28 April 2013

Cenvat credit on Construction can be used for ST on Renting


Cenvat credit on Construction can be used for ST on Renting


Excise paid on Inputs and ST on Input services used in construction can be utilized for discharging ST liability on renting of immovable property
 The Hon'ble Tribunal in the case of Oberoi Mall Ltd. Vs. Commissioner of Service Tax [2013-TIOL-604-CESTAT-MUM] has granted unconditional stay from recovery of Cenvat credit and penalty, the case is discussed as under:
 Issue:
 Whether excise duty paid on Inputs and Service Tax on Input services used in construction sector can be utilized for discharging Service Tax liability on renting of immovable property?
 Facts of the case:
 Oberoi Mall Ltd. ("The Appellant") is engaged in rendering the taxable service of 'renting of immovable property' and discharge service tax liability. The Appellant availed CENVAT credit of various services used for construction of the said mall and utilized the credit for payment of service tax on renting of immovable property services.
 The Central Board of Excise & Customs ("the CBEC") vide a Circular No.96/7/2007-ST dated 23/08/2007 as amended by Circular No 98/1/2007-S.T., dated 04/01/2008 ("the Circular") interalia clarified that commercial or industrial construction service or works contract service is an input service to the output 'immovable property' which is neither a service nor goods. Therefore, CENVAT credit of the service tax paid on construction service or works contract service cannot be taken.
 In view of the above Circular, the authorities issued show cause notice ("the SCN") to the Appellant proposing to deny CENVAT credit taken by the Appellant during the period April 2008 to March 2009 out of which an amount of Rs. 1,15,14,402/- was utilized for payment of service tax on the renting of immovable property service.

The SCN was adjudicated and the impugned order was passed wherein CENVAT credit of Rs. 6,00,63,212/- availed by the Appellant was disallowed in terms of Rule 14 of the CENVAT Credit Rules, 2004 ("the Credit Rules") read with Section 73(2) of the Finance Act, 1994 ("the Finance Act"). Also, credits of Rs. 32,24,111/- and Rs. 15,62,151/- taken by the Appellant were also disallowed in respect of input services such as security, telephone, commission, brokerage, advertising, repairs, installation, etc.
 Interest on the credit wrongly taken was demanded under Section 75 of the Finance Act and a penalty of Rs, 6,48,48,474/- was imposed on the Appellant under Rule 15 of the CENVAT Credit Rules read with Section 78 of the Finance Act and another penalty of Rs. 5,000/- was imposed under Section 77 thereof.
 Held:
 The Hon'ble Tribunal has held that Excise duty paid on Inputs and Service Tax paid on Input services used in the construction of immovable property can be taken and utilized for discharging ST liability on the renting of such immovable property and granted unconditional waiver from the pre-deposit of the dues adjudged against the Appellant and stay recovery thereof during the pendency of the Appeal on the basis of/ relying upon the following case laws:
1. Sai Sahmita Storages (P) Ltd. [2011 (270) ELT 33 (AP)] - The appellant was providing the service of storage and warehousing and took credit of excise duty paid on cement, iron bars, expansion bellows and pipes, etc. used in the manufacture of warehouse. The Hon'ble High Court noted that considering the definition of 'inputs' and 'input services' provided in the Credit Rules, the appellant was entitled for availment of credit on the excise duty paid on various inputs for payment of tax as the output services, namely, storage and warehousing services.
2. Navaratna S.G. Highway Property Pvt. Ltd. [2012 (28) STR 166 (Tri-Ahmd)] - The issue involved was availment of CENVAT credit of the service tax paid on 'commercial construction service, security service, advertising service, etc. The Hon'ble Tribunal held that excise duty paid on inputs and service tax paid on input services on the construction of malls can be taken as credit and utilized for payment of service tax on renting of immovable property when the mall is rented out.
Further to Note:
It is worthwhile to note that w.e.f. April 1, 2011 vide Notification No. 3/2011-C.E. (N.T.) dated March 1, 2011, definition of input and input services has been changed and any goods or specified input services used in construction contract or construction service has been excluded from the definition of input and input services respectively.
 Bimal Jain
FCA, ACS, LLB, B.Com (Hons)  

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