Tribunal rules in favor of appellant on cenvat credit denial for property construction

The Tribunal ruled in favor of the appellant in a case involving denial of cenvat credit on input services used for construction of immovable property rented out. The denial of cenvat credit was deemed unsustainable in law based on precedents and circulars. Additionally, the Tribunal held that no service tax is chargeable on notional interest on security deposit towards renting of immovable property services, overturning the Commissioner's decision. The impugned order was set aside, and the appellant's appeal was allowed.

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Issues:
1. Denial of cenvat credit on input services used for construction of immovable property.
2. Service tax liability on notional interest on security deposit towards renting of immovable property service.

Analysis:

Issue 1: Denial of cenvat credit on input services used for construction of immovable property:
The appellant appealed against the Commissioner's order disallowing wrongly availed cenvat credit and confirming the service tax liability. The appellant argued that the credit of input services used for modernization of premises was rightfully availed as per the definition of input service prevailing during the relevant period. They referred to circulars clarifying eligibility for input services for renovation/modernization. The appellant cited precedents like City Centre Mall Nashik Pvt. Ltd. where credit was allowed on input services used for construction of immovable property subsequently rented out. Various court decisions were presented to support the eligibility of cenvat credit for input services used in the construction of immovable property for rental purposes. The Tribunal found that the Revenue wrongly denied the cenvat credit on input services used for construction of immovable property rented out, as established by precedents and circulars. The denial of cenvat credit was deemed unsustainable in law.

Issue 2: Service tax liability on notional interest on security deposit towards renting of immovable property service:
Regarding the demand for service tax on notional interest, the Tribunal referenced judgments in cases like Magarpatta Township Developers & Construction Co. Ltd. and K. Raheja Corp. Pvt. Ltd., where it was held that notional interest should not be included in the value and is not taxable under renting of immovable property services. The Tribunal noted that the department accepted these judgments on merits and did not appeal against them. Consequently, the Tribunal ruled that no service tax is chargeable on notional interest, overturning the Commissioner's finding. The impugned order was deemed unsustainable in law, and the appeal of the appellant was allowed.

In conclusion, the Tribunal set aside the impugned order dated 30.9.2014, as it was not sustainable in law, and ruled in favor of the appellant based on the arguments presented and legal precedents cited.

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