2024 (9) TMI 928 - AT - Service Tax

Proportionate reversal/recovery of CENVAT Credit - unsold flats available on the day of issue of completion/occupancy certificate to the builder - HELD THAT - There can be no second opinion that credit eligibility is to be examined as on the date receipt of input services and it is not governed by latter development such as portion of property getting converted into immovable property after receipt of completion certificate as could be noticed from para 12 and 14 of the relied upon judgment passed in the case of M/s. Alembic Ltd. Vs. Commissioner of Central Excise and Service Tax, Vadodara I 2018 (10) TMI 1557 - CESTAT AHMEDABAD . Otherwise also going by the provision of law such sale of immovable property having been excluded by statute namely by the Finance Act, 1994, under Section 65B(44) from the definition of service that is apparently done taking the constitutional mandate available under Section 366(29) of the Constitution of India, including the same as a component of exempted service through Explanation-3 added to Rule, 6 of the CENVAT Credit Rules, 2004 can t be said to be a validly legislated rule in view of operation of Section 38A of the Central Excise Act, equally applicable to Service Tax matters as covered under Section 83 of the Finance Act, 1994. The order passed by the Commissioner of GST Central Excise (Appeals Thane), Mumbai is hereby set aside - Appeal allowed.

Summary

Issues:
Proportionate reversal of CENVAT Credit on unsold flats post completion certificate issuance.

Analysis:
The judgment revolves around the issue of proportionate reversal of CENVAT Credit amounting to Rs. 16,39,155 on unsold flats as calculated on the day of completion/occupancy certificate issuance to the builder. The Appellant, engaged in a real estate project, availed CENVAT Credit for Service Tax paid on inputs services used in constructing 134 flats during 2014-2017. Upon receiving the completion certificate on 31.03.2017, the remaining 19 unsold flats were deemed immovable property, exempt from Service Tax. The show-cause notice proposed recovery of the credit amount, interest, and penalties. The Appellant contested this unsuccessfully, leading to the current appeal.

During the appeal hearing, the Appellant's Counsel argued that the demand confirmation by the Dy. Commissioner and Commissioner (Appeals) contradicted established Tribunal and High Court precedents. They cited cases like Alembic Ltd. and others, emphasizing that credit eligibility should be determined at the time of input service receipt, not affected by subsequent property status changes. The Counsel also opposed invoking the extended period for demand confirmation, deeming the issue interpretative and covered by prior Tribunal decisions.

On the contrary, the Respondent's Authorized Representative supported the Commissioner (Appeals) order, referencing Section 65B(44) of the Finance Act, 1994, and Rule 6 of CENVAT Credit Rules, 2004, to justify the credit reversal under exempted services.

The judgment analyzed the legal provisions, judicial decisions, and material on record. It highlighted that credit eligibility is fixed at input service receipt, unaffected by later property status changes. The exclusion of immovable property sale from the service definition under Section 65B(44) and Rule 6 of CENVAT Credit Rules was deemed invalid due to constitutional provisions. The judgment ultimately allowed the appeal, setting aside the Commissioner's order and providing consequential relief.

In conclusion, the Appellate Tribunal ruled in favor of the Appellant, overturning the Commissioner (Appeals) decision on the proportionate reversal of CENVAT Credit for unsold flats post-completion certificate issuance. The judgment emphasized the importance of determining credit eligibility at the time of input service receipt and invalidated the exclusion of immovable property sale from service definition under relevant legal provisions.