CENVAT credit on construction services for premises used in taxable renting allowed despite resulting immovable property

Service tax on commission received as business auxiliary service was sustained because the levy was taxable on the admitted facts and no merit or limitation challenge was established; interest and penalty were also upheld. CENVAT credit on construction services used to build a pre-fabricated premises later rented out was allowed because the constructed property was used for taxable renting of immovable property, and credit could not be denied merely on the ground that the output resulted in immovable property. The Revenue's reliance on the Board circular was not accepted on these facts.

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Issues: (i) whether service tax demand on commission received from Indian Oil Corporation Ltd. as business auxiliary service was sustainable; (ii) whether CENVAT credit on construction services used for construction of a pre-fabricated building later rented out was admissible.

Issue (i): whether service tax demand on commission received from Indian Oil Corporation Ltd. as business auxiliary service was sustainable.

Analysis: The commission amount was taxable as business auxiliary service and the appellant did not seriously contest the demand. No case was made out on merits or limitation against the demand, interest, and penalty.

Conclusion: The demand of service tax on the commission was upheld along with interest and penalty.

Issue (ii): whether CENVAT credit on construction services used for construction of a pre-fabricated building later rented out was admissible.

Analysis: The appellant used the construction services for creating premises that were subsequently let out, and service tax was discharged on renting of immovable property. The Tribunal followed prior decisions holding that credit cannot be denied merely because the construction results in immovable property when the property is used for taxable output services such as renting, and the Board circular relied on by the Revenue was not accepted in the facts of the case.

Conclusion: The denial of CENVAT credit was set aside and the assessee was held entitled to the credit.

Final Conclusion: The appeal succeeded only in relation to the CENVAT credit issue, while the demand relating to commission income remained sustained.

Ratio Decidendi: CENVAT credit on input services used for construction of premises is admissible where the constructed property is put to use for taxable renting services, notwithstanding that the construction results in immovable property.

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