Builder loses Cenvat credit appeal for claiming input services on unsold flats without service tax liability under Section 65B(44)

CESTAT New Delhi dismissed the appeal where the appellant wrongly availed Cenvat credit on input services for unsold flats after completion certificate issuance. The tribunal held that transfer of immovable property title by sale is not a service under Section 65B(44), making the appellant ineligible to retain Cenvat credit without service tax liability. Extended limitation period was correctly invoked due to suppression of material facts with intent to evade liability. Interest under Section 75 and penalty under Section 78 were upheld as automatic consequences of duty liability.

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Issues Involved:
1. Eligibility of Cenvat Credit on input services for unsold flats after the issuance of completion certificate.
2. Applicability of Explanation 3 to Rule 6(1) of the Cenvat Credit Rules, 2004.
3. Invocation of the extended period for recovery under Section 73(1) of the Finance Act, 1994.
4. Liability for interest under Section 75 and penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Eligibility of Cenvat Credit on input services for unsold flats after the issuance of completion certificate:
The tribunal examined whether the appellant was entitled to avail Cenvat Credit on input services for the four flats booked after the issuance of the completion certificate. It was undisputed that the appellant had received consolidated Cenvat Credit for all twelve flats, but only eight were booked before the completion certificate. The sale of the remaining four flats was not considered a 'service' under Section 65B(44) of the Finance Act, 1994, as they were booked after the completion certificate. Consequently, the appellant was required to reverse the proportionate Cenvat Credit for these four flats. The tribunal concluded that the appellant was not eligible to retain the Cenvat Credit for the unsold flats as the sale of such flats was not a 'service' and hence, no service tax was leviable.

2. Applicability of Explanation 3 to Rule 6(1) of the Cenvat Credit Rules, 2004:
The appellant argued that Explanation 3 to Rule 6(1) of the CCR, 2004, which included activities not considered 'service' under Section 65B(44) in the definition of 'exempted service', was added with effect from 13.04.2016 and was not applicable to their case as the building was completed in 2014. The tribunal rejected this argument, stating that the main substantive provisions of Section 65B and 66E of the Finance Act, 1994, were already in place before 01.04.2016, and the insertion of Explanation 3 did not change the legal position. Therefore, the appellant was not eligible to avail Cenvat Credit for the period prior to the said date.

3. Invocation of the extended period for recovery under Section 73(1) of the Finance Act, 1994:
The tribunal upheld the invocation of the extended period for recovery, noting that the appellant had suppressed material facts with the intent to evade service tax liability. The appellant admitted that no service tax was paid on the four unsold flats, and they failed to reverse the proportionate Cenvat Credit. The tribunal concluded that the extended period of five years was rightly invoked under the proviso to Section 73(1) of the Act.

4. Liability for interest under Section 75 and penalty under Section 78 of the Finance Act, 1994:
The tribunal affirmed the imposition of interest under Section 75 and penalty under Section 78 of the Act. It was held that once the duty liability arises, the liability to pay interest is automatic. The tribunal also upheld the penal action, noting that the appellant had adopted a self-assessment procedure but failed to disclose the provision of such services to the department.

Conclusion:
The tribunal dismissed the appeal, affirming the findings of the lower authorities that the appellant was not entitled to retain the Cenvat Credit for the unsold flats and was required to reverse the same. The invocation of the extended period for recovery, along with the imposition of interest and penalty, was also upheld. The appeal was dismissed.

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