CENVAT credit nexus for input services in renting of immovable property upheld, disallowance and related demand quashed.

Dispute concerns entitlement to CENVAT credit for input services used in relation to renting of immovable property (including plug-and-play arrangements). The analysis applies Rule 2(l) and Rule 6(5) of the CENVAT Credit Rules, 2004 and finds documentary evidence (agreements, ST-3, registers, invoices) establishes nexus between input services and taxable renting, while the departmental record did not controvert that nexus. The adjudicating authority's exclusive-service finding and related disallowance were unsupported; opening balance credit lay outside the show-cause scope. Consequential demands, interest and penalty premised on disallowance were therefore set aside.

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Issues: Whether the appellant was entitled to claim CENVAT credit of service tax paid on input services used in relation to renting of immovable property and whether the demand, interest and penalty confirmed by the adjudicating authority are sustainable.

Analysis: The dispute centres on whether the input services consumed by the appellant had sufficient nexus with the taxable output service of renting of immovable property (including plug-and-play arrangements) so as to permit CENVAT credit under the CENVAT Credit Rules, 2004. Relevant provisions include Rule 2(l) (definition of input services) and Rule 6(5) (allowing full credit for specified services even if used for both taxable and exempted services), and the adjudicatory measures under proviso to Section 73(1), Section 73(2), Section 75 and Section 78 of the Finance Act, 1994 read with Rules 14 and 15 of the CENVAT Credit Rules, 2004. The appellant produced agreements, ST-3 returns, CENVAT registers and invoices showing that maintenance, utilities and other services were provided to lessees on a plug-and-play basis and that service tax was paid on amounts charged to lessees. The department did not dispute the production of documents or the asserted contractual obligations to provide the services to lessees, and its parawise reply either recorded no comments or reiterated formal eligibility conditions without controverting nexus. The adjudicating authority's finding that the impugned input services were exclusively for healthcare services and bore no nexus to renting was therefore unsupported by the record. The opening balance credit claimed relating to a period prior to the show cause period was also outside the scope of the show cause notice. Having found the CENVAT credit correctly availed on the merits, the applicability of the proviso to Section 73 need not be resolved; consequentially, demands of interest and penalty premised on disallowance of credit are unsustainable.

Conclusion: CENVAT credit availed by the appellant is allowable to the extent shown on the records and supported by agreements and documentary evidence; the impugned disallowance, demand, interest and penalty are set aside in favour of the appellant.

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