CESTAT Chennai Sets Aside ₹37.74 Lakh Service Tax Demand Against Apeejay Surendra Park Hotels

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has set aside a service tax demand of ₹37.74 lakh raised against Apeejay Surendra Park Hotels Ltd.

It held that the hotel chain was entitled to avail CENVAT credit on specified common input services while also claiming the benefit of abatement under the applicable service tax notification.

A Division Bench of Judicial Member Ajayan T.V. and Technical Member M. Ajit Kumar allowed an appeal filed by the company. The appeal challenged an order passed by the Commissioner of Central Excise, Puducherry.

The dispute related to the period from 2008-09 to 2010-11. The department alleged that the company had wrongly claimed abatement under Notification No. 1/2006-ST for services such as outdoor catering, mandap keeper and goods transport agency (GTA) services. At the same time, it had availed CENVAT credit on common input services including management consultancy, security, telephone and internet services.

According to the department, availment of such credit disentitled the company from claiming the benefit of the notification. It therefore alleged a short payment of service tax.

Apeejay Surendra Park Hotels contended that it had not availed credit on input services used for providing the abated services. It argued that the credit was taken only on common input services used for other taxable output services. Such credit, it submitted, was permissible under Rule 6(5) of the CENVAT Credit Rules, 2004.

Accepting the company's submissions, the Tribunal held that Rule 6(5) specifically permitted credit on certain specified common input services. The benefit was available so long as those services were not used exclusively for exempted services.

“The word 'such' appearing in the proviso to Notification No. 1/2006-ST refers to the taxable service exempted by the notification. However, in the case of common inputs used for both dutiable and exempted output services the said phrase must be understood harmoniously in the context of Rule 6(5) of CCR 2004,” the bench observed.

The tribunal noted that the show cause notice did not allege that the disputed common input services were not specified services covered by Rule 6(5). It also did not allege that the services were used exclusively for exempted services. The Bench held that an assessee who is legally entitled to avail credit is also entitled to utilise it.

The bench further observed that Rule 6(5), which was in force during the relevant period, had an overriding effect. It allowed credit on specified services unless they were used exclusively for exempted services.

Relying on its earlier decision in Lemon Tree Premier v. CCT, Hyderabad-IV (2024) the Tribunal held that the company was entitled to avail both the abatement benefit and credit on eligible common input services.

Holding that the demand could not be sustained on merits, the Tribunal set aside the impugned order. It granted consequential relief to the company. Since the appeal succeeded on merits, the Tribunal did not examine the company's separate challenge on limitation and time-bar.

For Appellant: Advocate Radhika Chandrasekar

For Respondent: N. Satyanarayanan, Authorised Representative