Service Tax Credit on Rent received

[Nisar Ahmed]

A Ltd. has a depot at Jaipur which is not registered under excise and has been taken on rent. In such depot, the operations of its 2 subsidiaries namely X Ltd. and Y Ltd. are also carried on. The areas provided to both subsidiaries are excise registered and clearly identifiable.

A Ltd. pays the rent of the depot along with service tax and avail CENVAT credit. The rent attributable to the area of 2 subsidiaries has been recovered from them after charging service tax.

During an audit, the department contended that the CENVAT credit taken on rent of the premises should be disallowed to the extent of the area given to subsidiaries on the ground that such area is not used by A Ltd for storing the goods and hence A Ltd is not eligible to avail CENVAT credit.

Is the Service Tax Credit denied?

[Rajagopalan Ranganathan]

Sir,

Please inform why A Ltd. is not registered with excise. Service tax paid on the rent paid by X Ltd. and Y Ltd. can be availed as credit by X Ltd. and Y Ltd. only. A Ltd. cannot avail the credit on behalf of X Ltd. and Y Ltd. Hence the audit objection is correct.

If the excisable goods manufactured by A Ltd. is wholly exempted from excise duty then A Ltd. cannot avail credit of service tax paid on the rent for the portion of the depot occupied by A Ltd.

[KASTURI SETHI]

Both subsidiaries X Ltd. and Y Ltd. have distinct separate legal entities though both are controlled by A Ltd. The objection raised by the Audit is correct.

[Ganeshan Kalyani]

Proportionate ST should have been availed based on the proportion of service availed by three company.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji, I have perused your reply. What do you think about 2nd para of reply dated 30.9.2015 by Sh.Rajagoplan Ranganathan ? In the absence of reply to the question raised by Sh.Rangnathan, how your reply can be called a complete reply ? Will you pl. clarify for enriching my knowledge ? Thanks a lot, Sir.

[Ganeshan Kalyani]

Dear Sir,

Given the fact which Rajagopalan sir has highlighted, the credit could have been availed if A Ltd is manufacturing excisable goods. Otherwise no credit cannot be availed. Thanks Kasturi sir for your support.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

It gives me immense pleasure to know that now all of us are for the same line of action on the issue. It is a thrilling experience for me. I am of the view that if I opine that must be fool proof. Whenever I reply to any query, I always keep watch on your observations as well as Sh.Rajgopalan Ranganathan's. It is my hobby. I pratctise consultancy after my retirement with a purpose not to sit idle as well as update knowledge. Thanks a tonne for your immediate observations.

[Ganeshan Kalyani]

Thanks Kasturi Sir, for your valuable comment. I enjoy reading your reply to any query which is not only detailed reply but also a satisfactory reply. Thanks once again sir.

AI Summary

CENVAT credit on rent: claimant cannot claim credit for premises portions used by separate legal entities. CENVAT credit on service tax paid for rented premises is allowable only to the entity that uses the service for manufacture of excisable goods; portions of the depot occupied by separate subsidiary companies cannot be claimed as credit by the lessee. If the lessee itself uses part of the premises for excisable manufacture it may claim proportionate credit, but no credit is available where the lessee's goods are wholly exempt from excise.