The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), has set aside a service tax demand, holding that CENVAT credit on inputs, input services and capital goods used for construction of immovable property is admissible where such property is used for providing taxable Renting of Immovable Property Service.
The appellant, DLF Cyber City Developers Ltd., was engaged in providing taxable services including Renting of Immovable Property, Transportation of Goods by Road and Advertisement Services. The Department issued multiple show cause notices for the period from 1 June 2007 to 31 March 2011 alleging that the appellant had wrongly availed CENVAT credit on inputs, input services and capital goods used for construction of commercial buildings, which were later rented out.
The Commissioner confirmed the demand and ordered recovery of the credit along with interest and penalties under Rule 14 of the CENVAT Credit Rules, 2004, on the ground that construction of immovable property does not amount to manufacture or provision of taxable service. Aggrieved by the order, the appellant approached the Tribunal.
Before the Tribunal, the appellant contended that the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules is broad and covers services used directly or indirectly for providing output services. It was submitted that services such as architect services, consulting engineer services, legal consultancy, management consultancy, security services, chartered accountant services and works contract services were essential for constructing and maintaining the buildings from which the renting service was provided.
The appellant argued that renting of immovable property service cannot be provided without first constructing and maintaining the building, and therefore construction-related services have a direct nexus with the output service. It was further submitted that prior to 1 April 2011, construction-related services were not excluded from the definition of input service, and the subsequent amendment excluding such services was not retrospective.
The Department, on the other hand, argued that immovable property is neither goods nor a taxable service and therefore credit on construction services was inadmissible. It relied on a CBEC circular dated 4 January 2008 and also submitted that similar issues were pending before the Supreme Court, and therefore the matter should be kept in abeyance.
The Tribunal rejected the Department’s contentions and held that the definition of input service prior to 1 April 2011 expressly included services used in relation to “setting up” the premises of a provider of output service. It observed that “Renting of Immovable Property Service cannot be provided in the absence of… input services… for construction of building which itself is to be used in the provision of output service.” The Tribunal also noted that construction services were specifically excluded from the definition of input service only with effect from 1 April 2011, and that the amendment was not retrospective. It held that departmental circulars cannot override statutory provisions or judicial precedents.
On the issue of limitation, the Tribunal found that the appellant had been regularly filing ST-3 returns and its accounts were audited by the Department. It held that there was no evidence of suppression or intent to evade tax, and therefore the extended period of limitation was not invocable. In view of these findings, the Tribunal held that the impugned order was not sustainable in law. The demand, interest and penalties were set aside, and the appeal filed by the appellant was allowed with consequential relief as per law.
Cause Title: M/s DLF Cyber City Developers Limited Versus Commissioner of Central Excise & Service Tax, New Delhi
Case No.: Service Tax Appeal No. 3090 of 2012
Coram: S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member)
