CESTAT Chennai Allows CENVAT Credit To Citibank For Cleaning And Event Services After 2011 Amendment

The Chennai Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 22 July held that Citibank N.A. is entitled to CENVAT credit on cleaning services, general insurance services, convention services, event management services and mandap keeper services.

A Bench of Technical Member M. Ajit Kumar and Judicial Member Ajayan T.V. partly allowed the bank's appeals, while holding that CENVAT credit cannot be claimed on club or association services, health and fitness services, outdoor catering, rent-a-cab, tour operator and certain insurance auxiliary services after the amendment to Rule 2(l) of the CENVAT Credit Rules, 2004 with effect from 1 April 2011. It observed:

“we set aside the impugned order and remand the matter back to the Original Authority only for re-quantifying the demand as stated above and by limiting it to the normal period. The levy of interest has been addressed by us above and will be payable after verification only if the credit has been taken and utilized wrongly as evidence by the net Cenvat credit balance falling below the demanded amount as reflected in the ST3 Return pertaining to the disputed period. Penalties are set aside.”

The appeals arose from an order confirming service tax demands of Rs. 1.05 crore against Citibank for the period 2009-10 to September 2015. The Revenue alleged that the bank had wrongly availed CENVAT credit on various input services, including cleaning, club membership, event management, insurance, outdoor catering, rent-a-cab and tour operator services.

Citibank contended that these services were used for providing taxable banking and financial services and therefore qualified as “input services” under Rule 2(l) of the CENVAT Credit Rules, 2004.

The Tribunal noted that the definition of “input service” was wider before 1 April 2011 and covered services having a nexus with business activities. However, the amendment effective from 1 April 2011 introduced specific exclusions, including services used primarily for personal use or consumption of employees.

Applying the amended definition, the Bench held that cleaning services, general insurance services, convention services, event management services and mandap keeper services had a direct nexus with Citibank's output services and qualified for credit. However, it held that club or association services, health and fitness services, outdoor catering, rent-a-cab, tour operator services and certain insurance auxiliary services were not eligible for credit after the amendment as they fell within exclusions or lacked the required nexus with business activities.

On the issue of limitation, the Tribunal observed that the dispute involved interpretation of the scope of “input service”, which had been the subject of repeated judicial scrutiny. It held that the Revenue failed to establish suppression of facts, fraud or wilful misstatement with intent to evade payment of tax.

Further, it held that interest liability would arise only if the wrongly availed CENVAT credit had also been utilised. It directed the adjudicating authority to verify Citibank's CENVAT credit balance to determine whether the disputed credit had been utilised.

Accordingly, the CESTAT set aside the impugned order and remanded the matter for re-quantification of the demand confined to the normal period, while holding that no penalties would survive.

Appearance for the Appellant: Shri Kumarharsh Vardhan, Advocate and Ms. Sonakshi Singh, Advocate.

Appearance for the Respondent: Shri Anoop Singh, Authorised Representative.