2024 (10) TMI 1404 - AT - Service Tax

Interpretation of statute - Rule 4(7) and Rule 11 of Cenvat Credit Rules - Applicability of Rule 6 of Cenvat Credit Rules in recovering cenvat credit for unsold carpet area - HELD THAT - The appellant had availed cenvat credit of service tax paid on input services when the output service was subjected to levy of service tax. It is, therefore, found that availment of cenvat credit was in accordance with law. It is also noted from the proceedings that before receipt of Occupancy Certificate on 22.01.2016 appellant had utilized the entire cenvat credit of Rs.2,51,02,850/- towards payment of service tax on output service. Service Tax Law does not provide for levy of service tax on the flats or buildings constructed for which Occupancy Certificate is obtained. Therefore, carpet area of 21,010 square feet constructed by the appellant was not liable to levy of service tax. Revenue has invoked Rule 6 of Cenvat Credit Rules which provides for circumstances where cenvat credit is admissible or not admissible depending on taxability or otherwise of output service. It is clear from the ruling by Hon ble Gujarat High Court in the case of Principal Commissioner vs. Alembic Ltd. 2019 (7) TMI 908 - GUJARAT HIGH COURT that after obtaining Occupancy Certificate in respect of unsold carpet area for which no service tax will be leviable, cenvat credit already availed when the activity was taxable, the said cenvat credit need not be recovered. Thus, the appellant was not required to pay back the amount equivalent to cenvat credit of Rs.25,03,849/- - the impugned order is set aside - appeal allowed.

Issues:
1. Applicability of Rule 6 of Cenvat Credit Rules in recovering cenvat credit for unsold carpet area.
2. Interpretation of Rule 4(7) and Rule 11 of Cenvat Credit Rules in relation to availing cenvat credit.
3. Legal validity of demand for recovery of cenvat credit amount.
4. Application of relevant case laws in determining cenvat credit recovery.

Analysis:
1. The case involved a dispute regarding the recovery of cenvat credit amounting to Rs.25,03,849/- from the appellant for unsold carpet area after obtaining the Occupancy Certificate. The Revenue invoked Rule 6 of Cenvat Credit Rules to demand the recovery. However, the appellant argued that the cenvat credit was legitimately availed before the Occupancy Certificate was received, and therefore, should not be recovered. The Tribunal analyzed the applicability of Rule 6 and referred to the ruling by the Hon'ble Gujarat High Court to determine that the cenvat credit need not be recovered for unsold carpet area where no service tax is leviable, ultimately setting aside the demand for recovery.

2. The appellant also contested the demand based on the interpretation of Rule 4(7) and Rule 11 of Cenvat Credit Rules. The appellant argued that the entitlement to cenvat credit should be examined at the time of receiving input services, and once legitimately availed, should not be denied or recovered unless specific provisions are made. The Tribunal agreed with this interpretation and held that the appellant had availed the cenvat credit in accordance with the law before the output service became non-taxable, thus rejecting the demand for recovery.

3. The legal validity of the demand for recovery of cenvat credit was challenged by the appellant based on the utilization of the credit before the receipt of the Occupancy Certificate. The Tribunal noted that the entire cenvat credit had been utilized for payment of service tax on the output service before the Occupancy Certificate was obtained. Additionally, the Service Tax Law does not provide for levying service tax on properties for which an Occupancy Certificate has been received. Consequently, the Tribunal found that the demand for recovery was not legally justified and set aside the order confirming the demand.

4. The Tribunal extensively relied on the ruling by the Hon'ble Gujarat High Court in a similar case to support its decision. The ruling emphasized that once cenvat credit is legitimately availed during the period when the output service was taxable, it does not need to be recovered for unsold areas where no service tax is applicable. By applying the principles established in the cited case law, the Tribunal allowed the appeal and provided consequential relief to the appellant, thereby overturning the order confirming the demand for recovery of cenvat credit.

In conclusion, the Tribunal allowed the appeal, setting aside the demand for recovery of cenvat credit, based on the interpretation of relevant Cenvat Credit Rules and the application of established case law principles.

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