2016 (12) TMI 97 - AT - Service Tax

CENVAT credit - common services used for output services - proposed to deny corresponding to reverse charge services - renting of immovable property service - various input services - The appellant owns a building with an area of ₹ 2,92,105 sq feet spread over six floors and, admittedly, the building was occupied by tenants, with occupancy rates between 40% and 92%, during this period. Both lower authorities have held that credit availment is permissible only to the extent that input services are used to provide output services - Held that - The availment of credit is derived from rule 3 of CENVAT Credit Rules, 2004 and, as the taxes have been paid on common services used for property that is not in use by the appellant as recipient of service, availament of CENVAT credit is within the scope of the Rules. CENVAT credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Disallowance of CENVAT credit under rule 14 of CENVAT Credit Rules, 2004.
2. Interpretation of the concept of 'input service' in relation to output service.
3. Application of CENVAT Credit Rules, 2004 to the availment of credit.
4. Justification of disallowance of credit by lower authorities.

Analysis:
1. The appellant, a provider of 'rental of immovable property service', appealed against the disallowance of credit amounting to ?16,40,141 under rule 14 of CENVAT Credit Rules, 2004. The disallowance was based on a meticulous calculation of occupancy rates of the property during the relevant period. The lower authorities held that credit could only be availed to the extent that input services were used to provide output services. The first appellate authority relied on a Tribunal decision to uphold the disallowance.

2. The appellant argued that the decision cited by the lower authorities was distinguishable, as in the referenced case, the service provider was also the recipient of service. The appellant contended that the tax burden should be borne by the recipient of the service/goods. It was highlighted that the entire property was offered for rental services, and services utilized were attributable to the available rental area. The appellant emphasized that the CENVAT Credit Rules, 2004 did not require proportional allocation of credit.

3. The appellant further argued that the definition of 'input service' in the CENVAT Credit Rules, 2004 aimed to restrict credit to services perceptibly used in rendering output services. The appellant referenced another Tribunal decision to explain the correlation between input and output services. It was asserted that the availment of credit was within the scope of the Rules, as taxes were paid on common services used for the property, even if not in use by the appellant as the recipient of service.

4. The Tribunal found that the justifications provided by the lower authorities lacked legal sanction. It was emphasized that the Rules governed the accumulation of credit for payment of duties/taxes and did not allow for discretionary exemptions. A Tribunal decision cited by the Revenue was deemed irrelevant as it pertained to an output service not in existence during the credit period, unlike the appellant's case where the output service was operational. Consequently, the impugned order disallowing credit was set aside, and the appeal was allowed.