Cenvat Credit Availment

[Guest]

Dear experts,
Pls resolve the following problems related to service tax and share the case laws associated to it, if any.
1. Whether cenvat credit of service tax can be availed on rental paid by company during the pre-operative period to owner whose premises would be used by service provider for providing restaurant services. The service tax relates to pre-operative period ranging from 4-5 months???
2. Whether cenvat credit would be available to service provider involved in providing renting of immovable property services for which he has received maintenance services in relation to impugned property during the period when his property was vacant.......??

Thanks in advance

Abhishek

[Rajagopalan Ranganathan]

Sir,

Q.1: - You can take the credit of service tax paid on rent paid to the premises occipied even during ore-operative period. However utilization can take place when you stat providing the restaurant service.

Q.2: - Service tax paid on maintenance service for maintaing the premises can be availed only when such premises is rented out and service tax is paid on the rent collected.

[Ganeshan Kalyani]

Yes sir the service tax credits can be availed but cannot utilize unless there is output tax. Thanks.

[KASTURI SETHI]

Sh.Abhishek Ji,

Answer to your Q.No.2 is YES.

[Guest]

Dear sir,
Thanks for ur response
In relation to first query, Kindly tell is it not essential to have nexus between point of time of availing the service and providing the service as during the pre-operative period company was not providing any services while the expenditure relates to that period in which services received are said to be completed with in that time frame only.
Kindly clear my doubts, with judgements ,if any in supporting to it.

[KASTURI SETHI]

Sh. Abhishek Ji,

Regarding reply to Query No.1, I do not agree with the reply of other experts. I doubt the admissibility of input service credit in such a strange situation.

[DR.MARIAPPAN GOVINDARAJAN]

There are some case laws in which it was held that CENVAT credit can be taken for the period even before registration with the Department.

[KASTURI SETHI]

In such situation the rigours of litigation cannot be ruled out.

[Ganeshan Kalyani]

Sir,

If the amount is substantially high then credit should be taken relying on the to favorable case laws. Because the fact is that at the end of the battle of litigation only those having argument power will win the case, may that be department or the assesse. Thanks

[Guest]

Dear Kalyani Sir,

With full respect to ur opinion, Issue is not that whose stand will be correct- our or department but the point is what is logical and practically correct in compliance of the provisions of Cenvat Credit rules.

[KASTURI SETHI]

Sh.Abhishek Ghai Ji,

There is a world of difference between Central Excise and Service Tax regarding availment of Cenvat Credit. In Central Excise, Cenvat Credit is allowed even on the strength of invoices received prior to registration because the inputs are used in the manufacture of dutiable final product. This is not the situation in the Restaurant Service. You paid the rent prior to operative period or prior to registration and how can that input service be used for providing output service (taxable) now after the period of 4-5 months. You did not work for 4-5 months. or you availed threshold exemption.Taxable Service was not provided for 4-5 months by any reason.The department is not concerned. In restaurant it is the daily service. Past cannot be co-related with the present by any stretch of imagination. Talk about the current input service credit.

Decision is yours.

[Guest]

Dear Sethi sir,

Completely agree to you though in current case.Company is not availing threshold exemption and is charging Service tax from first bill itself. Further cenvat credit rules states that Cenvat credit on input services can be used only on those services which have been used in providing output services.

Can a view b framed that during the preoperative period company was making the premises suitable for its purpose of providing the restaurant services as restaurant requires suitable arrangement, layout which is a necessary condition for making the best services available.

Can we reach to a consensus that law does not debar service provider from availing the cenvat credit on such input services that has been used or will be used in providing output services.

Thank you.

[KASTURI SETHI]

Sir,

I cannot digest. No doubt ST has been paid on renting. You will use only credit at present and not input service. Your reasoning is full of substance but such strong reasoning is relevant for Central Excise because inputs though received during the pre-operative period, yet the same would be ultimately used in or in relation to manufacture of the final product.Finished goods are physically present to prove that inputs received prior to registration or during pre-operative period, have been used.

This is my view. I may be wrong. Also seek for opinions of other experts.

[Ganeshan Kalyani]

Sri Kasturi Sir, please go through the decision in case of ''Indswift Laboratories Ltd. v. CCE Delhi 2015 (1) TMI 1147 - CESTAT NEW DELHI'' . Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

There are seven judgements in the case of Ind-swift Industries Ltd. Which case law you consider is applicable in this case ? Have you exact citation ?

[Ganeshan Kalyani]

Sir I could not get it. I will try to furnish the same. Anyway I was referring the one where service availed toward technical know how but the production was not started and as such the credit was challenged but CESTAT allowed the credit. Thanks.

[KASTURI SETHI]

Dear Sh.Kalyani Ji,

Regarding Central Excise, I have already agreed. There is no dispute.Pl. read all my replies.

Regarding the situation explained by Sh.Abhishek Ghai, Sir I would like to say there is no room for 'Ifs' and 'buts' in law. In the situation explained by him, he cannot connect past to the present. In the pre-operative period, no restaurant service was provided. The party has paid ST on renting of immovable property, there is no doubt.How can he utilise input service of renting for the past in the present ? He would use only the amount of credit and not input service. For the usage of service, the period of 4-5 months has gone. If you have any case law in this context and to this extent, then let me know, I am not closed person. I am always open to learn from other experts and even querists.

[Guest]

Dear Sethi Sir,

Pls explain if in any judgement/ Case laws issue in relation to input services has been raised that at what point of time such services can be said to have completed or provided in relation to an output service.

Quoting one more example, In telecom sector or even in case of entertainment/advertisement services, many R&D work is usually done before providing output services, such input services availed prehanded provides benefit over a prelonged period of time.Will the cenvat credit on the same be denied to them???

In the same way, rental charges incurred/renovation work done during pre-operative period are done to ensure quality output services.

[KASTURI SETHI]

Sh.Abhishek Ghai Ji,

Sir, I have expressed my views. I have no case law on this issue.I Frankly speaking, sometimes it takes 5-6 hours to trace out any relevant judgement. We cannot compare this service with other services. Normally facts are not always similar.

[Ganeshan Kalyani]

Sir I agree with Sri Kasturi Sir in toto. I was referring to a case law pertaining to Central excise. I also agree with him that I takes lot of time to trace out a case law which would favour the assesses contention. It also requires more than 5 hours to dig out the citation. But Sri Kasturi does it for free and even all the experts in the forum are doing it for free. The consultancy charges are very costly in the market. But we are happy to help. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes. Sir. You have Rightly echoed my views.

AI Summary

Cenvat credit timing: pre operative input services may be claimable if nexus to future output exists, but risk of challenge remains. Availability of Cenvat credit for rent and other pre operative services hinges on Rule 2(l) of the Cenvat Credit Rules, 2004: input services must be 'used by a provider of output service for providing an output service.' Forum contributors split: some accept credit for preparatory rent and renovation, with utilization deferred until output tax liability arises; others insist no credit where no taxable service was provided during the pre operative period. Jurisprudence is unsettled and reliance on central excise precedents is problematic; litigation risk is emphasized.