Court allows Cenvat Credit for residential unit sale after completion certificate

The court held that Rule 6 of the Cenvat Credit Rules did not apply to the Appellants as the sale of residential units after obtaining the completion certificate was considered a "non-service." The Appellants were found eligible to avail Cenvat Credit under Rule 3 and had maintained separate accounts as required. They were not required to reverse any credit availed during the period when the output service was taxable before receiving the completion certificate. The court ruled in favor of the Appellants, allowing their appeals and granting them a refund of the amount paid under protest.

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Issues Involved:
1. Applicability of Rule 6 of the Cenvat Credit Rules (CCR), 2004.
2. Eligibility to avail Cenvat Credit under Rule 3 of the CCR, 2004.
3. Maintenance of separate accounts as required under Rule 6 of the CCR, 2004.
4. Reversal of Cenvat Credit availed during the period when output service was taxable before receipt of Completion Certificate.
5. Eligibility for refund of the amount paid under protest towards Credit availed from 2010 till receipt of Completion Certificate.

Detailed Analysis:

1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004:
The primary issue is whether the receipt of consideration for residential units sold as immovable property after obtaining the completion certificate amounts to providing exempted service, thereby invoking Rule 6 of the CCR, 2004. The court found that after the completion certificate, the sale of residential units becomes a "non-service" as per Section 65B of the Finance Act, 1994, and Rule 2(e) of the CCR, 2004. This was supported by the amendment in Rule 6(1) of the CCR, 2004, effective from 1.4.16, which included an activity not defined as a service under Section 65B(44) of the Finance Act, 1994, within the scope of exempted services. Therefore, prior to 1.4.16, such activities were not considered exempt services, and Rule 6 did not apply.

2. Eligibility to Avail Cenvat Credit under Rule 3 of the CCR, 2004:
The court held that under Rule 3 of the CCR, 2004, Cenvat Credit of Service Tax paid on input services used to provide output service is eligible. The Appellants were taking proportionate credit after receiving the completion certificate, supported by CA certificates and due intimation to the revenue department. The court found that the Appellants could not avail full Cenvat Credit on input services received after obtaining the completion certificate, but they were not required to pay 8%/10% of the sale price of immovable property as Rule 6 did not apply until 1.4.16.

3. Maintenance of Separate Accounts as Required under Rule 6 of the CCR, 2004:
The court found that the Appellants maintained proper separate accounts by availing proportionate credit based on the square foot area where Service Tax was paid. This was supported by CA certificates and certified work sheets, fulfilling the obligation under Rule 3 of the CCR, 2004, read with Rule 6. The court referred to the decision in Foods, Fats and Fertilizers Ltd., which held that maintaining separate accounts for receipt and consumption of inputs used in dutiable and exempted products, even on a pro-rata basis, is sufficient compliance.

4. Reversal of Cenvat Credit Availed During the Period When Output Service was Taxable Before Receipt of Completion Certificate:
The court agreed with the Appellants that credit eligibility is to be examined at the time of receipt of input service and not governed by later developments, such as the conversion of property into immovable property after receiving the completion certificate. The court referred to Rule 11 of the CCR, 2004, which deals with credits availed in the past when the output activity was wholly taxable. The court held that the Appellants were not required to reverse any credit availed during the period when the output service was taxable.

5. Eligibility for Refund of the Amount Paid Under Protest:
The court found that since the Appellants were not required to reverse the credit availed during the period 2010 till obtaining the completion certificate, the amounts reversed under protest could not be retained by the revenue authorities and must be refunded. The court noted that the amounts were appropriated against the demand of 8%/10% of the sale of immovable property, which was not sustainable as the Appellants maintained separate accounts.

Conclusion:
The court concluded that the Appellants were not liable to pay 8%/10% of the value of service that became exempt after receipt of the completion certificate under Rule 6 of the CCR, 2004. The Cenvat Credit on input services received after obtaining the completion certificate could not be wholly allowed, but the proportionate credit availed was sufficient compliance. The Appellants maintained proper separate accounts as required under Rule 6 of the CCR, 2004. The Appellants were not required to reverse Cenvat Credit availed during the period when the output service was taxable before receiving the completion certificate. The Appellants were eligible for a refund of the amount paid under protest. The appeals were allowed with consequential relief.

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