2016 (12) TMI 484 - AT - Service Tax

Denial of CENVAT credit on various inputs services which are consumed for construction of the building - demanf of tax on interest-free deposit, forfeited amounts - renting of immovable property services - Held that - As regards the denial of CENVAT credit of input and inputs services used in relation to the building of the property which was to be used by the appellant for the commercial purpose by leased out the area of such commercial property, we find that there is no dispute that the appellant had discharged the Service Tax liability on the amount received as rent from their clients. If appellant is discharging Service Tax liability on the output services under the category of renting of immovable property , we do not find any reason for denial of CENVAT credit on various input and inputs services used in relation to building of such commercial property. As regards the demand of Service Tax liability on the interest-free security deposit, we find that the adjudicating authority has calculated notional interest payable on such interest-free security deposit and related the notional interest as received in relation to renting of immovable property services. We are not in agreement with such finding of the adjudicating authority, for the reason that an agreement between the appellant and his customer provides for interest free security deposit, which is nothing but advance, Revenue cannot state that such security deposit will earn interest, and notional interest needs to be taxed. As regards Service Tax liability on the amount which was forfeited by the appellant as liquidated damages for rendition of the customer in not taking the possession of the premises contracted for, we do agree that Service Tax liability on such amount forfeited as liquidated damages does not arises. As regards the CENVAT credit improperly availed on amount of ₹ 3.30 crores (approx), we find that the issue needs reconsideration by the adjudicating authority as various documents produced before us as also before the adjudicating authority, in our opinion were not considered in proper prospective and no findings are given; without expressing any opinion on the merits of this issue, we set aside the finding of the adjudicating authority on this point and remit this point for redetermination by the adjudicating authority after following the principle of natural of justice. Appeal partly allowed - matter on remand.

Summary

Issues Involved:
- Availment of CENVAT credit for construction services
- Taxability of interest-free security deposit
- Tax liability on forfeited amounts
- Improper availing of CENVAT credit

Analysis:

Availment of CENVAT credit for construction services:
The appellant constructed commercial premises for renting and availed various services with Service Tax liability discharged by the service provider. The revenue authorities challenged the appellant's CENVAT credit on input services for construction. The Tribunal cited the Oberoi Mall Limited case, establishing the eligibility to avail CENVAT credit for such services. The Tribunal upheld the appellant's right to claim CENVAT credit for input services related to building construction for commercial purposes.

Taxability of interest-free security deposit:
The revenue authorities contended that interest-free security deposits should be taxable based on notional interest. However, the Tribunal disagreed, stating that such deposits, as advance payments, do not attract taxation on notional interest. Referring to the Murli Realtors Pvt. Ltd. case, the Tribunal ruled in favor of the appellant, emphasizing that interest-free security deposits are not subject to Service Tax liability.

Tax liability on forfeited amounts:
Regarding the forfeited amounts as liquidated damages for non-possession of premises, the Tribunal cited the United Breweries Ltd. case. Drawing parallels, the Tribunal concluded that Service Tax liability does not apply to amounts forfeited as liquidated damages. The Tribunal highlighted the intention behind the transactions and the nature of the forfeited amounts, aligning with the legal principles outlined in the United Breweries Ltd. judgment.

Improper availing of CENVAT credit:
The Tribunal remanded the issue of improperly availed CENVAT credit of approximately ?3.30 crores for reconsideration by the adjudicating authority. Noting that the authority had not adequately considered the documents and findings, the Tribunal emphasized the need for a thorough review following the principles of natural justice. The Tribunal set aside the previous ruling on this matter for a fresh determination.

In conclusion, the Tribunal allowed the appeal on specific points related to CENVAT credit, security deposits, and forfeited amounts, while remanding the issue of improper CENVAT credit availment for further assessment. The judgment provided clarity on the tax treatment of various transactions and upheld the appellant's position on several key issues.