Works Contract Services Used for Modernisation of Existing Studio Eligible for CENVAT Credit: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that service tax paid on works contract services used for repair, renovation and strengthening of an existing film studio qualifies for CENVAT credit under Rule 2(l) of the CENVAT Credit Rules, 2004.

YRF Studios was engaged in renting studio premises for film production and sound recording. It also provided services such as sound recording, business support and video production.

During an audit for the period from October 2014 to June 2017, the department found that YRF Studios had taken CENVAT credit on services used for strengthening RCC columns in its studio buildings. The work also included strengthening the audio wing and fixing decking sheets for refurbishing and supporting the slabs of the studio and audio buildings.

The department treated the activity as works contract service connected with construction. It held that the credit was not available under the exclusion clause of the CENVAT Credit Rules, 2004. A show cause notice was issued and CENVAT credit of Rs.3,05,114 was denied. An equal penalty was also imposed.

YRF Studios counsel argued that the work was not for construction of a new building. It was repair and renovation of the existing studio premises from where taxable output services were provided. They also argued that Rule 2(k) applied to inputs in the form of goods, while the disputed credit related to service tax paid on the service portion of the works contract.

The company’s counsel produced invoices and a Chartered Accountant’s certificate showing that the expenditure was recorded under “Repairs and Maintenance-Building.”

The Revenue counsel argued that the activity involved works contract service and fell under the exclusion clause of Rules 2(k) and 2(l).

The single-member bench comprising M.M. Parthiban, Technical Member, observed that the disputed work was carried out in the studio and audio-recording buildings used for providing output services. Without such infrastructure, YRF Studios could not provide sound recording and video production services.

The Tribunal explained that Rule 2(k), which defines inputs, was not relevant for deciding credit on service tax paid on works contract services. The issue had to be examined under Rule 2(l), which includes services used for modernisation, renovation or repair of the premises of an output service provider.

The Tribunal held that the disputed services improved the existing studio infrastructure and were not covered by the exclusion clause. It set aside the demand and penalty and allowed CENVAT credit of Rs.3,05,114.

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