2019 (4) TMI 327 - AT - Service Tax

CENVAT Credit - input/input services - construction of said Hotel & Spa Project at Milroc Kadamba - denial of credit on the ground that Appellant has not provided any output service in relation to construction of the hotel building to another person - Held that - The hotel construction is not the end activity of the appellants. Rather their end activities are providing various taxable services like accommodation, restaurant services, spa services and other related services in the said Hotel and they have availed credit in respect of these services which are other than construction service. They have, therefore, fulfilled the conditions specified in Rule 2(l) ibid and thus the appellant is entitled to the credit of the same under the provision of Rule 3(1) ibid. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Admissibility of Cenvat credit for construction of hotel without providing output service as per Section 65B(44) of the Finance Act, 1994.

Analysis:
The Appellant, engaged in construction of residential complexes, availed Cenvat credit for inputs and input services used in constructing a Hotel & Spa Project. The Revenue contended that since the Appellant did not provide any output service in relation to the hotel construction, the credit was inadmissible under Cenvat Credit Rules, 2004 and Section 66E(b) of the Finance Act, 1994. Two show cause notices were issued for recovery of inadmissible credit. The adjudicating authority and the Commissioner upheld the notices. The Appellant argued that they availed credit for services other than construction and produced certificates and returns to support this. The Revenue maintained that the Appellant, not providing output service in construction, was not entitled to credit.

The key issue revolved around the interpretation of Section 65B(22) and (44) of the Finance Act, 1994, defining "declared service" and "service." The definitions of "input" and "input service" under Cenvat Credit Rules, 2004 were crucial. The Appellant's eligibility for credit hinged on whether the services used were related to construction or other taxable services. The Tribunal examined precedents like CCE vs. Sai Sahmita Storages and Vamona Developers Pvt. Ltd. case to determine credit eligibility. These cases established that credit could be claimed for services used in providing output services, even if they resulted in immovable property. The Tribunal also cited the Oberoi Mall Ltd. case, supporting credit availment for construction-related services.

The Tribunal concluded that the Appellant's credit availed on non-construction services was admissible. The services used were not directly related to construction but for post-construction activities like accommodation, restaurant, and spa services. The Tribunal rejected the Revenue's argument that services used for construction of a non-excisable property were ineligible for credit. Relying on precedents and the definition of input services, the Tribunal found the lower authorities' reasoning lacking merit. Consequently, the Tribunal allowed the Appeal, setting aside the impugned order and ruling the credit admissible, negating the need for interest and penalty. The judgment was pronounced on 03.04.2019 by Shri Ajay Sharma, Member (Judicial) at the Appellate Tribunal CESTAT MUMBAI.

This detailed analysis of the judgment highlights the legal intricacies and precedents considered in determining the admissibility of Cenvat credit for construction activities without providing output services, providing a comprehensive understanding of the case.