2011 (2) TMI 1275 - AT - Service Tax

Demand - Show Cause Notice was issued alleging that the capital goods, inputs and input services on which credit was taken has no nexus with the renting of immovable property service and therefore the CENVAT credit could not be utilized by them and accordingly proposing demand of service tax of Rs.1,99,801/- along with interest and proposing imposition of penalties - Rule 3(1) of the CENVAT Credit Rules - a provider of taxable service is also entitled to take credit of specified excise duty, additional duty of customs and service tax in respect of input services and utilize the credit from all these sources for the purpose of paying service tax - The respondent is undisputedly registered as a service provider for providing the services of renting of immovable property - the rules permit taking of credit under a common pool and permit use of the credit from the common pool for different purposes and there is no restriction placed to the effect that credit accounts should be maintained for use for manufacture of excisable goods and for use for providing services - Appeal is dismissed

Summary

Issues:
- Utilization of CENVAT credit for renting of immovable property service
- Nexus between credit taken and services provided
- Interpretation of CENVAT Credit Rules
- Department's contention on maintaining separate credit accounts
- Applicability of Circular No. 98/1/2008-ST

Utilization of CENVAT Credit for Renting of Immovable Property Service:
The case involved a manufacturer of satellite and aircraft components also providing renting of immovable property service. The Department alleged that the CENVAT credit utilized by the manufacturer for paying service tax on renting of immovable property service did not have a nexus with the service provided. The original authority upheld the demand for service tax, interest, and penalties. However, on appeal, the Commissioner (Appeals) set aside the order, leading to the Department's appeal.

Nexus Between Credit Taken and Services Provided:
The Department argued that the manufacturer could not use credit on capital goods, inputs, and service tax not directly related to the renting of immovable property service. The Department relied on Circular No. 98/1/2008-ST, stating that input credit could only be taken if the output was a service liable to service tax. The authorized representative supported the Commissioner (Appeals) order, emphasizing the validity of the credit utilization.

Interpretation of CENVAT Credit Rules:
The Tribunal analyzed Rule 3(1) of the CENVAT Credit Rules, allowing manufacturers and service providers to take credit of specified duties for discharging duty liability. The manufacturer, also a service provider, utilized the common pool credit for both excise duty and service tax payment. The Tribunal noted that the rules did not mandate separate credit accounts for different purposes, thus supporting the Commissioner (Appeals) decision.

Department's Contention on Maintaining Separate Credit Accounts:
The Department contended that the manufacturer/service provider should maintain separate accounts for credit related to excisable goods and services provided. However, the Tribunal held that the common CENVAT Credit Rules did not impose such a requirement, enabling the use of credit from a common pool for various purposes without segregation.

Applicability of Circular No. 98/1/2008-ST:
The Tribunal dismissed the Department's reliance on the circular, emphasizing that the manufacturer was registered as a service provider for renting of immovable property service, making the credit utilization valid. The Tribunal upheld the Commissioner (Appeals) decision, dismissing the appeal by the Department.

In conclusion, the Tribunal upheld the Commissioner (Appeals) decision, emphasizing the validity of utilizing CENVAT credit for paying service tax on renting of immovable property service and rejecting the Department's contention on maintaining separate credit accounts.