ST - Input services which have been used for providing output service of Renting of Immoveable Property are cenvatable prior to 01.04.2011 when words 'setting up' were deleted from definition of 'Input service': CESTAT
By TIOL News Service
MUMBAI, DEC 18, 2015: THE appellant is engaged in the business of construction and sale of commercial properties. They provided taxable service of Commercial Industrial Construction Service (CICS) & Renting of Immoveable Property Service (RIPS).
They constructed a mall at Pune for which they received various input services and capital goods during the period June 2007 to March 2011. They filed ST-3 return without showing availment of input tax credit. However, they filed revised return for the period October 2010 to March 2011 on 21.7.2011 indicating availment of Cenvat Credit of service tax paid on input services and capital goods procured during the period June 2007 to March 2011.
They had sold 20% of the constructed area and availed only balance credit of 80% on input services and capital goods. They submitted to the department the documents such as invoices etc. for verification of the eligibility of credit.
A SCN was issued proposing to deny the credit on the ground that the appellant is not eligible for credit as input services have resulted in an immovable property which is neither excisable nor any service tax is payable on the same.
By an O-in-O, the CCE, Pune-III denied service tax credit of Rs.8,34,74,601/- and ordered recovery of the same alongwith interest and imposed equivalent penalty u/r 15(3) of CCR, 2004 r/w s.78 of the FA, 1994.
The appellant is before the CESTAT and submits that the definition of input services prior to 1.4.2011 allowed credit of input services used for setting up of premises of output service provider. In support, reliance is placed on the decisions in NavratnaS.G. Highway Prop. Pvt. Ltd. - 2011-TIOL-1703-CESTAT-AHM, Oberoi Mall Ltd. - 2013-TIOL-604-CESTAT-MUM & Mundra Ports & Special Economic Zone Ltd. - 2015-TIOL-1288-HC-AHM-ST. It is also submitted that the fact that 'input service' definition was amended from 1.4.2011 to exclude services used for construction, itself implies that such services were covered earlier.
The AR reiterated the findings of the adjudicating authority and also submitted that even though the appellants were registered in Mumbai and providing services from there, they availed the accumulated credit for the period 2007 to 2011 in Pune by taking centralized registration in Pune in 2011. Reliance is also placed on the decisions in BhartiAirtel Ltd. - 2014-TIOL-1452-HC-MUM and Vodafone India Ltd - 2015-TIOL-2098-HC-MUM-ST wherein the High Court had held that Cenvat Credit is not admissible on the inputs which go into the construction of Telecommunication towers and pre-fabricated buildings.
The Bench observed -
| Services procured before registration - admissibility of credit |
The factual position is that in 2011 the appellant declared their intention of availing Cenvat Credit on input services for discharging the service tax liability on the output service namely Renting of Immovable Property Service. There is no hiding the fact that these services were received over a period of 5 years from 2007 to 2011. And it was only when the construction was ready for renting out they took centralized registration in 2011. As held by the High Court of Karnataka in the case of mPortal India Wireless Solutions Pvt. Ltd ., there is no provision in the Cenvat Credit Rules which imposes a restriction on availment of credit on input services procured before registration is taken. Even though department has filed an appeal against this judgment, Tribunal is bound by judicial discipline to honor the judgment of the High Court.
| Services for construction of mall, whether input services? |
Tribunal is bound to follow the judgments of the Andhra Pradesh High Court in the case of SaiSahmita Storages (P) Ltd. - 2011-TIOL-863-HC-AP-CX, Mundra Ports & Special Economic Zone Ltd. (supra)as well as the Tribunal judgment in the case of Navratna Highway (supra)where it was held that the credit cannot be denied.
| Credit availed at Pune, invoices addressed to Bombay office. |
This will not be a bar in availing the credit as the appellant had taken centralized registration at Pune before availing the credit and they did not avail credit on any input services in Mumbai as reflected in the relevant ST-3 returns. Therefore we find no reason to deny the credit on this ground.
| Verification of old documents - apprehension by Revenue: |
In the show cause notice no doubt has been expressed regarding the actual receipt of the services. As regards the verification of actual use of the input services, the Annexure "A" to the show cause notice gives details of Cenvat credit availed on inputs and capital goods for the period 1.6.2007 to 31.3.2011 implying that department has conceded that the Cenvat credit was availed for the construction of mall and Renting of Immovable Property Service.
It was held by the Apex Court (in Citedal Fine Pharmaceuticals - 2002-TIOL-680-SC-CX) that "what would be a reasonable period, would depend on the facts of each case……it would be open to the assesse to contend that it is bad on the ground of delay…………No hard and fast rules can be laid down in this regard as the determination of the question will depend on the facts of each case." It is noted that the appellant took the credit only when the mall was completed. Prior to that they may not have been sure whether the property is to be sold or rented. Actually 20% of the property was sold out. Therefore they took cenvat credit when the remaining property was ready to be rented out. In these circumstances, in our considered view, the substantial benefit cannot be denied to them and the delay can be ignored especially when there is no violation of legal provisions.
| Rule 10 of CCR, 2004 - Transfer of credit: |
The adjudication order has not given any finding to the effect that the Credit was transferred from Mumbai to Pune without observing the conditions of Rule 10 of the Cenvat Credit Rules as was alleged in the show cause notice. In any case there is no confirmation of demand on this aspect.
| Definition of 'Input service' prior to and after 01.04.2011: |
Reliance on the case of Bharti Airtel Ltd. (supra) is misplaced. Similarly even the judgement in case of Vodafone does not help the Revenue. We find that almost the entire credit has been availed on input services which have been used for providing the output service that is Renting of Immoveable Property Service for which there was no restriction under the clause (l) of the definition of 'input service'. The inclusive part of the definition of input service allowed services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service etc. The words "setting up" were deleted only from 1.4.2011. Therefore, the appellant are eligible for the credit in terms of the definition of input service .
The appeal was allowed.
(See 2015-TIOL-2705-CESTAT-MUM)
