2016 (12) TMI 992 - AT - Service Tax

Denial of CENVAT credit - providing renting of immovable property services - professional charges paid claimed as input services - denied on the ground that the services have used at Gurgaon, not at Noida. As such, the same has not been used in providing output services at Noida - Held that - the service relates to professional services for market-research. Without recording any finding that the appellant have no rental income from Gurgaon and or have not made any investment either prior to obtaining the report or after the obtaining of report for earning rental income from the tenants. Accordingly, I hold that the said expenditure is not with respect to earning of Revenue or providing of output service and as such, I hold the same is inadmissible - credit not allowed. Brokerage expenses paid to realistic agency for finding tenant - denied on the ground that the specific name of tenant or person was not mentioned - Held that - being service tax to DTZ, it appears from the invoice & clarification issued by the service provider that the same is with respect to finding of tenant for the appellant with respect to the property located at Noida. I remand this issue to the adjudicating authority for verification of the rent agreement with the tenants and if the appellant have earned the income from them, service tax so paid amounting to ₹ 28,823/- shall be allowable - matter on remand. Appeal allowed in part by way of remand.

Summary

Issues:
1. Disallowance of Cenvat credit for market intelligence report for Gurgaon and brokerage expenses.
2. Interpretation of "input service" under Rule 2(l) for renting of immovable property service.

Analysis:
1. The appellant, a service provider, appealed against the disallowance of Cenvat credit in relation to a Market Intelligence Report for Gurgaon and brokerage expenses paid to a realistic agency for finding a tenant. The Revenue issued a Show Cause Notice proposing the disallowance based on the services not being used in providing output services at Noida. The Order-in-Original confirmed the proposed disallowance, which was partially allowed in appeal by the Commissioner (Appeals). The appellant contested that the services were related to the earning of rental income and argued that the disallowance was incorrect. The appellant also referred to relevant case laws supporting the wide interpretation of "input service." The appellant demonstrated through ledger accounts and clarifications that the services were indeed related to finding tenants for properties in Noida. The appellant emphasized that the nomenclature used in the invoices was synonymous with brokerage or commission. The Tribunal found that the disallowance for the market research service was not justified as it was not related to the earning of revenue or providing output services. However, regarding the brokerage expenses, the Tribunal remanded the issue for verification of rental agreements with tenants to determine the allowability of the service tax paid.

2. The Tribunal analyzed the definition of "input service" under Rule 2(l) in the context of renting of immovable property service. The appellant argued that the market research services were integral to their business of renting immovable property and should be considered as input services. The Tribunal considered the wide interpretation of "input service" based on relevant case laws and rules. The Revenue contended that the disallowance was justified as the services were not utilized for providing taxable output services. The Tribunal found that the market research service was indeed related to professional services for market research but required verification of rental income from tenants to determine the allowability of the service tax paid. The Tribunal remanded the issue for further verification, allowing the appeal in part.

Conclusion:
The Tribunal allowed the appeal in part, remanding the issue of disallowance of Cenvat credit on brokerage expenses for further verification. The Tribunal emphasized the need to establish a direct link between the services and the earning of revenue to determine the allowability of input services in the context of renting immovable property services.