By TIOL News Service

MUMBAI, AUG 01, 2016: THE appellant is engaged in the service of Renting of Immoveable Property during the period 2007-08 to 2009-10. The appellant had rented the premises to various parties and received an amount of Rs.15,98,911/- towards rent on which the service tax was payable.

Upon pointing out by the department, the appellant paid Service Tax by debit in CENVAT credit and interest was paid vide GAR-7 Challan.

A SCN was issued alleging that the ST of Rs.1,37,104/- ought to have been paid in cash and also proposing imposition/confirmation of penalties and interest.

The lower authorities held that the payment of service tax made from CENVAT credit is not proper for the reason that the service tax dues are pertaining to the period 2007-08 to 2009-10 whereas the appellant have paid service tax from CENVAT credit which was available on 31.01.2011. Inasmuch as, as per Rule 3(4) of CCR, 2004, CENVAT Credit available on the last day of the period for which service tax is due can only be utilized.

Rule 3(4) of CCR, 2004, first proviso thereto reads –

Provided that while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be:

Before the CESTAT the appellant submitted that the taxability on ‘Renting Of Immoveable Property' was under serious doubt and to overcome the judgment of Home Solution Retail Ltd. - 2009-TIOL-196-HC-DEL-ST the government made a retrospective amendment (w.e.f 01.06.2007) in Section 65 of the FA, 1994 by the Finance Act, 2012 enacted on 28.05.2012. It is, therefore,emphasized that although the liability is pertaining to the period 2007-08 and 2008-09 but it became payable only after the enactment of the retrospective amendment on 28.5.2012, they are entitled to pay the same from the CENVAT account available on the date of payment. Moreover, since the demand is made under s.73 of the FA, 1994, the provisions of Rule 3(4) of CCR, 2004 are not applicable as per Board Circular 962/05/2012-CX.8 dated 28.03.2012, the appellant added.

Furthermore, as per amended Section 80(2) inserted by the FA, 2012, it was provided that if the service tax on the renting of Immoveable property is paid within six months from the date on which the Finance Bill, 2012 receives the assent of the President, no penalty shall be imposed under Section 76, 77 or 78. Inasmuch as since the appellant had paid service tax from CENVAT account in February 2011 and discharged the interest liability on 3.2.2011, they were entitled to waiver of penalties.

The AR while reiterating the findings of the lower authorities relied on the decisions in Plasweave Pvt. Limited - 2007-TIOL-846-CESTAT-MAD, Nehru Steels - 2008-TIOL-2719-CESTAT-DEL, M/s. Haryana Textile Corporation Ltd. - 2011-TIOL-1828-CESTAT-DEL, Pranav Construction Systems Pvt. Ltd. - 2013-TIOL-1730-CESTAT-MUM.

The Bench observed thus -

“5. …The undisputed fact of the case is that the service tax on renting of immoveable property for the period 2007-08 and 2008-09 was paid by the appellant by utilizing the cenvat credit which was available in February 2011. The said service tax was otherwise under dispute and it became payable only after the retrospective amendment made by Finance Act, 2012 by which clause (zzzz) of Section 65 (105) of the Finance Act 1994 was amended. Therefore the duty which was paid by the appellant clearly falls under Section 73 of the Finance Act, 1994. …

From the above instruction of the audit officer it is clear that arrears of service tax on Renting of Immoveable Property was directed to be paid under Section 73. Even as per the show cause notice as well as from the Order-in-Original the demand was proposed and confirmed under Section 73(1) of the Finance Act, 1994. I also find that the appellant have paid the duty though from cenvat along with interest it squarely covered under Section 73 (3) which provides for payment of arrears of service tax if the same was not paid at the time of due date. From the above, it is clear that the amount paid by the appellant is under Section 73 as arrear that too as per pursuance of the audit officer. The Board in this regard has clarified in the Circular dt.28.3.2012 which is reproduced below:“Payment of arrears from Cenvat credit earned at a later date …

From the above circular, it is very clear that if payment of arrears is made under Section 11A of the Act, then Rule 3(4) of Cenvat Credit Rules, 2014 shall not apply. In the present case the appellant has paid the amount under Section 73(1)/73(3) which being parimateria to Section 11A, the Board Circular clearly applies and accordingly there is no restriction to utilize the Cenvat Credit even at later date at the time of payment of service tax."

On the question of imposition of penalty, the CESTAT noted -

"As regard penalty imposed under Sections 76, 77 & 78. I find that there is a specific provision for waiver of penalty made in respect of Renting of Immoveable Property service under Section 80(2) …In the present case the service tax along with interest was paid in the months of February 2011 i.e. before 28.5.2012. Accordingly, the condition specified for non-imposition of penalty under Section 76, 77 & 78 has been complied with by the appellant. Therefore no penalty is imposable in the present case. The penalty imposed under Section 76, 77 & 78 are therefore waived."

The case laws cited by the AR were held to be inapplicable to the case on hand.

The impugned order was held to be unsustainable and the appeal was allowed.

(See 2016-TIOL-1920-CESTAT-MUM)