Hotel Operator Entitled to Abatement Despite Availing CENVAT Credit on Common Services: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that availment of CENVAT credit on common input services does not disentitle an assessee from claiming abatement under Notification No. 1/2006-ST, provided the services are covered under Rule 6(5) of the CENVAT Credit Rules, 2004 and are not used exclusively for exempted services. The Bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that the show cause notice did not allege that the disputed common input services were outside the ambit of Rule 6(5), nor did it contend that the services were used exclusively for exempted output services. Therefore, once the assessee was legally entitled to the credit, it was equally entitled to utilise it. The dispute related to the period from 2008-09 to 2010-11. The Revenue alleged that the hotel operator had wrongly availed full CENVAT credit on common input services and simultaneously claimed abatement under Notification No. 1/2006-ST in respect of outdoor catering, mandap keeper and goods transport agency (GTA) services. According to the Department, this resulted in a short-payment of service tax amounting to ₹37.74 lakh. The adjudicating authority had consequently confirmed the demand along with interest and imposed penalty under Section 78 of the Finance Act, 1994. The Department contended that once CENVAT credit had been availed, the assessee could not claim the benefit of the conditional exemption under Notification No. 1/2006-ST. It also argued that Rule 6 of the CENVAT Credit Rules required separate accounts to be maintained for taxable and exempt services and that the appellant had improperly utilised common input service credit. Appearing for the appellant, Advocate Radhika Chandrasekar submitted that the company had not taken credit on input services specifically used for mandap keeper and outdoor catering services. Credit had been availed only on common input services such as telephone, security and management consultancy services, which were used for other taxable activities as well. The appellant argued that the restriction contained in Notification No. 1/2006-ST applies only to input services used for providing the particular abated service and does not amount to a blanket prohibition on availment of all CENVAT credit. Reliance was also placed on the Tribunal's earlier decision in Lemon Tree Premier v. CCT, Hyderabad-IV. Before examining the merits, the Tribunal discussed the concept of an interpretational dispute and observed that every disagreement does not automatically become one. It held that a genuine interpretational dispute must arise from an ambiguity in law and should be reflected in the pleadings and findings of the authorities. Mere assertions without legal and factual foundation cannot be treated as interpretational issues. The Bench further observed that where the entire demand is raised beyond the normal limitation period, the first question to be examined is whether the demand survives on merits. Only if the demand is sustainable would the issue of extended limitation arise. Examining the substantive issue, the Tribunal noted that Rule 6(5) of the CENVAT Credit Rules begins with a non-obstante clause and overrides Rules 6(1), 6(2) and 6(3). It held that the provision permits availment of the entire service tax credit on specified services as long as those services are not used exclusively for exempted activities. The Tribunal also relied on its earlier decision in Lemon Tree Premier, wherein it had held that credit on specified services remains available where such services are not exclusively used for exempted services, notwithstanding the availment of abatement. Holding that the appellant had validly availed common input service credit while claiming abatement under Notification No. 1/2006-ST, the Tribunal concluded that the demand itself was unsustainable on merits. Consequently, it found no necessity to examine issues relating to limitation, interest or penalty. Allowing the appeal, the Chennai Bench set aside the impugned order and granted consequential relief to Apeejay Surendra Park Hotels Ltd. in accordance with law. Case Details Case Title: Apeejay Surendra Park Hotels Ltd. Versus Commissioner of GST & Central Excise Citation: JURISHOUR-1520-CES-2026(CHE) Case No.: Service Tax Appeal No. 40382 of 2016 Date: 02.06.2026 Counsel For Appellant: Radhika Chandrasekar, Advocate Counsel For Respondent: N. Satyanarayanan, Authorised Representative Click Here To Read Order Read More: SAD Refund Can’t Be Denied Due to Non-Traceable Original Documents and Invoice Endorsement Defects: CESTAT

Hotel Operator Entitled to Abatement Despite Availing CENVAT Credit on Common Services: CESTAT

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