Tribunal allows CENVAT credit for construction services used in taxable rentals

The Tribunal ruled in favor of M/s Bharti Reality Ltd., allowing them to avail CENVAT credit on 'input services' used for constructing buildings rented out for taxable services. The Tribunal held that the post-01.04.2011 amendment to rule 2(l) of the CENVAT Credit Rules, 2004, excluding services related to construction of buildings, was not applicable to the disputed period. The appeal was allowed, and the impugned order denying the CENVAT credit was set aside.

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Issues Involved:
1. Denial of CENVAT credit on 'input services' used for construction of buildings.
2. Applicability of the amendment in rule 2(l) of the CENVAT Credit Rules, 2004.

Issue 1: Denial of CENVAT Credit on 'Input Services' Used for Construction of Buildings

M/s Bharti Reality Ltd. challenged the order denying CENVAT credit of Rs. 4,45,82,465/- on 'input services' used for constructing buildings, which were later rented out. The Commissioner ordered the recovery of the credit under rule 14 of the CENVAT Credit Rules, 2004, along with interest and penalty. The appellant argued that these services were essential for providing 'renting of immovable property' services, thus entitling them to avail CENVAT credit. The Tribunal had previously ruled in favor of the appellant for an earlier period, stating that the inputs, capital goods, and input services used for constructing buildings intended for taxable services are eligible for CENVAT credit. The Tribunal referenced several High Court rulings supporting this view, including Commissioner of Central Excise, Visakhapatnam vs. Sai Samhita Pvt. Ltd. and Mudra Port. The Tribunal concluded that the appellant is entitled to the disputed CENVAT credit, setting aside the impugned order.

Issue 2: Applicability of the Amendment in Rule 2(l) of the CENVAT Credit Rules, 2004

The appellant highlighted that an amendment to rule 2(l) on 01.04.2011, which defines 'input service,' was not considered in the show cause notice or the impugned order. Before the amendment, the rule included services used for setting up, modernization, renovation, or repairs of premises. Post-amendment, it excluded services related to construction or execution of works contracts for buildings. The appellant availed CENVAT credit for works contract services before the amendment but ceased to do so afterward. The Tribunal noted that the Commissioner relied on a Larger Bench decision in Vandana Global, which was subsequently set aside by the Chhattisgarh High Court. Consequently, the Tribunal set aside the impugned order and allowed the appeal.

Conclusion:

The Tribunal ruled that M/s Bharti Reality Ltd. is entitled to avail CENVAT credit on 'input services' used for constructing buildings rented out for taxable services, and the amendment to rule 2(l) of the CENVAT Credit Rules, 2004, post-01.04.2011, was not applicable to the disputed period. The appeal was allowed, and the impugned order was set aside.

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