By TIOL News Service

MUMBAI, SEPT 16, 2014: FOOTFALLS in a mall should never cease is what the Shopping Mall owners pray but that's not what they think about litigation.

Unfortunately, Service Tax has changed all that - it covers people from all walks of life and has become the most litigious tax in the country!

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The appellants are engaged in rendering the taxable service of 'renting of immovable property' and they discharge service tax liability. They availed CENVAT credit of various input services used for construction of the said mall and utilized the credit for payment of service tax on renting of immovable property services.

The CBEC vide Circular No. 96/7/2007-ST dated 23/08/2007 as amended by Circular No 98/1/2007-ST., dated 04/01/2008 inter-alia clarified that Input credit of service tax can be taken only if the output is a 'service' liable to service tax or are 'goods' liable to excise duty and that since immovable property is neither 'service' or 'goods' input credit cannot be taken.

Accordingly, SCNs came to be issued and the same were adjudicated by the Commissioner of Service Tax-II, Mumbai by disallowing the CENVAT credit availed of Rs.6.48 crores. Penalty and interest was also imposed.

The Bench while granting stay observed -

"5. …The Hon'ble High Court of Andhra Pradesh and the Ahmedabad bench of this Tribunal in the case of SaiSahmita Storage (P) Ltd.- 2011-TIOL-863-HC-AP-CX and Navratna S.G. Highway Property Pvt. Ltd. - 2012-TIOL-1245-CESTAT-AHM respectively have 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 while discharging service tax liability on the renting of such immovable property. In the light of these decisions, the appellant had made out a strong prima facie case in their favour for grant of unconditional waiver of pre-deposit of the dues adjudged against them. Accordingly, we grant unconditional waiver from the pre-deposit of the dues adjudged against the appellant and stay recovery therefore thereof during the pendency of these appeals."

We reported this order as 2013-TIOL-604-CESTAT-MUM.

When the appeal was heard, the appellant submitted that they had informed the adjudicating authority that they had not received the SCN dated 5.6.2009 and, therefore, they are not in a position to reply to the said notice. However, the adjudicating authority had observed that the notice had been served on the appellant inasmuch as the same had been sent to the appellant through Courier and the Courier Agency had not returned the same and, therefore, it should be presumed that the notice has been properly served. This, the appellant submits is violation of the principles of natural justice. It was also submitted that they have taken credit of Service Tax paid on construction services amounting to Rs.1,50,14,412/- and since the commercial building has been rented out on which they are paying Service Tax, they are eligible for taking credit on the input services of construction service. They relied upon the decisions in Cadila Healthcare Ltd. - 2013-TIOL-12-HC-AHM-ST, Sai Sahmita Storages (P) Ltd. - 2010-TIOL-1751-CESTAT-BANG and Navratna S.G. Highway Prop. Pvt. Ltd. - 2012-TIOL-1245-CESTAT-AHM.

The Bench observed that none of the modes of 'service' mentioned in section 37C of the CEA, 1944 had been followed inasmuch as sending SCN through "courier" is not an approved mode. Holding that there was clear violation of the principles of natural justice the matter was remanded to the adjudicating authority who was directed to give a clear finding as to why the appellant is not eligible for the benefit of Service tax credit paid on the Input services in respect of construction services in the light of the decisions cited by the appellant.

We had while reporting this order - 2013-TIOL-1241-CESTAT-MUM wondered as to why the aforesaid submission regarding 'non-service' of SCN was not taken up at the Stay application stage.

Be that as it may, it seems that the department accepted the aforesaid order and carried out a re-adjudication in the matter. This time around the Commissioner of Service Tax, Mumbai disallowed a total CENVAT credit of Rs.2.02 crores (down from Rs.6.48 crores confirmed in the first round) availed by the appellant in respect of various input services relating to construction of mall which was subsequently rented out to various customers. Penalties and interest liability were also added in ample measure.

The appellant is again before the CESTAT and after briefing the Bench the chronology of the case submitted that the adjudicating authority has, this time around, denied the CENVAT credit by relying upon the decision of the High Court of Allahabad in the case of Galaxy Mercantile Ltd. - 2013-TIOL-751-HC-ALL-ST. It is emphasized that in the referred case the question for consideration before the High Court was whether CENVAT credit on inputs and capital goods could be availed in respect of a building constructed which was subsequently used for warehousing purpose and in the said case, the Tribunal vide order dated 24/07/2013, by a majority decision - 2013-TIOL-1442-CESTAT-DEL held that CENVAT Credit availed on inputs service is not required to be reversed and only directed pre-deposit of 35% of the CENVAT Credit attributable to inputs and capital goods; that the said decision was challenged before the High Court of Allahabad and the same was upheld - 2013-TIOL-751-HC-ALL-ST. Inasmuch as since the question of availing CENVAT Credit on Input service on the construction of immovable property was not considered by the High Court reliance on the said decision for confirmation of service tax demand is clearly not sustainable, submitted the appellant.

The CESTAT observed -

++ As regards the reliance placed by the adjudicating authority in the case of Galaxy Mercantile Ltd., the said decision did not pertain to eligibility of Cenvat Credit on input services which were used in the construction of an immovable property. The question for consideration before the Hon'ble High Court was only limited to eligibility of Cenvat Credit on inputs and capital goods. In fact, in the said case, this Tribunal had held that the appellant was eligible for availing Cenvat Credit of service tax paid on input services and therefore, reliance placed by the adjudicating authority on this decision does not support the Revenue's case at all.

++ We further observe that the Hon'ble High Court of Andhra Pradesh in the case of SaiSahmita Storages (P) Ltd. and this tribunal in the case of Navratna S.G. Highway Pro. (P) Ltd. has held that Cenvat Credit of service tax paid on input services used in the construction of immovable property would be available if such immovable property is used for rendering other taxable services.

Holding that the appellant has made out a prima facie case for grant of stay, the Bench granted unconditional waiver from pre-deposit of adjudged dues and stayed the recovery.

In passing: Is there any departmental appeal coming?

(See 2014-TIOL-1757-CESTAT-MUM)