2026 (2) TMI 238 - AT - Service Tax

CENVAT credit on construction-related input services pre-01.04.2011 upheld; departmental circulars invalid and demand barred by limitation

CENVAT credit lawfulness turns on whether services qualify as 'input service': the provider of a taxable service may avail credit on input services used ... CENVAT credit on inputs, input services and capital goods used in construction of immovable property - services in the categories of “Transportation of Goods by Road”, “Advertisement Services” and “Renting of Immovable Property” - definition of input service (means clause and includes clause) - availability of credit for output service by provider of taxable service - amendment excluding construction services from input service w.e.f. 01.04.2011 - administrative circulars cannot override statutory provisions - limitation and extended period - requirement of suppression or collusion - HELD THAT:- Rule 3 of CCR, 2004 deals with CENVAT credit and the relevant portion for the purpose of the appeal provides that a provider of taxable service shall be allowed to take credit to be called CENVAT credit on any input service by the provider of output service. Sub Rule (4) of Rule 3 provides that the CENVAT credit may be utilized for payment of service tax of any input service. We hold that the appellant is eligible to take credit of the service tax paid on input services received by the appellant. We also find that in the case of Regency Park Property Management Services Pvt. Ltd [2020 (4) TMI 275 - CESTAT NEW DELHI] wherein in Para 20, the Tribunal, relying on various decisions of High Courts, held that there is no manner of doubt that CENVAT credit availed by the appellant on inputs, input services and capital goods service used for construction of the Mall, which was ultimately let out could not have been denied to the appellant. The findings to the contrary recorded by the Commissioner cannot be sustained and are, accordingly, set aside. We find that construction services used for construction of building are specifically excluded from the definition of ‘Input Service’ only w.e.f 01.04.2011 and that prior to this date, the said services were very much covered in the definition of ‘Input Service’ and for that the appellant is entitled to avail CENVAT credit of service tax paid on such input services as the period involved in the present case is prior to 01.04.2011. Further, we find that the Department vide Circular No.943/04/2011-CE dated 29.04.2011 in Sl. No.12 clarified that CENVAT credit of services excluded in the definition of input service w.e.f. 01.04.2011 will be available if such services were received prior to 01.04.2011. We also find that the Circular No. 98/1/08-ST dated 04.01.2008, which has been relied upon by the learned Commissioner to deny the benefit of CENVAT credit is contrary to the statutory provision as well as contrary to the various decisions decided by the Tribunals and the High Courts cited supra. It is a settled law that a circular issued by the Department cannot override the provision of the law as held in the case of Kerala Finance Corporation Vs Commissioner of Income Tax [1994 (5) TMI 2 - SUPREME COURT] As regards the invocation of extended period, we find that the appellant has been filing ST-3 Returns and the books of accounts have been regularly audited by the Department and the Department has not been able to bring any evidence on record to show that the appellant has suppressed the material facts from the Department with intention to evade payment of service tax. In this regard, we may refer to the judgment of Uniworth Textiles Ltd. Vs CCE, Raipur [2013 (1) TMI 616 - SUPREME COURT] wherein it has been held that mere nonpayment of duties is not equivalent to collusion or willful misstatement or suppression of facts, otherwise there would be no situation for which ordinary limitation period would apply. Therefore, we find that substantial demand is also barred by limitation. Thus, we are of the considered view that the impugned order is not sustainable in law and the same is liable to be set aside and we do so by allowing the appeal of the appellant with consequential relief, if any, as per law. Issues: (i) Whether CENVAT credit is admissible on inputs, input services and capital goods used in construction of immovable property that is subsequently let out and taxed under Renting of Immovable Property Service; (ii) Whether the demand is time-barred by limitation/extended period.Issue (i): Admissibility of CENVAT credit on inputs, input services and capital goods used in construction of immovable property let out and taxed as Renting of Immovable Property Service.Analysis: The rules define 'input service' by a means-clause covering services used by a provider of taxable service for providing an output service and by an inclusive clause listing services used in relation to setting up premises of a provider of output service. Rule 3 permits CENVAT credit on input services and utilization for payment of service tax on output services. The Tribunal examined prior decisions of Tribunals and High Courts holding that services used for construction of premises used to provide a taxable renting service fall within the definition of input service where received prior to the 2011 exclusion. The 2011 amendment excluded certain construction services prospectively w.e.f. 01.04.2011; services received before that date remain covered. Departmental circulars cannot override statutory provisions.Conclusion: CENVAT credit is admissible in favour of the appellant for inputs, input services and capital goods used in construction of immovable property let out and taxed as Renting of Immovable Property Service for the period prior to 01.04.2011.Issue (ii): Whether the demand raised by the department is barred by limitation or requires invocation of extended period.Analysis: The record shows filing of ST-3 returns and regular audits by the department. No evidence was produced to show suppression or collusion or willful misstatement by the appellant to evade tax. Precedent limits invocation of extended period absent such suppression.Conclusion: The demand is barred by limitation and the extended period is not invocable; conclusion is in favour of the appellant.Final Conclusion: The impugned order is set aside and the appeal is allowed, with consequential reliefs as per law, because the appellant was entitled to CENVAT credit for the relevant pre-1.4.2011 period and the demand is time-barred.Ratio Decidendi: Where services are used by a provider of a taxable output service for providing that output, including services used in relation to setting up premises, they qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004 and CENVAT credit is admissible for periods prior to the prospective exclusion effective 01.04.2011; departmental circulars cannot override the statutory definition and extended period requires proof of suppression or collusion.