that all the details as required to be given in the return have been provided as regards the availment of credit is concerned and the allegation of not submitting the input services on which credit was availed is not sustainable as there is no such statutory requirement in law to submit the same. It is also not the case of the revenue that such clarification/explanation regarding the credit availment of specific services was being sought from the appellant and they have not replied to the same. As such, no suppression of facts can be attributable to the appellant. Moreover, as regards the demand with respect to levy of service tax on Phulwari/Giardino is concerned, the same is a matter of interpretation of law and it cannot be said that there was any willful suppression of facts by them. It was submitted that nowhere it is required to submit the details of services not leviable to service tax in the ST-3 returns and so the same has not been furnished.  Further, non-payment of service tax by the appellant was backed by clarification issued by the board and in such a scenario, the extended period of limitation is not invocable.

It is well settled law that where particular information is not required to be supplied under law, if not supplied, does not amount to suppression.  Reliance is placed on the following cases in this regard:-

 

•          Apex Electricals Vs. Union of India [1992 (61) ELT 413 (Guj.)]

•          Prolite Engineering Co. Vs Union Of India [1995 (75) ELT 257 (GUJ.)]

•          Unique Resin Industries Vs. CCE [1995 (75) ELT 861 (T)]

•          Gufic Pharma Vs. CCE [1996 (85) ELT 67 (T)] as affirmed by Supreme Court at 1997 (93) ELT A186.

 

Thus, in the above decisions, it is held that where there is no legal requirement to be supplied under law and if that information is not supplied, it will not amount to suppression of facts. In the instant case also, there is no legal requirement to supply the details of input services on which the credit has been availed either in the ST-3 return or otherwise; as such, the non-furnishing of this information will not amount to suppression. Therefore, the benefit of above cited decisions is extendable in the instant case and the impugned order in original is liable to be set aside.

 

It was further contended that since the service tax has been evaded by suppression of facts with intend to evade payment of service tax, they are also liable to penalty under section 78 of the Finance Act, 1994. Further, as they neither appeared nor submitted the summoned record when summons were issued to them on 15.05.2012, 02.07.2012 and 09.08.2012, therefore, they are liable to penalty under section 77 (1)(c)(iii) of the Finance Act, 1994. In this regard, the appellant submit that the ingredients for imposing penalty under Section 78 of the Finance Act, 1994 are absent in their case and penalty under Section 78 can only be imposed in existence of the following aspects:

 

a.         fraud; or

b.         collusion; or

c.         willful misstatement; or

d.         suppression of facts; or

e.         contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,

 

But the impugned order in original has not clearly established the existence of any of these aspects in this case. The submissions made here above are evident of the fact that there was genuine reason for non-payment of service tax as alleged in the impugned order in original. In both of the allegations, there is no strong foundation since the act of noticee cannot be termed as malafide from any angle as they have acted within the boundaries of law. Thus, the charge of willful misstatement or deliberate suppression has not been proved, as such, the penal provisions cannot be invoked in the light of following cases:-

•          2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills

•          2009 (238) ELT 209 (P&H) – J. R. Fabrics

•          2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings

•          2008 (228) ELT 31 (Del) – K. P. Pouches

 

Further it was submitted that for imposing penalty, presence of mens-rea is a mandatory requirement and in the absence of which imposition of penalty is unjustified, as enshrined by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd v/s. State of Orissa - [1978 (2) ELT (J-159)] and number of subsequent judgments from various judicial fora based thereupon. It is submitted that none of the acts were backed up with any ulterior motive or malafide intention to evade duty and therefore, imposition of penalty is incorrect and uncalled for based on settled position on the issue.  It is further submitted that the Hon’ble Punjab & Haryana High Court, following the ratio of Apex Court judgment in Hindustan Steel Ltd. (supra), has held that mens-rea is a mandatory requirement for imposition of penalty, in support of which reliance is placed on the ratio of following judgments:

•          2010 (258) ELT 465 (SC) – Sanjiv Fabrics

•          2007 (207)  ELT 27 (P &H) – UT Ltd

•          2007  (5) STR 251 (P & H) – Kamal Kapoor

 

In the above decisions, it was held that the penalty is imposable only if there was malafide intention on part of the assessee, else it will not sustain. In the instant case, no malafide intention is proved but the appellant has proved their case that there was no ulterior motive. The non-payment is genuine and the existing legal provisions and judicial pronouncements favors this act of the appellant. In view of these submissions, the impugned order in original is not sustainable and no penalty is imposable.

Aligning with above it was submitted that the above discussion in respect of the non imposition of penalty and the case laws cited above were given in the reply to show cause notice, but these have not been considered while imposing the penalty. It is a matter of surprise that the cases cited by the appellant in this regard, have even not been spelled while imposing the penalty. Thus, the impugned order has been a total non-speaking and non reasoned order which has confirmed the penalty without even discussing the submissions of the appellant. Besides these submissions, there were a number of other submissions given in the reply to show cause notice which have also not been discussed and distinguished in the impugned order. These submissions are reproduced as follows:-

·         It was submitted that the impugned order in original is alleging that there is facility of Air conditioning in the hotel premises, as such, at every point the food and beverages are served, will be covered in the definition of taxable services provided by the restaurants. In this regard, it is submitted that this contention is not sustainable as the entire hotel cannot be treated as one establishment for the purpose of interpreting the definition of taxable service as given in section 65 (105) (zzzzv) of the Finance Act, 1994. In this regard, it is submitted that the word “establishment” as used in this definition is meant to define the “Restaurant”, rather than the entire building where the restaurant is situated. For the sake of convenience, the clause (zzzzv) is once again produced as follows:-

“Any service provided or to be provided   to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises”.

Thus, the phrase “by whatever name called, having facility of air conditioning in any part of the establishment” is preceded by the word “restaurant”. As such, the word establishment is also used in context of the restaurant, irrespective of the fact that the restaurant is situated in a large building with a no. of other restaurants therein. For the purpose of this definition, every such restaurant will be considered as a ‘separate establishment’ and taxability or otherwise will be determined accordingly. This fact is self-clarificatory by the language of the above definition which is quite simple and free from any ambiguity. It is further held by the highest court of India in the case of Truetuf Safety Glass Industries vs Commissioner of Sales Tax,  UP [2007 (215) ELT 14 (SC)] that it is a settled principle of law that the Court cannot read anything into a statutory provision which is plain and unambiguous. Similar decision has been given in the case of TATA CONSULTANCY SERVICES Versus STATE OF ANDHRA PRADESH [2004 (178) E.L.T. 22 (S.C.)] by holding the view that Courts should not be over zealous in searching ambiguities or obscurities in words which are plain. Thus, the impugned order in original demanding service tax on the sales affected by the restaurants which do not have facility of AC by wrongly interpreting a clear and unambiguous provision is void and is liable to be set aside. Therefore, the impugned order in original has been passed by violating the principle laid down by the Court of last resort. Such an interpretation contrary to the principle of literal construction is not justified and is liable to be quashed. The appeal should therefore be allowed.

·         Without prejudice to above, it is submitted that even if it is accepted for the sake of argument also that for the purpose of section 65 (105) (zzzzv), the word ‘establishment’ will mean the entire building in which the restaurant situated; then it will defeat the very intention of framing this provision. Taking an example, such an interpretation will bring disaster to the large complexes where a no. of big and small shops and eating joints are situated. If there is a facility of AC in any one restaurant in the entire building, such an interpretation that the entire building is treated as single establishment will bring all the small eating joints too under service tax net which is not the intention of the government. Due to this, the language used in the definition of taxable service has used the word ‘establishment’ in context of restaurant only which has a facility of AC and license to serve liquor. Thus, putting all the things together, the government intends to levy service tax only on those restaurants which satisfies the following criteria:-

Ø  The service provider should be a restaurant.

Ø  The restaurant should have the facility of Air conditioning.

Ø  The facility of AC can be in any part of the restaurant and at any time during the financial year.

Ø  The restaurant has licence to serve alcoholic beverages.

Since both the restaurants Giardino and Phulwari do not satisfy the condition of AC, the service tax cannot be levied on the sales affected from these restaurants. The contention that the entire hotel premises will be treated as one for the purpose of section 65 (105) (zzzzv) is not sustainable on the grounds that the language of this section is plain and unambiguous and the word ‘establishment’ has been used in context of ‘restaurant’ only, not for the building where the restaurant is situated. Therefore, the impugned order in original demanding the service tax on restaurant Giardino and Phulwari is not sustainable and should be quashed and the appeal should be allowed.

·         In continuation to above, it is reiterated that the Board has clarified Circular No. 139/8/2011-TRU dated 10.5.2011 that where more than one restaurant are situated in a premises, the one which satisfies both the criteria will be liable to service tax. Thus it can be said that where each restaurant is demarcated and separately named, the one which satisfies both the criteria will be liable to service tax. This circular has also clarified that where the food is served in rooms, then also, service tax cannot be levied under the category of restaurant services as food is not served in the AC restaurant with license to serve the liquor. Thus, it is ample clear that for levying the service tax under the category of restaurant services, BOTH the conditions are to be satisfied simultaneously. If any of the condition is not satisfied, service tax cannot be levied. Further, in case of more than one restaurant at the same premises which are demarcated and separately named, both the conditions will be checked separately for each restaurant. If any restaurant satisfies both the conditions simultaneously, then only, the service tax can be levied. In the instant case, the restaurant Giardino and Phulwari are demarcated and separately named. Thus, both the conditions will have to be checked separately for each of the restaurant. But in this case, the facility of air conditioning is not there in both the restaurants, the service tax cannot be levied on the sales affected from these restaurants in view of above circular. As such, impugned order in original demanding the service tax on the same is not justified and is liable to be quashed.

 

·         It was further submitted that since the service tax is leviable on the restaurant services only if ALL the conditions mentioned here above are satisfied, due to absence of facility of air conditioning, the services provided there from will not fall under the category of taxable services. Thus, no service tax is leviable on the services provided from Giardino and Phulwari. However, the department is taking an interpretation that if air conditioning facility has been installed in any part of the establishment, the condition is being satisfied and service tax is leviable on restaurants even if there is no air conditioning facility in the restaurant but air conditioning facility is installed somewhere in the establishment of the assessee. However, if the contention of the department is accepted, it will defeat the intention of the legislature. Moreover, a well settled and well known legal principle of “Noscitur A Sociis” or the analogy of the “Ejusdem generis” principle that is being used in the interpretation of the statutory provisions is clearly applicable in the present case. In layman language, the principle of “Noscitur A Sociis” means that a word or phrase used in a sentence is to be comprehended and understood from the accompanied words and the accompanied words indicate the colour of the word or the phrase used in that sentence. Similarly, “Ejusdem generis” is a latin word for “of the same kind” and is legal principle to interpret loosely written statues. In other words, where a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the same kind of persons or things specifically listed. Example: if a law refers to automobiles, trucks, tractors, motorcycles and other motor-powered vehicles, "vehicles" would not include airplanes, since the list was of land-based transportation. On understanding the above mentioned legal principles used for interpretation of statutory provisions, it is clear that the words used in a sentence are to take colour from their adjoining or accompanying words and if they are interpreted literally, it would be against the legislative intention.

 

In the present case, the phrase, having the facility of air-conditioning in any part of the establishment, is followed by the words, “Any service provided or to be provided to any person, by a restaurant” which means that the word establishment denotes the area of the restaurant and not the whole premises where the restaurant is situated. Accordingly, if a restaurant is situated in a mall, which is a huge establishment by itself, but the restaurant is not having the air conditioning facility in its four corners of space, it cannot be leviable to service tax. However, if the interpretation adopted by the revenue is considered, it would mean that such a restaurant that is not having air conditioning facility in its area but solely due to the reason that it is being situated in a mall, where air conditioning facility is being installed at some other corner would also come within the purview of the service tax net. As such, the interpretation adopted by the revenue would render the condition of having air conditioning facility redundant as restaurants not having air conditioner would also be liable to pay service tax merely because they are part of an establishment that has air conditioning facility installed at some other place. Therefore, the legal principle of “Noscitur A Sociis” is clearly and rightly applicable in the present case and the same should be applied while interpreting the above statutory definition of taxable service in section 65(105)(zzzzv) of the Finance Act, 1994.

 

·         Aligning with the above, reliance is also placed on the recent decision given by the Larger Bench of the Delhi CESTAT in the case of M/s Bhayana Builders (P) Ltd. [2013-TIOL-1331-CESTAT-DEL-LB] wherein it has been held by applying the above legal principle that the value of the goods and materials supplied free of cost by a service recipient to the provider of taxable construction service would be outside the taxable value or the gross amount charged. The relevant extracts from the decision are produced for the sake of convenient reference as follows:-

 

Interpretation of Explanation inserted in Notification No 15/2004 ST vide Notification No 4/2005 ST – Interpretation of the word “used” – Noscitur principle - The noscitur principle posits that a statutory term is recognised by its associated words i.e. in an associational context, whereby the word or phrase is not construed as if stood alone but in the light of its surroundings - The word used is structurally associated in the Explanation with the earlier two words (supplied or provided) and the three words are employed to define the meaning of the expression gross amount charged, an expression that occurs in the preamble to Notification No. 15/2004-ST - The noscitur principle could be gainfully employed to identify the legal meaning of the word used from several grammatical/ literal meanings of the said word, by employing the associational context.

 

In this case, the issue was whether value of materials supplied free of cost by the service recipient to the service provider were includible in the gross value of the taxable service and as the assessee had not included the value of the materials supplied free of cost by the service recipient, the abatement benefit claimed under notification no. 15/2004 was deniable. In this case, the question was of analysing the explanation inserted which read as follows:-

 

Explanation. - For the purposes of this notification, the "gross amount charged" shall include the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.".

 

The issue in the case was interpretation of the word “used” and the revenue was literally interpreting the word so as to include the value of all the materials used in the provision of the construction service irrespective of the fact that the materials belong to or are procured by the service provider at his own cost or are issued by the service recipient free of cost. It was concluded by the larger bench that goods and materials, supplied/ provided/ used by the service provider for incorporation in the construction, which belong to the provider and for which the service recipient is charged towards the value of such supply/ provision / use and the corresponding value whereof was received by the service provider, to accrue to his benefit, would alone constitute the gross amount charged.

 

Similarly, in the present case, only restaurants that have air conditioning facility along with satisfaction of the other conditions laid down are to be leviable to service tax and the interpretation of the word “establishment” simply denotes the premises of the restaurant. The interpretation by application of the principle of “Noscitur A Sociis” , also confirmed vide the above cited decision of the larger bench is to be adopted and the impugned order in original deriving an interpretation that is totally erroneous is liable to be set aside.

 

·         Moreover, as regards the submission that “reversal of credit amounts to non-availment of cenvat credit” only the decision given in the case of Chandrapur Magnet Eire Ltd. V/s CCE [2002-TIOL-41-SC-CX] was discussed and the other decisions have not even been mentioned in the impugned order in original. The said decisions also form part of the grounds to the appeal as follows:-

 

The Apex Court in the case of CCE v/s Bombay Dyeing & Manufacturing Co [2007 (215) ELT 3 (SC)] has again held that reversal of credit amount to non-availment of credit. This has also been held in the case of M/s Hetro Drugs Ltd v/s Commissioner of Central Excise, Hyderabad [2005-TIOL-1319-CESTAT-BANG]. Further the High Court of Gujarat has also held in the case of CCE v/s Ashima Dyecot Ltd [2008-TIOL-659-HC-AHM-CX] that reversal of credit amounts to non-taking of credit on inputs. Further reliance is placed on the following cases:-

 

Ø  CCE & CC, Vadodara v/s M/s Ram Krishna Travels Pvt Ltd [2009-TIOL-1768-CESTAT-AHM]:-

Service Tax –Reversal of actual amount of Cenvat credit sufficient to claim abatement in terms of Notification No. 1/2006-ST – Apex Court judgment in Chandrapur Magnet Wires Pvt Ltd [2002-TIOL-41-SC-CX] followed: AHMEDABAD CESTAT;

 

Ø  CST, Ahmedabad v/s M/s Amola Holdings Pvt Ltd [2009-TIOL-1000-CESTAT-AHM] -

ST – construction of complex service – abatement of 67% - Assessee first avails credit on input services and also capital goods – then reverses the same to avail abatement – Revenue denied it on the ground that the assessee first availed credit and then abatement after reversal of credit which is not permissible – Commissioner (A) disagrees with the Revenue – held, it is inconsistent view of the judiciary that once credit is reversed, the assessee can avail other benefits – no substance in Revenue’s appeal: AHMEDABAD CESTAT;

 

Ø  M/s Beekay Engineering Corpn v/s CCE, Raipur [2009-TIOL-   1396-CESTAT-DEL]-

ST – Works Contract Service – Cenvat credit availed by the assessee –later reversed and abatement claimed – Revenue raises demand – held, once credit availed on the input is reversed, the case may be equated with non-availment and waiver of pre-deposit is granted: DELHI CESTAT;

 

Ø  M/s Punjan Builders v/s CCE, Vadsdara-II [2009-TIOL-57-CESTAT-AHM]-

ST – Construction Service – Assessee avails Cenvat credit of tax paid on input service and also abatement allowed by law – law changes from 01.03.2006 – simultaneous availment of credit and abatement disallowed – assessee continued to avail both out of ignorance of the change – when it was notices, the credit availed was reversed – since credit taken was fully reversed, the assessee is entitled to avail abatement: AHMEDABAD CESTAT;

Ø  DR. WRITER’S FOOD PRODUCTS PVT. LTD. Versus COMMR. OF C. EX., PUNE-II [2009 (247) E.L.T. 391 (Tri. - Mumbai)]

Cenvat/Modvat - Inputs, common inputs used in exempted as well as dutiable products - Reversal of credit of duty on inputs used in exempted goods, even though it is reversed after clearance of those goods, would absolve assessee from liability to pay 10% of their price - By such reversal of credit and paying interest thereon, taking/utilizing of credit is undone - Rule 6 of Cenvat Credit Rules, 2004. [paras 5, 6, 7, 8]

 

Ø  RITURAJ HOLDINGS PVT. LTD. Versus COMMISSIONER OF C. EX., DAMAN [2010 (250) E.L.T. 549 (Tri. - Ahmd.)]

Textiles and textile articles - Exemption - Condition of non-availment of Cenvat credit - Common inputs in dutiable and exempted goods - Credit taken on exempted goods reversed before their removal - It amounts as if no credit is taken, and thereby assessee cannot be denied benefit of exemption under Notification No. 30/94-C.E. [para 3]

 

In the light of above decisions, it is ample clear that when the credit availed is reversed, it amounts to non availment of Cenvat Credit, as such, the benefit of abatement cannot be denied.

 

The above submissions were given in their reply to show cause notice and in the written submissions. But to their utter surprise, neither of them have been discussed and distinguished while passing the impugned order. As such, the order has turned out to be a non-speaking and a non-reasoned order in light of the following decisions:-

 

Ø  State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]:-

 

Even High Courts are required to pass speaking reasoned orders - The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance. The manner in which appeal against acquittal has been dealt with by the High Court leaves much to be desired. Reasons introduce clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons, howsoever brief, in its order indicative of an application of its mind, all the more when its order is amenable to further avenue of challenge. The absence of reasons has rendered the High Court order not sustainable. The requirement of indicating reasons in such cases has been judicially recognized as imperative. Judicial discipline to abide by declaration of law by this Court, cannot be forsaken, under any pretext by any authority or Court, be it even the Highest Court in a State, oblivious to Article 141 of the Constitution of India. Reasons are live links between the mind of the decision taker to the controversy in question and the decision or conclusion arrived at. Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the Courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out. The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance: SUPREME COURT.

 

Ø  Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]:-

“Appellate Tribunal’s order - Non-speaking order - Facts not analysed in detail in impugned order by Tribunal - Disposal of appeals by mere reference to decisions not proper way to deal with appeals - Applicability of decision cited by Revenue not considered - Appeals involving different goods - CESTAT ought to have examined cases individually and articles involved - Manner of disposal not proper - Impugned order set aside - Question referred to Larger Bench of Supreme Court not answered as matter remitted to CESTAT for fresh decision by appropriate Bench - Section 35C of Central Excise Act, 1944. - By clubbing all the cases together and without analyzing the special features of each case disposing of the appeals in the manner done was not proper. [para 6]”

 

 

Reasoning adopted by the Tribunal: -

The learned Tribunal found that the benefit of Notification No. 1/2006-ST was denied to the appellant on the ground that it had availed cenvat credit on the input services used for providing the output service. The fact is not under dispute that the credit so availed was reversed by the appellant suo moto and no proceedings were initiated for recovery of such credit. Thus, upon reversal of cenvat credit on the input service, it has to be construed that no credit has at all been taken by the appellant. On a similar case, the Hon’ble Supreme Court in the case of Chanderpur Magnet Wires Pvt. Ltd. (supra) have held that on reversal of modvat credit, the appellant is entitled to avail exemption. In this case, since the credit was reversed the benefit of Notification No. 1/2006-ST should be available to the appellant for claim of abatement.

It was further observed by them that the authorities below have confirmed the demand of service tax on the ground that taxable services were providing by the appellant from the restaurant Giardino, Phulwari/ Pool Side. It is an admitted fact on record that these are open air restaurant and the conditions mentioned in Section 65(105)(zzzzv) that the restaurant should have the facility of air conditioning; the restaurant has license to serve alcoholic beverages have not satisfied in this case. In context with leviabiltiy of service tax on the restaurant, the CBEC vide Circular dated 10.05.2011 has clarified the following:

If there are more than one restaurants belonging to the same entity in a complex, out of which only one or more satisfy both the criteria relating to air-conditioning and license to serve liquor, will the other restaurant(s) be also liable to pay Service Tax?

Service tax is leviable on the service provided by a restaurant which satisfies two conditions (i) it should have the facility of air condition in any part of the establishment and (ii) it should have license to serve alcoholic beverages. Within the same clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax.

 

Decision: Impunged order (service tax demand along with penalty) was set aside.

 

Conclusion: The analogy that is drawn from this case is that as according to Notification No. 1/2006-ST dated 01.03.2006, benefit of the credit taken by the appellant on some of the common input services mistakenly was being reversed by them by filing revised ST-3 returns and so the technical lapse should not be taken to deny the rightly admissible benefit of the abatement notification to them. As such, the credit reversed amounts to “non-taking of cenvat credit” and there has not been any violation of the condition of the abatement notification no. 01/2006-ST dated 01.03.2006.

 

The services provided by open air Restaurants do not fall under the definition of taxable services and so no service tax is leviable on the services provided from open air restaurants as these are non air conditioning unit which are clearly demarcated and are separately named with separate billing system and also have separate kitchen. The Board Circular no. 139/8/2011-TRU dated 10.05.2011 and Board Circular No. 173/82013-ST dated 07.10.2013 have clearly said that no service tax is leviable on the open air restaurants. Hence, the service tax is applicable only on air-conditioned restaurants. Open-air restaurants which are clearly demarcated and separately named, are not liable to payment of service tax although both are situated in the same hotel.

 

 

The content of this GST update is for educational purpose only and not intended for solicitation 

 

***********