We are sharing with you an important judgement of the Hon’ble CESTAT, Mumbai in the case of Nirlon Ltd. Vs. Commissioner of Central Excise, Mumbai [2016 (2) TMI 417 - CESTAT MUMBAI] on the following issue:
Whether the Assessee is entitled to avail Cenvat credit of Service tax paid on construction of commercial complex used for renting of immovable property?
Facts & Background:
In the instant case, Nirlon Ltd. (“the Appellant”) has availed Cenvat credit of the Service tax paid on the construction services (“the Impugned services”) and used the same for discharging Service tax liability under the category of ‘renting of immovable property services’ for the period April 2007 to March 2009. However, the Department has issued Show Cause Notice, followed by passing of Order in Original (“OIO”) on the ground that the Appellant could not avail Cenvat credit on the Impugned services in terms of CBEC Circular No. 96/7/2007-ST dated August 23, 2007 and further amended by Circular No. 98/1/2008 – ST dated January 4, 2008, wherein it was clarified that input credit of Service tax can be taken only if the output is a 'service' liable to Service tax or a 'goods' liable to Excise duty. However, commercial or industrial construction service or works contract service is an input service for the output namely immovable property. Immovable property is neither subjected to Central Excise duty nor to Service tax, thus input credit cannot be taken.
Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Mumbai.
The Hon’ble CESTAT, Mumbai heard both sides and observed the contention submitted by the Appellant that unless the commercial complex is constructed and completed in all respects, the same could not be rented out by the Appellant is a common sense. In this regard, the following legal pronouncements upon which the Appellant places reliance are fully applicable in the instant case:
· Navaratna S.G. Highway Prop. (P.) Ltd. Vs. Commissioner of Service Tax, Ahmedabad [2012 (7) TMI316 – CESTAT AHMEDABAD], wherein it was held that without utilizing the services, mall could not have been constructed and therefore the renting of immovable property would not have been possible and accordingly, allowed the Cenvat credit of Service tax paid on construction services;
· Commr. of C. Ex., Visakhapatnam-II Vs. Sai Samhita Storages (P) Ltd. [2011 (2) TMI 400 - ANDHRA PRADESH HIGH COURT], wherein it was held that Cenvat credit is allowed on cement and TMT bar used for construction of warehouses, without which storage and warehousing services could not have been provided by the assessee.
Hence, the Hon’ble CESTAT has allowed the appeal and thereby, the Appellant is eligible to avail the Cenvat credit of Service tax paid on the Impugned services in terms of Rule 2(I) of the Cenvat Credit Rules, 2004 (“the Credit Rules”) and can be utilized for the payment of Service tax under the taxable category of ‘renting of immovable services’.
Point to be noted:
It is to be noted that post facto April 1, 2011, definition of the term ‘Input service’ given under Rule 2(l) of the Credit Rules was substituted vide Notification No. 3/2011-CE(NT) dated March 1, 2011, inter alia, deleting the phrase ‘setting up’.
In this regard, we would like to draw your kind attention toward the definition of input service existing prior and post April 1, 2011 as under:
Prior to April 1, 2011
“(l) "input service" means any service,-
.............and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises,”
Post facto April 1, 2011
“(l) “input service” means any service, -
.........................and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises.”
Hence, broadly, services relating to setting up of premises of provider of output service may not be eligible for Cenvat credit with effect from April 1, 2011. However, services relating to modernization/renovation/repairs of premises of provider of output service may continue to be eligible for Cenvat credit.