2011 (1) TMI 691 - AT - Service Tax

Demand - CENVAT Credit - the input services used for construction of immovable property which was subsequently rented, would be admissible as CENVAT Credit - the construction of immovable property cannot be said to be not relating to the business of renting immovable property - he is not prepared for final hearing and also submits that the services received at the time of construction of immovable property cannot be used for payment of Service Tax when the immovable property is rented out because once the immovable property comes into picture, the activity comes to an end - the issue is of interpretation and also of admissibility of Service Tax paid on various services and require detailed consideration of the relevant rules as well as precedent decisions on the subject - requirement of predeposit waived.

Summary

Issues:
CENVAT Credit denial for Service Tax paid on input services used in construction of immovable property subsequently rented out.

Analysis:
The judgment revolves around the denial of CENVAT Credit amounting to Rs.5,05,974/- for the period December 2007 to March 2008, based on the argument that the Service Tax paid on input services used in constructing an immovable property later rented out cannot be carried forward. The Revenue's stance is supported by a circular issued by the Board, asserting that services for constructing and renting immovable property are distinct activities. This denial led to demands for Service Tax, interest, and imposition of penalties.

The appellant's counsel countered the Revenue's position by arguing that the Board's circular contradicts legal provisions. Referring to Rule 2(1), he contended that input services used for setting up the provider's premises qualify as CENVAT Credit. Citing a decision by the Hon'ble High Court of Mumbai in a specific case, the counsel emphasized that for CENVAT Credit eligibility, the activity must be business-related. In this context, since the business in question was renting immovable property, the construction of such property should be considered part of the business, making the credit admissible.

Conversely, the SDR contended that services availed during immovable property construction cannot be linked to Service Tax payment upon renting out the property, as the activity concludes once the immovable property is established. This disagreement highlights the interpretational and admissibility issues concerning Service Tax on various services, necessitating a detailed examination of relevant rules and precedent decisions.

Considering the arguments presented, the judge deemed the appellant's pre-deposit of approximately Rs.2 lakhs sufficient, waiving the requirement for further pre-deposit of the demanded service tax, interest, and penalty. A stay against recovery during the appeal's pendency was granted, indicating a need for thorough consideration of the complex issues surrounding the interpretation and admissibility of Service Tax on input services used in constructing immovable property subsequently rented out.