2013 (10) TMI 820 - AT - Service Tax

CENVAT Credit - Renting of immovable property services - cenvat credit of input services utlized for construction of Mall and Excise duty on inputs and capital goods consumed in construction of Mall - Waiver of pre-deposit - difference of opinion - third member decision - Held that - Difference between the Members therefore now narrows down to some services which are utilised by provider of Work Contract Service in construction of Mall. These services are like Architect Service, Design Service and Consulting Engineering Service etc. I find the Tribunal in case of Navaratana.S.G. Highway Prop. Pvt. Ltd. (2012 (7) TMI 316 - CESTAT, AHMEDABAD) has allowed the Cenvat credit of service tax in respect of such input services to the owner of property. It is owner of the property who engages architect for preparing design of the building, he takes services of design engineer for preparation of design and contractor is required to execute the work as per design of Architect, Design engineer and consulting engineer. Moreover, under Cenvat Credit Rules, credit can be taken by service recipient on the basis of invoices issued by the service provider. If invoices issued in respect of Architect Services, design service, consulting engineers service are in name of owner of property, prima facie there is no reason to deny the credit to the appellant. - 35% of Cenvat credit availed on input services is not required to be made as pre-deposit. Appellant directed to pre-deposit 35% of the Cenvat credit denied and attributable to inputs and capital goods alone - stay granted partly.

Issues Involved:
1. Availability of Cenvat credit in respect of inputs/raw materials used for construction of the building.
2. Availability of Cenvat credit in respect of various input services used for providing output services.

Detailed Analysis:

1. Availability of Cenvat Credit in Respect of Inputs/Raw Materials Used for Construction of the Building:

The appellants, owners of shopping malls, availed Cenvat credit for inputs like cement, glass, and steel used in constructing buildings rented out as part of their service. The adjudicating authority denied this credit, arguing that these inputs are used for construction, not directly for providing output services. The authority emphasized that the definition of inputs for excise duty and service tax differs, with the latter being more restrictive.

The appellants cited the Andhra Pradesh High Court's decision in Commissioner of Central Excise Visakhapatanam II vs. Sai Sahmita Storages (P) Ltd., which allowed credit for inputs used in constructing warehouses for storage services. However, the Tribunal distinguished this case, noting that warehousing services are inherently linked to the constructed facility, unlike renting services, which are temporary and can change the use of the building.

The Tribunal also referenced the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, which allow service providers to pay a concessional rate of service tax without availing credit on inputs. The appellants' service providers opted for this scheme, thus not availing credit on inputs, which the Tribunal held could not indirectly benefit the appellants.

The Tribunal's decision in Mundra Port and Special Economic Zone Ltd. vs. CCE, Rajkot was cited, where it was held that inputs used for constructing a jetty were not eligible for credit for port services. The Tribunal concluded that the appellants' claim for Cenvat credit on inputs used for constructing malls lacked merit, requiring a deposit of 35% of the disputed amount.

2. Availability of Cenvat Credit in Respect of Various Input Services Used for Providing Output Services:

The appellants also claimed Cenvat credit for input services like architecture, security, consultancy, housekeeping, repair, maintenance, and Chartered Accountant services. The Tribunal noted that while some services were used directly by the appellants for building maintenance, others were utilized by the works contract service provider during construction.

The Tribunal distinguished between services directly used by the appellants, which might be admissible, and those used by the works contract service provider, which were not. The Tribunal referenced the case of Navaratna S.G. Highway Prop. Pvt. Ltd. vs. CST, Ahmedabad, where credit for input services used in constructing malls was allowed. However, the Tribunal noted differences in the appellants' case, as the construction was done by a service provider.

The Tribunal directed the appellants to deposit 35% of the confirmed demand, considering the merits and lack of financial hardship claims. A separate order by a member disagreed, arguing that credit on input services should not require pre-deposit, as services like architecture and consulting are typically engaged by the property owner, not the contractor.

Separate Judgments:

A separate opinion by a member (Mathew John) disagreed with the majority, arguing that credit on input services should not require pre-deposit. The member emphasized that services like architecture and consulting are typically engaged by the property owner, and denying credit would be unjustified. The member proposed a lower pre-deposit requirement, focusing only on inputs and capital goods.

Final Order:

The majority order directed the appellants to pre-deposit 35% of the Cenvat credit denied and attributable to inputs and capital goods alone within six weeks, with compliance to be ascertained on a specified date.

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