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 in construction when such services were received before the statutory exclusion effective 01.04.2011, and credit claimed is therefore allowable. A departmental circular cannot override statutory definition; administrative guidance conflicting with law is inapplicable. Invocation of the extended limitation period requires suppression or collusion; absent evidence of willful suppression and with returns filed, the tax demand is timebarred. Result: credit sustained and the impugned demand set aside.

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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.

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