Leasehold premium and CENVAT credit rules: lump-sum transfer receipts were not rent, and input-service credit was allowed.

A one-time lump-sum premium for a permanent sub-lease of constructed commercial units was treated as consideration for transfer of leasehold rights, not recurring rent, so the demand under renting of immovable property failed. CENVAT credit on input services was allowed where construction service tax was paid with abatement under Notification No. 26/2012-ST, because the credit restriction applied only to inputs and no inadmissible input credit was shown. The extended period of limitation and penalty were also unsustainable since the assessee was registered, had disclosed the activity in returns, and no suppression with intent to evade was established; the reverse charge demand on legal services was likewise time-barred.

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Issues: (i) Whether the one-time consideration received on long-term sub-lease of constructed commercial units was taxable as renting of immovable property or represented transfer of leasehold rights / sale of immovable property; (ii) whether CENVAT credit on input services was admissible where abatement under Notification No. 26/2012-ST was claimed for construction service; and (iii) whether the extended period of limitation and penalty could be sustained, including the reverse charge demand relating to legal services.

Issue (i): Whether the one-time consideration received on long-term sub-lease of constructed commercial units was taxable as renting of immovable property or represented transfer of leasehold rights / sale of immovable property.

Analysis: The documents showed permanent assignment of commercial space together with leasehold rights for a lump-sum premium, with no periodic rent and no reversionary interest retained by the appellant. Applying the distinction between premium or salami and rent, the Tribunal held that the receipt was consideration for transfer of rights and not recurring rent. The transaction was therefore treated as a transfer of leasehold interest, not as taxable renting of immovable property.

Conclusion: The issue was decided in favour of the assessee; the demand under renting of immovable property was set aside.

Issue (ii): Whether CENVAT credit on input services was admissible where abatement under Notification No. 26/2012-ST was claimed for construction service.

Analysis: The relevant abatement condition restricted credit only in respect of inputs, not input services, and the record did not show any inadmissible credit on inputs such as cement, steel or consumables. Since the appellant had paid tax on the construction service after availing the prescribed abatement and had taken credit only on input services, denial of the credit was held unsustainable. The Tribunal also noted that, even on the Revenue's own premise, credit would not stand denied in the circumstances examined.

Conclusion: The issue was decided in favour of the assessee; the disallowance of CENVAT credit was set aside.

Issue (iii): Whether the extended period of limitation and penalty could be sustained, including the reverse charge demand relating to legal services.

Analysis: The appellant had been registered, had disclosed the activity and tax payment in returns, and the demand was worked out from books of account already available to the department. No suppression with intent to evade was established, so the extended period could not be invoked. The legal-service demand was also held time barred, and the corresponding penalty could not survive once the substantive demand failed.

Conclusion: The issue was decided in favour of the assessee; the extended-period demand and penalty were set aside.

Final Conclusion: The appellant succeeded on all material grounds, with the tax demands, the credit disallowance, and the penalties all being annulled.

Ratio Decidendi: A one-time lump-sum premium for permanent transfer of leasehold rights is not rent for taxing renting of immovable property, and abatement under Notification No. 26/2012-ST does not bar credit on input services where the restriction is confined to inputs.

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