Input service credit for warehouse construction was allowed where the premises supported taxable renting of immovable property.

For the period before 1.4.2011, construction services used to build a warehouse were treated as eligible input services where the warehouse had a direct functional nexus with the output service of renting of immovable property. The relevant definition of input service was considered wide enough to cover services used for setting up the premises of the output service provider. On that basis, Cenvat credit on the construction services was admissible, and the related demand, interest and penalties were held unsustainable.

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Issues: Whether credit of construction services used for constructing a warehouse was admissible as input service for the period prior to 1.4.2011.

Analysis: For the relevant period, the definition of input service was wide enough to cover services used for setting up the premises of the output service provider. The warehouse was used for providing the taxable output service of renting of immovable property, and the construction services had a direct functional nexus with that activity. Following the precedent relied upon, such services were treated as eligible input services for Cenvat credit.

Conclusion: The credit was admissible and the demand, interest and penalties were unsustainable.

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