2023 (5) TMI 565 - AT - Service Tax

Recovery of CENVAT Credit alongwith interest and penalty - denial of CENVAT credit availed on input services used for construction of buildings, from where renting of immovable property service is provided by the appellant for the reason that the same would result in creation of immovable property which is neither goods nor services - period in dispute from 2010-11 to 2013-14 - HELD THAT - This precise issue was considered by a Division Bench of the Tribunal in Bharti Reality Ltd. 2022 (5) TMI 569 - CESTAT NEW DELHI for the earlier period and it was held that the appellant would be entitled to avail CENVAT credit. Learned counsel for the appellant has, however, pointed out a relevant fact which has not been taken note of either in the show cause notice or in the impugned order passed by the Commissioner. This concerns the amendment made on 01.04.2011 in rule 2(l) of the 2004 Rules, which rule defines input service - Learned counsel for the appellant pointed out that for commercial or industrial consideration, erection commissioning or installation and works contract service, the appellant availed CENVAT credit of service tax paid on works contract service prior to 01.04.2011 as the services were used for construction of buildings specifically given on rent, but the appellant, in view of the amendment made in rule 2(l) of the 2004 rules on 01.04.2022, did not avail CENVAT credit as these are services covered under the inclusive clause. The Commissioner has placed reliance upon a Larger Bench decision of the Tribunal in VANDANA GLOBAL LTD. VERSUS CCE 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) , which decision has been set aside by the Chhattisgarh High Court and the decision of the Larger Bench of the Tribunal. The order dated 20.06.2017 passed by the Commissioner deserves to be set aside and is set aside and the appeal is allowed.

Summary

Issues Involved:
1. Denial of CENVAT credit on 'input services' used for construction of buildings.
2. Applicability of the amendment in rule 2(l) of the CENVAT Credit Rules, 2004.

Issue 1: Denial of CENVAT Credit on 'Input Services' Used for Construction of Buildings

M/s Bharti Reality Ltd. challenged the order denying CENVAT credit of Rs. 4,45,82,465/- on 'input services' used for constructing buildings, which were later rented out. The Commissioner ordered the recovery of the credit under rule 14 of the CENVAT Credit Rules, 2004, along with interest and penalty. The appellant argued that these services were essential for providing 'renting of immovable property' services, thus entitling them to avail CENVAT credit. The Tribunal had previously ruled in favor of the appellant for an earlier period, stating that the inputs, capital goods, and input services used for constructing buildings intended for taxable services are eligible for CENVAT credit. The Tribunal referenced several High Court rulings supporting this view, including Commissioner of Central Excise, Visakhapatnam vs. Sai Samhita Pvt. Ltd. and Mudra Port. The Tribunal concluded that the appellant is entitled to the disputed CENVAT credit, setting aside the impugned order.

Issue 2: Applicability of the Amendment in Rule 2(l) of the CENVAT Credit Rules, 2004

The appellant highlighted that an amendment to rule 2(l) on 01.04.2011, which defines 'input service,' was not considered in the show cause notice or the impugned order. Before the amendment, the rule included services used for setting up, modernization, renovation, or repairs of premises. Post-amendment, it excluded services related to construction or execution of works contracts for buildings. The appellant availed CENVAT credit for works contract services before the amendment but ceased to do so afterward. The Tribunal noted that the Commissioner relied on a Larger Bench decision in Vandana Global, which was subsequently set aside by the Chhattisgarh High Court. Consequently, the Tribunal set aside the impugned order and allowed the appeal.

Conclusion:

The Tribunal ruled that M/s Bharti Reality Ltd. is entitled to avail CENVAT credit on 'input services' used for constructing buildings rented out for taxable services, and the amendment to rule 2(l) of the CENVAT Credit Rules, 2004, post-01.04.2011, was not applicable to the disputed period. The appeal was allowed, and the impugned order was set aside.