2024 (9) TMI 115 - AT - Service Tax

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 ... Recovery of Cenvat credit wrongly availed on input services - unsold flats after the issuance of completion certificate - contravention of provisions of rule 6(3) and 6(3A) of the Cenvat Credit Rules, 2004 - Section 73(2) of the Finance Act, 1994 read with Rule 14 of the Cenvat Credit Rules, 2004 - extended period of limitation - interest - penalty. HELD THAT:- The appellant has on their own admitted that on perusal of the definition of ‘service’ as provided in section 65B (44) it is clear that activity of transfer of title in immovable property by way of sale is not a service at all. Since on receipt of completion certificate, the building becomes an immovable property and any booking receipt in respect of same is a booking in respect of sale of property only - The appellant had the option to take proportionate amount of credit in respect of the input services pertaining to the eight flats sold earlier and reverse the balance amount towards the unsold four flats. As per rule 3 of the CCR 2004, Cenvat credit of service tax is paid on input services used to provide output service is eligible. A service provider is entitled to credit of excise duty paid on inputs and capital goods and service tax paid on input services used by him for providing the output service. Thus availment of cenvat credit has direct nexus to the payment of taxes. The very fact that the appellant has no liability to discharge the service tax they are not eligible to retain the amount availed by them towards the Cenvat credit. The Chandigarh Bench of the Tribunal in M/s Woodward Governor India Ltd [2023 (5) TMI 564 - CESTAT CHANDIGARH], where the appellant was engaged in manufacture and trading of goods and was availing credit of the duties and taxes paid on the inputs and input services, following the decision of the Tribunal in Lally Automobiles Ltd. [2018 (7) TMI 1679 - DELHI HIGH COURT] held that the appellants have no reason to avail credit on services which they were fully aware were exempted services and that the provisions of Rule 6(3) will not apply, held that appellants ought to have availed credit correctly. Extended period of limitation - Penalty - interest - HELD THAT:- Both the authorities below have rightly arrived at the conclusion that the appellant had suppressed the material facts with intent to evade the liability of service tax and therefore the extended period of 5 years is invocable in terms of the proviso to Section 73(1) of the Act. The appellant has admitted that they were not liable to pay service tax on the unsold four flats in view of the specific provisions of Section 66E read with Section 65B(44) of the Act - The appellant having adopted the self assessment procedure was required to disclose to the department that they were providing such services. Thus, the extended period has been rightly invoked and for the said reason the appellant is liable to penal action under the provisions of Section 78 - the levy of interest under Section 75 of the Act, is upheld, as once the duty liability arises, the liability to pay interest is automatic. There are no infirmity in the impugned order and therefore the findings arrived at are affirmed - appeal dismissed. 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.