Modus Operandi for Irregular Utilization of CENVAT Credit by Hotel Chains – CBEC Issues Alert Circular
The Chief Commissioner of Customs, Central Excise and Service Tax, Chandigarh Zone alerted the Board (with a copy to DGST) of a modus operandi adopted by a leading Five Star Hotel for irregularly availing CENVAT credit of service tax on certain input service. This Five Star Hotel is engaged in providing taxable services in the categories of mandap keeper, internet café, outdoor catering, health club & fitness service, dry cleaning, banking and other financial services and beauty parlour.
They appointed another service company as ‘operators and managers' to run their operations including catering, rooms maintenance, business promotion of the Hotel and providing all services relevant to a Five Star Hotel of comparable standing. This service company was paying service tax under the category of ‘Management Consultancy service' which is availed as credit in full by the Five Star Hotel even though they are engaged in providing both taxable and exempted services.
The Chief Commissioner and the authorities below were of the view that the services provided by the service company to the Hotel falls under the category of either BAS or BSS (it appears the authorities themselves are not sure of the appropriate category under which the services should be classified), thereby not eligible for exclusion as per Rule 6 (5) of the CENVAT Credit Rules, 2004 as claimed by the Hotel. It may be noted that Management Consultant's service is one of the notified services under Rule 6 (5) of CENVAT Credit Rules, 2004.
CBEC directed the DGST to bring this modus operandi to the notice of all the field formations.