availability of cenvat credit on setting up building

[Rishi Raj]

Background

A parent company has built a building which could be used as corporate office for all the subsidiaries/ group companies (separate legal entities). Now the parent company is going to charge a lease rental from all the group companies which has various components like lease rental, electricity, parking etc.

The total occupation by group companies is 75% of the total areas whereas the parent company occupies rest 25%.  

 ( The fact is no more credit will be available from 1st April 2011, query is raised to resolve some old cases)

Queries

 

1. Can cenvat credit can be taken on various input services used in relation to setting up / building the corporate office ( expenses like architect fees, project consultant fees, building insurance etc)
2. Can parent company take 100 % cenvat credit on input service or only to the extent building is actually let out i.e 75%  and why?  (Precisely Rule 6(2) could be applicable or Rule 6(3)(ii) of Cen Credit Rule? )
3. The space is occupied by the parent company (25%) will fall under the definition of ‘’exempted service’’ under Rule 2(e) of CCR.
4. The parent company is liable to pay service tax on only lease rental or all amount charged like lease rental, electricity expenses etc?
5. Any ruling available in the similar case?

AI Summary

Cenvat credit apportionment: proportionate credit required where premises are partly used for exempt and taxable services.
CENVAT credit for input goods and input services used to set up a building shared between a parent and leased to group companies must be allocated between taxable leased space and the parent's exempt occupation; full credit for the entire building is not automatic. The appropriate treatment requires applying CENVAT apportionment rules based on end use, the taxable character of each charged component (lease, electricity, parking) and factual details about invoicing and utilisation of credit. The advisers sought further factual particulars and did not reach a definitive conclusion or cite a binding ruling.