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of <h1>Input service credit allowed for erection under specified services; service tax on lease rental income set aside per Rule 6(3) CCR</h1> <h3>GE INDIA INDUSTRIAL PRIVATE LIMITED Versus COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, BENGALURU</h3> CESTAT Bangalore allowed the appeal, setting aside the impugned order. The tribunal held that input service credit for laying foundations supporting ... Irregular availment of CENVAT credit - service portion in the execution of works contract and construction services - non-payment of service tax on lease rental income - non-reversal of CENVAT credit as per Rule 6(3) of the Cenvat Credit Rules (CCR), 2004 - irregular availment of abatement with respect to repair and maintenance service under works contract - Invocation of extended period of limitation - penalty. Irregular availment of cenvat credit on the service portion in execution of works contract and construction services - period October 2010 to March 2013 and period April 2013 to March 2014 - denial of credit on the ground that the service portion in the execution of works contract is used for laying of foundation for support of capital goods and the services are not specified services listed under clause (b) of 66E of Finance Act, 1994 - HELD THAT:- In the instance case, it is an admitted fact that the input service credit was with regard to laying of foundation or making of structures for support of capital goods i.e. wind turbines. As per the above definitions the input service credit cannot be allowed if used for laying of foundation. However, the clause also says except for the provision of one or more specified services, in other words the input service is allowed only if the output service is one of the specified services. Erection and Commissioning services admittedly the output service which is as per zzzza is part of works contract and since works contract is one of the specified services, the claim of the appellant that they are eligible for the benefit of input service credit is justified. Non-payment of service tax on lease rental income - HELD THAT:- This issue stands settled and is no longer res integra. We find that this Tribunal in a similar set of facts and circumstances in the case of Haldiram Marketing Pvt. Ltd. Vs. CCE, New Delhi [2023 (2) TMI 783 - CESTAT NEW DELHI] held that share of rent of the premises is an internal arrangement between the appellant and its associated enterprises and the said activity cannot be considering as rendering of service - service tax demand on lease rental income is set aside. Non-reversal of cenvat credit as per Rule 6(3) of the Cenvat Credit Rules (CCR), 2004 - HELD THAT:- The issue is squarely covered by the CBIC Circular No.213/3/2019-ST dated 05.07.2019. where it was held that 'On a plain and strict interpretation of the provisions, all services mentioned in notification 26/2012-Service Tax, dated 20-6-2012 do not, ipso facto, become “exempted services”. They will become so only if they satisfy the twin conditions specified in section 2(e) of the Cenvat Credit Rules, 2004 i.e. there is a restriction on both inputs and input services.' - the Circular clearly exempts services which only cover those services within its purview and satisfies the condition of ‘restriction on credit of input and input services both’ - the demand on this ground is also unsustainable and the same is set aside. Irregular availment of abatement with respect to repair and maintenance service under works contract - HELD THAT:- On perusal of Rule 2A of the Valuation Rules, it is very clear that the basis of the classification of transactions is based on the nature of the property on which the activity was undertaken. In the case of maintenance and repair, clause (B) would be applicable and Service Tax should have to be charged on 70% of the total amount charged for the works contract after availing abatement of 30%. In the case of maintenance and repair service, Clause (C) would applicable and service tax should be charged on 60% of the total amount charged for the works contract after availing abatement of 40%. Since, it is a case of maintenance and repair of installed wind turbine, the appellant has rightly discharged duty on 60% of the value as per Rule 2A (ii) clause (C) of the Valuation Rules, 2006, hence the demand on this count cannot be sustained. The impugned order is set aside - appeal allowed. ISSUES: Whether cenvat credit on the service portion in execution of works contract and construction services used for laying foundation or making structures for support of capital goods is irregularly availed.Whether service tax is payable on lease rental income arising from internal sharing of premises among divisions of the same legal entity.Whether non-reversal of cenvat credit as per Rule 6(3) of the Cenvat Credit Rules, 2004, in respect of specified exempted services, is justified.Whether irregular availment of abatement with respect to repair and maintenance service under works contract is sustainable.Whether extended period of limitation can be invoked in absence of suppression of facts with intent to evade service tax.Whether penalty can be imposed despite absence of reasonable cause for failure to pay service tax. RULINGS / HOLDINGS: On cenvat credit irregularity: The input service credit relating to laying of foundation or making of structures for support of capital goods is excluded from credit except when the output service is one or more of the specified services; since erection and commissioning services are specified services, the cenvat credit claim is justified.On lease rental income: The demand for service tax is unsustainable as the sharing of rent among divisions of the same legal entity constitutes an internal arrangement and does not amount to rendering of service.On non-reversal of cenvat credit under Rule 6(3): Following CBIC Circular No.213/3/2019-ST dated 05.07.2019, reversal under Rule 6(3) is not required for services covered by notification 26/2012-Service Tax unless both inputs and input services are restricted; thus, the demand for reversal is set aside.On abatement for repair and maintenance services: Rule 2A(ii)(C) applies to maintenance and repair of immovable property, requiring service tax on 60% of total contract value; since the appellant discharged duty accordingly, demand for irregular abatement is unsustainable.On invocation of extended limitation period: In absence of suppression of facts with intent to evade tax, invocation of extended period is not justified.On penalty imposition: Penalty cannot be imposed where no reasonable cause for failure to pay service tax is shown, and provisions of Section 80 should apply. RATIONALE: The Court applied the definition of 'input service' under Rule 2(1)(A) of the Cenvat Credit Rules, 2004, including amendments effective from 01.07.2012, which exclude service portions used for laying foundation or structures supporting capital goods except when the output service is specified under clause (b) of Section 66E of the Finance Act.The Tribunal relied on precedents holding that internal sharing of rent between divisions of the same legal entity does not constitute a taxable service, referencing authoritative decisions including a Supreme Court ruling affirming such principle.The Court followed CBIC Circular No.213/3/2019-ST clarifying that services specified in notification 26/2012-Service Tax do not automatically become exempted services necessitating reversal under Rule 6(3) unless both inputs and input services face restrictions, thereby overruling the demand for reversal.Valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006, was interpreted strictly according to the nature of works contract; maintenance and repair services attract service tax on 60% of contract value, which was complied with by the appellant.The extended limitation period under Section 73(1) of the Finance Act, 1994, requires proof of suppression of facts with intent to evade tax; absence of such evidence negates its applicability.Penalty provisions require demonstration of willful default or suppression; absence of reasonable cause and failure to consider Section 80 provisions renders penalty imposition unsustainable.
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