CENVAT credit on residential construction input services need not be reversed after completion certificate and flat sales

CENVAT credit availed on input services used for construction of a residential complex was treated as valid when taken during the taxable construction activity. After completion of the building and issuance of the completion certificate, subsequent sale of flats was regarded as sale of immovable property outside service tax, but the CENVAT Credit Rules, 2004 were understood not to require reversal merely because the service activity had ended. Relying on settled Tribunal and High Court authority, the proportionate credit reversal was held unwarranted and the demand could not be sustained.

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Issues: Whether CENVAT credit availed on input services used for construction of a residential complex was liable to reversal after completion of the building and sale of flats following issuance of the completion certificate.

Analysis: The credit was taken while providing construction of residential complex services and was initially in accordance with law. After completion of the building and issuance of the completion certificate, sale of the flats was treated as sale of immovable property and did not attract service tax. The controlling legal position was held to be settled by prior Tribunal and High Court decisions, which had accepted that the CENVAT Credit Rules, 2004 did not provide for reversal of credit merely because the service activity had concluded and the flats were thereafter sold.

Conclusion: Reversal of the proportionate CENVAT credit was not warranted and the demand could not be sustained.

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