2018 (3) TMI 1286 - AT - Service Tax

CENVAT credit - input services - construction of immovable property - demand of service tax - notional interest on security deposit towards renting of immovable property service - Held that - the Revenue has wrongly denied the cenvat credit on various input services which have been used for construction of immovable property which is ultimately rented out - reliance placed in the case of City Centre Mall Nashik Pvt. Ltd. Versus Commissioner of Central Excise & Service Tax, Nashik 2017 (11) TMI 301 - CESTAT MUMBAI , where it was held that the appellant is entitled to cenvat credit on input services used for construction of immovable property - credit allowed. Demand of service tax - notional interest - Held that - the issue is squarely covered by the judgment of the Tribunal in the case of Magarpatta Township Developers & Construction Co. Ltd. 2014 (9) TMI 461 - CESTAT MUMBAI , wherein the Tribunal has held that notional interest cannot be included in the value and will not be taxable under the category of renting of immovable property services - no service tax is chargeable on notional interest. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of cenvat credit on input services used for construction of immovable property.
2. Service tax liability on notional interest on security deposit towards renting of immovable property service.

Analysis:

Issue 1: Denial of cenvat credit on input services used for construction of immovable property:
The appellant appealed against the Commissioner's order disallowing wrongly availed cenvat credit and confirming the service tax liability. The appellant argued that the credit of input services used for modernization of premises was rightfully availed as per the definition of input service prevailing during the relevant period. They referred to circulars clarifying eligibility for input services for renovation/modernization. The appellant cited precedents like City Centre Mall Nashik Pvt. Ltd. where credit was allowed on input services used for construction of immovable property subsequently rented out. Various court decisions were presented to support the eligibility of cenvat credit for input services used in the construction of immovable property for rental purposes. The Tribunal found that the Revenue wrongly denied the cenvat credit on input services used for construction of immovable property rented out, as established by precedents and circulars. The denial of cenvat credit was deemed unsustainable in law.

Issue 2: Service tax liability on notional interest on security deposit towards renting of immovable property service:
Regarding the demand for service tax on notional interest, the Tribunal referenced judgments in cases like Magarpatta Township Developers & Construction Co. Ltd. and K. Raheja Corp. Pvt. Ltd., where it was held that notional interest should not be included in the value and is not taxable under renting of immovable property services. The Tribunal noted that the department accepted these judgments on merits and did not appeal against them. Consequently, the Tribunal ruled that no service tax is chargeable on notional interest, overturning the Commissioner's finding. The impugned order was deemed unsustainable in law, and the appeal of the appellant was allowed.

In conclusion, the Tribunal set aside the impugned order dated 30.9.2014, as it was not sustainable in law, and ruled in favor of the appellant based on the arguments presented and legal precedents cited.