By TIOL News Service

MUMBAI, DEC 19, 2016: THE appellant had constructed a commercial premises for renting of the same to various customers. For construction of such premises, appellant had availed various services on which Service Tax liability was discharged by the service provider and appellant availed CENVAT credit of the same. Appellant had taken interest-free security deposit from various customers for giving space on rent and forfeited the amount of advance given by the customers on relegation of the contract by the customer.

Revenue authorities held the view that appellant cannot avail CENVAT credit of various inputs services which are consumed for construction of the building & the interest-free deposit and the forfeited amounts are liable to be taxed under "Renting of immovable property" services. It is also the department stand that CENVAT credit availed by the appellant and carried forward from partnership to private firm is incorrect.

The demand notice was confirmed by the CST and, therefore, the appellant is before the CESTAT.

The appellant submitted that –

+ CENVAT credit of the services used for construction of the commercial premises admissible in view of decision in Oberoi Mall Limited - 2016-TIOL-704-CESTAT-Mumbai;

+ Interest-free security deposit, notional interest thereon is held to be non-taxable Murli Realtors Pvt. Ltd. - 2014-TIOL-1728-CESTAT-MUM;

+ Demand of Service Tax liability on the earnest money which was forfeited is also settled in favour of the appellant by the judgment of Apex Court in the case of United Breweries Ltd. [(1997) 3 (SCC) 530).

+ As regards allegation of improper availment of CENVAT credit, since AA has not given any finding on the factual matrix, matter needs reconsideration.

The AR justified the demand.

On each of the issues, the Bench observed -

++ There is no dispute that the appellant had discharged the Service Tax liability on the amount received as rent from their clients. If appellant is discharging Service Tax liability on the output services under the category of "renting of immovable property", we do not find any reason for denial of CENVAT credit on various input and inputs services used in relation to building of such commercial property. As correctly pointing out by the learned Counsel, the issue is no more res integra and is covered by the Tribunal's decision in the case of Oberoi Mall Limited - 2016-TIOL-704-CESTAT-Mumbai.

++ As regards the demand of Service Tax liability on the interest-free security deposit, we find that the adjudicating authority has calculated notional interest as received in relation to "renting of immovable property" services, We are not in agreement with such finding of the adjudicating authority, for the reason that an agreement between the appellant and his customer provides for interest free security deposit, which is nothing but advance, Revenue cannot state that such security deposit will earn interest, and notional interest needs to be taxed. We find that the decision of the Tribunal in the case of Murli Realtors Pvt. Ltd. and others - 2014-TIOL-1728-CESTAT-MUM squarely cover the issue in favour of appellant herein as the said judgment of the Tribunal is on identical issue.

++ As regards Service Tax liability on the amount which was forfeited by the appellant as liquidated damages for rendition of the customer in not taking the possession of the premises contracted for, we do agree that Service Tax liability on such amount forfeited as liquidated damages does not arises. [United Breweries Ltd. [(1997) 3 (SCC) 530) refers.]

++ As regards the CENVAT credit improperly availed on amount of Rs.3.30 crores (approx.), the issue needs reconsideration as various documents produced were not considered in proper prospective and no findings are given.

The appeal was disposed of.

(See 2016-TIOL-3265-CESTAT-MUM)