CESTAT Sets aside Commissioner's order denying Cenvat Credit only because of absence of Nexus with Input services and Output services [Read Order]

The Bangalore bench of the Customs, Excise & Service Tax Appellate Tribunal( CESTAT) sets aside the commissioner's order denying cenvat credit only on ground of absence of Nexus with Input services and output services.

The Appellant M/s. Divyasree Holdings Pvt. Ltd. are registered under the category of Construction Services, Goods Transport Agency and Renting of Immovable Property Services. The audit party on verification of records observed that the appellant had availed cenvat credit on various input services and utilized the same for payment of service tax on renting of immovable property service. The Commissioner in the impugned order observed that the various input services had no nexus with the taxable output service.

Since the input services were availed for the construction of the commercial complex which was immovable property, it was held that these services are used in the manufacture of immovable property on which no duty or service tax is paid and hence, the question of availing cenvat credit did not arise.

Accordingly, referring to the definitions of ‘input’ and ‘input service’ as specified under Rule 2(k) and 2(l) of Cenvat Credit Rules, 2004, the credit was denied and the impugned order confirmed an amount of Rs.92,10,557/- along with the interest and also imposed penalty under Section 78 of the Finance Act, 1994. Aggrieved by this order, the appellant is in appeal before us.

The Chartered Accountant submitted that the appellant had availed cenvat credit on various input services such as telephone services, banking services, chartered accountant services, general insurance service, security services, real estate services, electrical installation services, consultancy services, erection commissioning services, management maintenance and repair services, architecture services, construction services etc.

Referring to the definition of ‘input service’, it is submitted that it does not restrict the credit for services relating to renting of immovable property services. It is also submitted that the issue is no longer res integra since the various appellate authorities have held that there cannot be one to one nexus between the input services and the output services as long as there is no dispute that the input services were used and the output services were liable to service tax.

The Authorized Representative (AR) for the Revenue reiterated the findings of the Commissioner in the impugned order and submitted that the appellant is not eligible to avail the cenvat credit since the credit is availed on the construction services on which no service tax is being discharged and the output service i.e., renting of the commercial property has no nexus with the input services.

The only issue to be decided is whether the appellant is eligible to avail cenvat credit on the input services used in the construction of services of the commercial complex which are ultimately being rented out on which service tax is being discharged.

The judgment of the Andhra Pradesh High Court in Sai Samhita was referred to by the Gujarat High Court in Mudra Port and Cenvat credit was allowed on the inputs used for construction of the jetty. It was viewed that the appellants are entitled to the disputed Cenvat credit. Consequently, the impugned orders seeking to deny and recover Cenvat credit along with interest and seeking to impose penalties cannot be sustained.

The two member bench of P.A. Augustian, Member (Judicial) and R. Bhagya Devi, Member (Technical) observed that the cenvat credit is denied only on the ground that the input services had no nexus with output services for the reason that the input services were used for the construction of immovable property, which was later on rented; on which service tax being paid under the category of ‘Renting of Immovable Property’.

The tribunal set aside the observations of the Commissioner in the impugned order and allowed the appeal.

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