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?

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.