Recently in a ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata, allowed the reversal of a ₹3.23 crore denial of CENVAT credit claimed by a taxpayer involved in the construction and leasing of commercial properties.
The case pertained to the appellant’s entitlement to CENVAT credit on input services used in the construction of properties later leased out under the category of “renting of immovable property service.”
The assessee/ appellant in the case is Ambuja Realty.
The dispute arose after the Commissioner of Service Tax, Kolkata, issued an order in 2014, denying the appellant’s CENVAT credit of ₹3.23 crore for the period between October 2007 and March 2012. The denial was based on a Show Cause Notice issued in April 2013, which alleged that the CENVAT credit availed on input services used for the construction of commercial properties was inadmissible. The notice invoked an extended period of limitation for the assessment.
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The appellant, who was registered with the Service Tax Department and paying taxes regularly, undertook the construction of several commercial properties during the disputed period. The appellant had claimed CENVAT credit on the service tax paid for various input services used in the construction process. When parts of the properties were sold during construction, the appellant reversed the credit corresponding to those sold units and reported the adjustments to the department in its periodic returns. However, for the commercial units that were leased out, the appellant utilized the remaining credit to discharge its service tax liabilities under the category of “renting of immovable property service.”
The Commissioner’s order, however, denied the entire CENVAT credit claim, also imposing a penalty and interest on the appellant.
Aggrieved, The appellant challenged this ruling before the CESTAT Kolkata.
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Before the tribunal, the appellant’s counsel argued that the issue had already been settled in similar cases, specifically citing the decision in Navratna S.G. Highway Prop. Pvt. Ltd. v. Commissioner of Service Tax. The appellant’s counsel maintained that CENVAT credit on input services used for the construction of properties later rented out should be admissible under the law.
The appellant relied on Rule 2(k) and (l) of the CENVAT Credit Rules, 2004, which define “input” and “input service.” The rules make it clear that any goods and services used for providing taxable output services, such as renting immovable property, are eligible for CENVAT credit, unless specifically excluded. The appellant argued that their use of input services in constructing commercial properties, which were subsequently leased, fell well within these provisions.
CESTAT’s bench, comprising Judicial Member Shri Ashok Jindal and Technical Member Shri K. Anpazhakan, examined the arguments and the relevant statutory provisions. They noted that the appellant’s case was similar to a prior ruling of the Andhra Pradesh High Court, which had allowed CENVAT credit on services used in the construction of warehouses rented out for storage services. In that case, the court held that without the use of essential services in constructing the warehouses, the storage services could not have been provided.
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Applying this logic, the Tribunal observed that without using the input services to construct the commercial properties, the appellant could not have provided renting services. The Tribunal further noted that under Rule 2(l) of the CENVAT Credit Rules, 2004, any service availed by a provider of taxable services for delivering those services is entitled to CENVAT credit.
The Tribunal concluded that the appellant’s claim for CENVAT credit on the input services used for constructing the leased commercial properties was valid. It ruled that the denial of ₹3.23 crore in credit by the Commissioner was unsustainable, and that the appellant was not liable for the penalty or interest previously imposed. The CESTAT set aside the Commissioner’s order and allowed the appeal, providing consequential relief to the appellant.
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