2018 (3) TMI 844 - AT - Central Excise

CENVAT credit - renting of immovable property services - Held that - when it is undisputed that the factory which was taken on rent is being put to use for manufacturing of final product on which duty liability is discharged, the denial of credit of service tax paid on renting of immovable property services seems to be totally incorrect proposition when the factory is functioning from the rental premises, it has to be held that services are utilised for manufacturing of excisable goods. Reliance placed on Circular dated 04.01.2008 is totally misplaced, as that circular clarifies about eligibility to avail CENVAT credit of service tax paid on commercial or industrial construction services which are used for construction of immovable property or otherwise. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Eligibility to avail CENVAT credit of service tax paid on renting of immovable property services.

Analysis:
The appeal in this case was against order-in-appeal No.37/2011(H-IV)CE dated 28.02.2011. The issue revolved around the eligibility to avail CENVAT credit of service tax paid on renting of immovable property services. The appellant had rented a factory for manufacturing excisable goods, specifically toothpaste. The Revenue contended that CENVAT credit could not be allowed for the service tax paid on renting immovable property as it was not directly related to manufacturing excisable goods, citing Circular No. 48/1/2008-ST dated 04.01.2008. The 1st Appellate Authority also supported this view.

The appellant argued that the factory rented was used for manufacturing excisable goods, and the service tax liability was discharged by the owner of the factory under renting of immovable property services. The appellant claimed that the denial of CENVAT credit was incorrect, and the reliance on the Circular was misplaced. The learned counsel emphasized that the services were indeed utilized for manufacturing excisable goods.

Upon careful consideration of both sides' submissions, the Tribunal found the impugned order lacking merit and needing to be set aside for multiple reasons. Firstly, since the factory rented was being used for manufacturing final products on which duty liability was discharged, denying credit for service tax paid on renting of immovable property services was deemed incorrect. The Tribunal held that services were indeed utilized for manufacturing excisable goods in such a scenario. Secondly, the reliance on Circular dated 04.01.2008 was deemed misplaced. The Tribunal referenced a case where it was held that the Circular did not apply when the construction activity resulted in a property rented out as an immovable property service. Consequently, the impugned order was deemed unsustainable and set aside, allowing the appeal.

In conclusion, the Tribunal found in favor of the appellant, setting aside the impugned order and allowing the appeal.