Cenvat Credit not Recoverable after Obtaining Occupancy Certificate of Unsold Carpet Area was Taxable: CESTAT [Read Order]

The Mumbai Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) in a recent case has held that after obtaining Occupancy Certificate in respect of unsold carpet area for which no service tax will be leviable, cenvat credit already availed when the activity was taxable, the cenvat credit need not be recovered.

Pioneer Housing, the appellant/assessee is in the business of construction of residential flats and registered with Service Tax and also availing the benefit of Cenvat credit scheme. Appellant constructed four buildings, out of which in respect of two buildings viz. Sanctura and Serena, appellant obtained Occupancy Certificate. The total constructed carpet area of the said two buildings put together was 2,10,640 square feet, out of which by the time Occupancy Certificate was obtained, 21,010 square feet of carpet area remained unsold.

Boost Your Business with SME IPO Funding Strategies - Enroll Now

As per the levy of service tax, the residential complex for which Occupancy Certificate is received, service tax cannot be levied on the same. From the period from 2013-14 till the Occupancy Certificate was received, appellant had availed cenvat credit of Rs.2,51,02,850/-.

A show cause notice was issued to the appellant wherein it was stated that out of the cenvat credit of Rs. 2,51,02,850/- availed and utilized by the appellant for total saleable carpet area of 2,10,640 square feet, appellant would not be paying any service tax on 21,010 square feet carpet area and, therefore, the appellant should not be eligible for cenvat credit of Rs.25,03,849. By invoking proviso to Section 73(1) of Finance Act, 1994, for extended period of limitation read with the provisions of Rule 6 and Rule 14 of Cenvat Credit Rules, the appellant was called upon to show cause as to why cenvat credit amounting to Rs.25,03,849 should not be demanded and recovered from the appellant.

Boost Your Business with SME IPO Funding Strategies - Enroll Now

The appellant contended that the case is not covered by Rule 6 of Cenvat Credit Rules and that Rule 4(7) of Cenvat Credit Rules does not provide for the appellant to wait to take cenvat credit of input services till the output services sold to the service recipient and that the appellant can take the cenvat credit of service tax paid on input services immediately after the day on which input service invoice is received and that only Rule 11 of Cenvat Credit Rules provides that when the credit is availed at the earlier instance and subsequently when the output service becomes non-taxable, then at a later point, the availed cenvat credit need not be recovered as provided by sub-rule (4) of Rule 11.

It was argued that before the Occupancy Certificate was received, the entire cenvat credit was utilized for payment of service tax on output service. He has further relied on the ruling by Gujarat High Court in the case of Principal Commissioner vs. Alembic Ltd.  The cenvat credit need not be recovered in respect of unsold carpet area on receipt of Occupancy Certificate or Completion Certificate.

Boost Your Business with SME IPO Funding Strategies - Enroll Now

The single bench of Anil G. Shakkarwar (Technical Member) has observed that Service Tax Law does not provide for levy of service tax on the flats or buildings constructed for which Occupancy Certificate is obtained. Therefore, carpet area of 21,010 square feet constructed by the appellant was not liable to levy of service tax. Revenue has invoked Rule 6 of Cenvat Credit Rules which provides for circumstances where cenvat credit is admissible or not admissible depending on taxability or otherwise of output service.

While allowing the appeal, the tribunal  held that the appellant had availed cenvat credit of service tax paid on input services when the output service was subjected to levy of service tax.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates