Cenvat credit on input services and cancellation forfeiture clarified; credit allowed and forfeiture treated as compensation, appeal allowed.
Cenvat credit on input services such as club membership, catering and cab services is held allowable where Revenue fails to establish personal consumption or non-utilisation for output services; denial of credit lacked admissible evidence and is set aside. Forfeiture or cancellation charges received from customers are treated as compensation and not consideration for taxable services, following Circular No.214/1/23, and demands on that basis are quashed. The impugned order is set aside and the appeal allowed.
Issues: (i) Whether cenvat credit availed on club/membership fees, outdoor catering services and rent-a-cab services is ineligible and exigible for the period July 2012 to September 2013; (ii) Whether amounts forfeited/received on account of cancellation of bookings constitute taxable consideration for service tax.
Issue (i): Whether cenvat credit on club/membership fees, outdoor catering and rent-a-cab services is ineligible under the exclusion clause in Rule 2(l) of the Cenvat Credit Rules, 2004.
Analysis: The Tribunal examined the invoices and factual finding that these services were used for business meetings, business promotion and for business delegates rather than for personal consumption. The Court applied the post-1 April 2011 position that the exclusion operates only where input services are shown to be used for personal consumption; the burden to prove personal use rests on the Revenue. The Tribunal relied on precedents holding that denial of credit requires admissible evidence showing personal consumption and not mere invocation of the exclusion clause.
Conclusion: Cenvat credit on club/membership fees, outdoor catering and rent-a-cab services is not ineligible; denial of credit is set aside in favour of the assessee.
Issue (ii): Whether amounts forfeited/received as cancellation charges are taxable as consideration for services rendered.
Analysis: The Tribunal considered authorities and Circular No.214/1/2022-ST and concluded that receipts on account of cancellation of bookings are compensatory in nature (liquidated damages/penalty) and do not constitute consideration for any service rendered by the appellant. The Tribunal followed its earlier decision in Tata Housing Dev. Co. Ltd. and related circular guidance in arriving at this classification.
Conclusion: Amounts received as cancellation forfeiture/compensation are not taxable as service consideration; demand on this count is set aside in favour of the assessee.
Final Conclusion: The impugned order confirming demand and imposing penalties is set aside and the appeal is allowed; the findings denying cenvat credit and taxing cancellation forfeiture are reversed.
Ratio Decidendi: The exclusion from cenvat credit enacted from April 2011 disallows only services that are demonstrably for personal consumption; absent admissible evidence proving personal use, credit cannot be denied, and amounts received as cancellation forfeiture that are compensatory in nature do not constitute taxable consideration for services.
TaxTMI 
AI Drafter ✕
TaxTMI 
