2025 (12) TMI 1610 - AT - Service Tax

CENVAT credit on office repairs, employee wellness and restaurant services u/r 2(l) upheld; small exclusions denied, demand time-barred

CENVAT credit eligibility under Rule 2(l) of the CENVAT Credit Rules, 2004 was examined for multiple input services. Credit on construction services used ... CENVAT Credit - construction services used for repair/maintenance within office premises - Health club and fitness centre services - restaurant services, services by air-conditioned restaurants - the services are duly covered under the scope and definition of Rule 2(l) of the CENVAT Credit Rules, 2004 as ‘input service’, in order to decide on the eligibility for availing CENVAT credit or not - services falling within the exclusion clause of Rule 2(l), or otherwise lacking nexus with output service - disputed period covered in the two SCNs are from April, 2015 to March, 2017 and April, 2017 to June, 2017. Construction services - HELD THAT:- It is a fact on record that the second category of the definition of input service. in the ‘inclusive’ part, has specific mention of the above nature of service. The department cannot on the one hand deny the input credit for the same service, while accepting the same for an earlier period, by having pick and choose method to agitate the issue before the Tribunal, as has been held in a number of cases by the Hon’ble Supreme Court such Union of India & Others v. Kaumudini Narayan Dalai & Another [2000 (12) TMI 101 - SC ORDER], Collector of Central Excise, Pune Vs. Tata Engineering & Locomotives Co. Ltd. [2003 (11) TMI 68 - SUPREME COURT], Birla Corporation Ltd. v. Commissioner of Central Excise [2005 (7) TMI 104 - SUPREME COURT], and Jayaswals Neco Ltd. v. Commissioner of Central Excise, Nagpur [2006 (1) TMI 133 - SUPREME COURT]. Therefore, there are no merits in denying the CENVAT credit on input service of construction services. Health club and fitness centre services - HELD THAT:- The records placed in file indicate that these services have been used to keep a check over the wellness or health of a person, before taking up the assignment in the appellants company and for taking up job assignments/projects from time to time. Further, the invoices have been billed to the company and not for the individuals for their personal consumption. Hence, these services are eligible to be considered as ‘input service’. Further, it is also found that the Tribunal in the case of SITEL India Limited [2016 (3) TMI 203 - CESTAT MUMBAI] have held that health and fitness service as eligible input service, where the output service is being provided on 24X7 basis, which is also the situation in the present case. Restaurant services, services by air-conditioned restaurants - HELD THAT:- The ‘restaurant services, services by air-conditioned restaurants’ can be considered as eligible input service under Rule 2(l) ibid in the present case. Further, the appellants have also paid the ineligible input credit of Rs.91,049/- along with interest, where such services were related to employees for their personal benefit, which is not related to output services. In any case, the said input credit relates to the period 2015-2016 for which the SCN was issued on 24.10.2018, which is beyond the normal period of limitation for recovery and since there were seven more SCNs having been issued and in the absence of any ground for invocation of extended period time, this demand would also fail on account of limitation of time. With respect to examination of the eligibility of rest of the input services, which was denied in the impugned order, it is found that in respect of self-same appellants and in the various orders of the Tribunal, input credit have been allowed for the following category of input services viz., information technology services and its maintenance; management consultancy services; membership of club service, subscription services for industry and statutory bodies; erection, commissioning & installation; manpower recruitment service; technical inspection, housekeeping services; photography service; public relations service; event management service; commercial training, market research services etc. as being eligible for taking CENVAT credit. Furthermore, these services are also found to be eligible services as they are covered under the first ‘means’ part or in the ‘inclusion’ part of the definition and not covered by the exclusion part of the definition of ‘input service’ - On the other hand, certain specific services such as (i) Rent-a-cab services covered under the exclusion category; (ii) outdoor catering services, (iii) services of air conditioning restaurants, which are not related to provision of output services; (iv) share transfer agent, not relating to statutory requirement (v) general maintenance services not having any relation to the provision of output services, having not been found eligible in terms of the definition provided under Rule 2(l) ibid, totalling to an amount of Rs.4,39,177/- are not eligible to be considered for allowing CENVAT credit. The impugned order does not stand the legal scrutiny - appeal allowed in part. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether specified disputed services availed by a provider of taxable output services qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, so as to permit CENVAT credit of service tax paid thereon. (ii) Whether CENVAT credit on 'construction services' used for repair/maintenance within office premises is admissible under the inclusive part of Rule 2(l), and whether denial is impermissible when the same service was accepted for an earlier period on identical facts. (iii) Whether 'health club and fitness centre services' and 'restaurant services/services by air-conditioned restaurants' (to the extent linked to business/project requirements and not personal consumption) have sufficient nexus with provision of output services to qualify as 'input service'. (iv) Whether credit on services falling within the exclusion clause of Rule 2(l), or otherwise lacking nexus with output service (as found on record), is correctly disallowed; and the extent to which the confirmed demand must be sustained. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Test for admissibility of CENVAT credit under Rule 2(l) of the CENVAT Credit Rules, 2004 Legal framework: The Tribunal applied Rule 3 (enabling provision for taking credit on input services used for providing taxable output services) read with Rule 2(l) defining 'input service', comprising the 'means' part, the inclusive limb (illustrative specified services), and the exclusion limb (specified barred services/uses). Interpretation and reasoning: The Tribunal held that, for eligibility, the service must fall within the 'means' part or the 'inclusion' part and must not be hit by the 'exclusion' part. The Tribunal proceeded to test each disputed category against this structure, emphasizing actual use/nexus with output services rather than nomenclature. Conclusion: Credit is allowable where the service is used for providing output service or is covered by the inclusive part and is not excluded; credit is not allowable where the service is excluded or lacks nexus, as found on the facts recorded. Issue (ii): Admissibility of credit on 'construction services' used for repair/maintenance of office premises; impermissibility of 'pick and choose' approach Legal framework: The Tribunal relied on the inclusive clause of Rule 2(l) covering 'services used in relation to modernisation, renovation or repairs of ... premises of provider of output service or an office relating to such ... premises'. Interpretation and reasoning: On the factual finding that the 'construction services' in dispute were for repair and maintenance work within office premises and not civil construction, the Tribunal treated them as falling within the inclusive limb. The Tribunal further held that the Department could not deny credit for the same service while accepting it for an earlier period on the same footing, characterising such inconsistent treatment as a prohibited 'pick and choose' method. Conclusion: Denial of CENVAT credit on the disputed 'construction services' was held unsustainable; such credit was directed to be allowed as an eligible input service. Issue (iii): Eligibility of 'health club and fitness centre services' and 'restaurant services/services by air-conditioned restaurants' Legal framework: The Tribunal applied the nexus requirement embedded in the 'means' part of Rule 2(l) and considered whether the services were primarily for personal use/consumption of employees so as to fall within the exclusion conceptually reflected in Rule 2(l)(C). Interpretation and reasoning (health club/fitness): The Tribunal found on record that these services were used for wellness/health checks connected with assignment/job requirements, that invoices were raised to the company, and that the services were not shown as individual personal consumption. On this factual nexus, the Tribunal treated them as eligible input services. Interpretation and reasoning (restaurant/air-conditioned restaurant services): Considering the 24x7 operational nature of the business and the claim that the services were attributable to specific projects/events connected with output service delivery, the Tribunal accepted that such services could be eligible where linked to provision of output services. The Tribunal also noted that a portion relating to personal benefit had already been paid back with interest and treated that portion as ineligible on facts. Conclusion: 'Health club and fitness centre services' were held eligible on the facts found. 'Restaurant services/services by air-conditioned restaurants' were held eligible to the extent they were connected with output service/project requirements and not personal consumption; the personal-benefit component remained ineligible. Issue (iv): Sustainment of disallowance for excluded/non-nexus services; extent of confirmed demand to be upheld Legal framework: The Tribunal applied the exclusion limb of Rule 2(l) (including renting of a motor vehicle/rent-a-cab in the stated circumstances, and employee-personal-use oriented services) and the overarching requirement of nexus with provision of output services. Interpretation and reasoning: The Tribunal affirmed that certain services were correctly treated as ineligible either because they fell within the exclusion category (including rent-a-cab as identified) or because, on facts, they were not related to provision of output services (including specified outdoor catering/restaurant services not connected to output service, share transfer agent not relating to statutory requirement, and general maintenance services lacking nexus). It quantified the ineligible credit sustained at Rs. 4,39,177/-. Conversely, it set aside the remaining confirmed portion of Rs. 15,14,084/- as not meeting the standard for denial under Rule 2(l) on the facts and reasoning adopted. Conclusion: The Tribunal upheld disallowance only to the extent of Rs. 4,39,177/- and set aside the balance confirmed denial of Rs. 15,14,084/-. The order was partly set aside accordingly, and relief was granted to that extent.