Cenvat credit on mall construction inputs denied, but credit on input services and capital goods allowed for taxable renting service.

Cenvat credit in relation to construction of a mall later used for taxable renting service was treated differently by category of inputs. Credit on inputs consumed in construction was held inadmissible, while credit on input services and capital goods used for the mall was treated as admissible against the taxable renting output. The Tribunal also held that credit could not be denied merely because it was reflected as an opening balance in April 2011, since the entry error was clerical and did not affect the existence or quantum of the credit. Penalty under Section 78 was set aside by invoking Section 80, and the demand was to be re-quantified accordingly.

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Issues: (i) Whether cenvat credit was admissible on inputs, input services and capital goods used for construction of a mall that was subsequently rented out on payment of service tax. (ii) Whether the credit could be denied merely because it was reflected as an opening balance in April 2011 instead of being shown item-wise before that date. (iii) Whether the penalty imposed under Section 78 could be sustained.

Issue (i): Whether cenvat credit was admissible on inputs, input services and capital goods used for construction of a mall that was subsequently rented out on payment of service tax.

Analysis: The Tribunal followed its earlier view that credit on inputs used for construction of the mall was not admissible, relying on the settled position that such inputs stood consumed in construction activity. At the same time, it maintained its earlier view that credit on input services and capital goods used for constructing the mall could be availed against the taxable renting service, as the legal position on those items had already been accepted in prior decisions and no substantial change in circumstances was shown.

Conclusion: The assessee was not entitled to cenvat credit on inputs, but was entitled to cenvat credit on input services and capital goods.

Issue (ii): Whether the credit could be denied merely because it was reflected as an opening balance in April 2011 instead of being shown item-wise before that date.

Analysis: The Tribunal treated the manner of accounting as a clerical mistake, noting that the dispute was not about the existence or quantum of the credit but only about the form in which it was entered. A mere booking error in the return or records was held insufficient to deny otherwise admissible credit.

Conclusion: The credit could not be denied on account of the clerical error in showing it as an opening balance.

Issue (iii): Whether the penalty imposed under Section 78 could be sustained.

Analysis: In view of the partial relief on the substantive credit issue and the circumstances of the case, the Tribunal invoked the statutory discretion to waive penalty.

Conclusion: The penalty under Section 78 was set aside by invoking Section 80.

Final Conclusion: The appeal succeeded only in part: the demand was to be re-quantified by excluding inadmissible credit on inputs while retaining admissible credit on input services and capital goods, and the penalty was removed.

Ratio Decidendi: Cenvat credit is not available on inputs consumed in constructing a mall, but credit on input services and capital goods used for such construction is admissible where the completed mall is used for taxable renting service, and a mere clerical error in accounting cannot defeat otherwise admissible credit.

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