Tribunal allows appeal on CENVAT credit denial for commercial property construction

The Tribunal allowed the appeal of M/s Regal Buildtech Pvt Ltd, holding that the denial of CENVAT credit on inputs/input services for constructing a commercial property leased out was not legal. The Tribunal relied on judicial precedents supporting the appellant's claim, emphasizing that services used for setting up premises of the provider of output service are admissible as 'input services.' The Tribunal found the denial of credit to be improper and allowed the appeal.

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Issues Involved:
1. Denial of CENVAT credit on inputs/input services for construction of commercial property leased out.
2. Applicability of amendments to CENVAT Credit Rules, 2004.
3. Interpretation of circulars and instructions of Central Board of Excise and Customs.
4. Judicial precedents supporting or opposing the appellant's claim.

Detailed Analysis:

1. Denial of CENVAT Credit on Inputs/Input Services for Construction of Commercial Property Leased Out:
The appellant, M/s Regal Buildtech Pvt Ltd, contested the denial of CENVAT credit by the Commissioner of Central Excise, Pune – III, on duties/tax paid on inputs/input services used for constructing commercial property, which was then leased out. The appellant had discharged tax liability under 'renting of immovable property services.' The credit of Rs. 2,66,78,245/- availed was sought to be recovered for the period from June 2007 to March 2010.

2. Applicability of Amendments to CENVAT Credit Rules, 2004:
The appellant argued that the inclusion of 'cement,' 'angles,' 'channels,' etc., among the exclusions in Explanation – II to rule 2(k) of CENVAT Credit Rules, 2004, became effective only from 7th July 2009. They contended that the definition of 'input services' in rule 2(l) did not exclude the services utilized by them. The Tribunal in Musaddilal Projects Ltd v. Commissioner of Central Excise, Customs & Service Tax [2017 (4) GSTL 401 (Tri.-Hyd.)] held that CENVAT credit availed up to 1st April 2011 was not barred for availment as per rule 2(k) as it then existed. The amendment effective from 7th July 2009 was applicable only to manufacturers and not to service providers.

3. Interpretation of Circulars and Instructions of Central Board of Excise and Customs:
The adjudicating authority placed erroneous emphasis on circular no. 98/1/2008-ST dated 4th January 2008, which stated that 'right to use immovable property' is leviable to service tax under renting of immovable property service, and input credit can be taken only if the output is a 'service' liable to service tax or 'goods' liable to excise duty. The Tribunal in Maharashtra Cricket Association v. Commissioner of Central Excise, Pune – III [2016 (41) STR 833 (Tri.-Mumbai)] and Oberoi Mall Ltd v. Commissioner of Service Tax, Mumbai – II [2017 (47) STR 292 (Tri.-Mumbai)] held that services used for setting up premises of the provider of output service are admissible as 'input services.'

4. Judicial Precedents Supporting or Opposing the Appellant's Claim:
The Tribunal cited several cases supporting the appellant's claim:
- Maharashtra Cricket Association: Services used for setting up premises of the provider of output service are admissible as 'input services.'
- Oberoi Mall Ltd: Construction services used for setting up malls, which were then rented out, were eligible for CENVAT credit.
- Nirlon Ltd: Construction of commercial complexes, which were rented out, was necessary for providing the output service of renting immovable property, making the input services used for construction eligible for credit.
- Musaddilal Projects Ltd: The amendment effective from 7th July 2009 did not have retrospective application for service providers.
- Sai Samhita Storages (P) Limited: Cement and steel used for construction of warehouses were eligible for CENVAT credit as they were necessary for providing storage and warehousing services.

Conclusion:
The Tribunal found the impugned order denying CENVAT credit to be not legal and proper, relying on overwhelming judicial precedents that supported the appellant's claim. Accordingly, the appeal was allowed.

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