2015 (6) TMI 584 - AT - Service Tax

Wrongful utilization of CENVAT Credit - Renting of immovable property - Held that - It appears that the property located in Mumbai was never registered under service tax. In Pune the appellant had their manufacturing unit where they were taking credit of input services used in their manufacturing activities as well for providing output services. The correct procedure was to take recourse to centralized registration which they failed to do so. This being an omission no doubt but the center of the dispute lies elsewhere. The prime question to be addressed by us is whether CENVAT Credit on various input services which are used by the appellant in the course of their manufacturing activity and output services may be utilized for the payment of service tax liability on the service of renting of immovable property. If the factory itself is located in a rented premises, then perhaps the nexus could be there but in the present case we are of the view that input credit cannot be utilized for paying service tax liability on the renting of immovable property service provided in Mumbai. Ld AR has correctly placed reliance on the Larger bench decision in the case of Telco Equipment (supra) holding that there must be semblance integral connection between the input service and the manufacturing/output service. If some information is available in various reports and returns which are to be formulated in compliance to other statutes it does not lead to a conclusion that the utilization of credit for the activity of renting is known to the department. The department is not supposed to know each and every declaration made outside the Central Excise and Service Tax law. Even if the financial report is available to the audit, the same is meaningless in the sense that it does not indicate that input service tax credit is utilized to pay the tax liability on such renting of property. If the credit is not available for paying service tax liability on the renting of property service, there is no bar on utilizing the same credit for manufacturing/other output services at Pune. As the appellant have already paid the amount of ₹ 54,44,777/- which is due to the department, they are allowed to take re-credit of the same amount. In the circumstances, there is reasonable cause to waive penalty under Section 80. - Decided in favour of assessee.

Summary

Issues:
1. Wrong utilization of CENVAT credit for service tax liability on renting immovable property.
2. Requirement of nexus between input and output services for CENVAT credit utilization.
3. Time limitation for demanding recovery of wrongly utilized credit.
4. Permission for re-crediting the amount already paid.

Issue 1: Wrong Utilization of CENVAT Credit
The appeal challenged the order confirming the demand for wrongly utilized CENVAT Credit amounting to Rs. 54,44,777 for the period 2008-09 to 2011-12. The appellant, a manufacturer and service provider, availed credit of various input services but used it to discharge service tax liability on renting immovable property in Mumbai, which was not registered under service tax. The show-cause notice alleged the absence of nexus between input and output services, leading to the demand confirmation by the Commissioner.

Issue 2: Nexus Requirement for CENVAT Credit Utilization
The appellant argued that Rule 3(4) of the Cenvat Credit Rules does not mandate establishing a nexus between input and output services for credit utilization. They relied on precedents to support the common pool concept for credit use in manufacturing and service activities. However, the Tribunal emphasized the necessity of nexus between input and output services for CENVAT Credit utilization, as per Rule 3(4)(e), which allows credit use for service tax on output services. The Tribunal concluded that the input services were unrelated to renting immovable property, thus disallowing credit utilization for service tax liability on such services.

Issue 3: Time Limitation for Recovery
Regarding the time bar defense, the appellant contended that disclosing renting of immovable property in financial reports made the activity known. However, the Tribunal rejected this argument, stating that mere disclosure in reports unrelated to tax laws does not imply departmental knowledge of credit utilization. The Tribunal upheld the demand for wrongly utilized credit, emphasizing the lack of nexus between input services and the renting service.

Issue 4: Re-Crediting and Penalty Waiver
The Tribunal allowed the appellant to re-credit the amount already paid to the department due to the disallowed credit utilization. Considering the circumstances, the Tribunal waived the penalty under Section 80, permitting re-utilization of the credit for manufacturing or other output services at Pune, where the appellant's manufacturing unit was located.

In conclusion, the appeal was disposed of with the above decisions, emphasizing the necessity of nexus between input and output services for CENVAT Credit utilization and upholding the demand for wrongly utilized credit for service tax liability on renting immovable property.