2019 (12) TMI 331 - AT - Central Excise

CENVAT Credit - duties/tax paid on inputs/input services deployed/utilised for construction of the commercial property which was then leased out - renting of immovable property services provided - period from June 2007 to Mach 2010 - It is the contention of appellant that the inclusion of cement , angles , channels , etc, used in construction of building, among the exclusions in Explanation II to rule 2(k) of CENVAT Credit Rules, 2004 came into effect only from 7th July 2009. HELD THAT - As reliance was placed by the original authority on circular no. 98/1/2008-ST dated 4th January 2008 of Central Board of Excise and Customs, it may be necessary to examine the applicability of the intent of that clarification to the present dispute - The issue that was raised therein was whether commercial or industrial construction service could be treated as input service for the output service of renting of immovable property and, while clarifying that commercial or industrial construction service is an input service for the output, viz., immovable property, the view taken was that right to use of the immovable property, being the output liable to service tax and not the property per se, credit would not be available. It was clearly held in the decision of the Tribunal in Musaddilal Projects Ltd v. Commissioner of Central Excise, Customs Service Tax 2017 (4) TMI 951 - CESTAT HYDERABAD that, without the establishing of the property, right to use would not come into being. It is inconceivable that a structure which is to be utilized for service can be alienated from the right to use - In re Dymos India Automotive Pvt Ltd, 2018 (9) TMI 1135 - MADRAS HIGH COURT the Hon ble High Court of Madras has also taken the view that requirement of construction of a building is a necessary pre-condition for rendering the service. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Denial of CENVAT credit on inputs/input services for construction of commercial property leased out.
2. Applicability of amendments to CENVAT Credit Rules, 2004.
3. Interpretation of circulars and instructions of Central Board of Excise and Customs.
4. Judicial precedents supporting or opposing the appellant's claim.

Detailed Analysis:

1. Denial of CENVAT Credit on Inputs/Input Services for Construction of Commercial Property Leased Out:
The appellant, M/s Regal Buildtech Pvt Ltd, contested the denial of CENVAT credit by the Commissioner of Central Excise, Pune – III, on duties/tax paid on inputs/input services used for constructing commercial property, which was then leased out. The appellant had discharged tax liability under 'renting of immovable property services.' The credit of ?2,66,78,245/- availed was sought to be recovered for the period from June 2007 to March 2010.

2. Applicability of Amendments to CENVAT Credit Rules, 2004:
The appellant argued that the inclusion of 'cement,' 'angles,' 'channels,' etc., among the exclusions in Explanation – II to rule 2(k) of CENVAT Credit Rules, 2004, became effective only from 7th July 2009. They contended that the definition of 'input services' in rule 2(l) did not exclude the services utilized by them. The Tribunal in Musaddilal Projects Ltd v. Commissioner of Central Excise, Customs & Service Tax [2017 (4) GSTL 401 (Tri.-Hyd.)] held that CENVAT credit availed up to 1st April 2011 was not barred for availment as per rule 2(k) as it then existed. The amendment effective from 7th July 2009 was applicable only to manufacturers and not to service providers.

3. Interpretation of Circulars and Instructions of Central Board of Excise and Customs:
The adjudicating authority placed erroneous emphasis on circular no. 98/1/2008-ST dated 4th January 2008, which stated that 'right to use immovable property' is leviable to service tax under renting of immovable property service, and input credit can be taken only if the output is a 'service' liable to service tax or 'goods' liable to excise duty. The Tribunal in Maharashtra Cricket Association v. Commissioner of Central Excise, Pune – III [2016 (41) STR 833 (Tri.-Mumbai)] and Oberoi Mall Ltd v. Commissioner of Service Tax, Mumbai – II [2017 (47) STR 292 (Tri.-Mumbai)] held that services used for setting up premises of the provider of output service are admissible as 'input services.'

4. Judicial Precedents Supporting or Opposing the Appellant's Claim:
The Tribunal cited several cases supporting the appellant's claim:
- Maharashtra Cricket Association: Services used for setting up premises of the provider of output service are admissible as 'input services.'
- Oberoi Mall Ltd: Construction services used for setting up malls, which were then rented out, were eligible for CENVAT credit.
- Nirlon Ltd: Construction of commercial complexes, which were rented out, was necessary for providing the output service of renting immovable property, making the input services used for construction eligible for credit.
- Musaddilal Projects Ltd: The amendment effective from 7th July 2009 did not have retrospective application for service providers.
- Sai Samhita Storages (P) Limited: Cement and steel used for construction of warehouses were eligible for CENVAT credit as they were necessary for providing storage and warehousing services.

Conclusion:
The Tribunal found the impugned order denying CENVAT credit to be not legal and proper, relying on overwhelming judicial precedents that supported the appellant's claim. Accordingly, the appeal was allowed.