Whether assessee can take cenvat credit on S.T. paid on renting of immovable property for display of final product?

Case:-   ORACLE GRANITO LED. VERSUS COMMISSIONER OF C.EX., AHMEDABAD

Citation:- 2013(30) S.T.R. 357 (Tri.-Ahmd.)

Brief Facts:-In appeal No. E/1447/2011 this bench has already granted an unconditional stay to the appellant in an identical issue, respectfully following the same, the stay application for the waiver of the pre-deposit of the amounts involved was allowed and the appeal itself was taken up for disposal.

Since, both the appeals E/1447/2011 and E/10106/2013 are of the very same assessee and raising the very same issue, they are being disposed of by a common order.

The relevant facts that arise for consideration are that the appellants are manufacturers of vitrified tiles falling under CETH N o. 69071010 of the First Schedule to Central Excise Tariff Act, 1985 are availing cenvat credit of duty paid on inputs as well as capital goods as well as service tax paid on input services in accordance with Cenvat Credit Rules, 2004. During the course of audit of the appellant records, it was noticed that they had availed cenvat credit of service tax paid amounting to Rs. 1,11,240/- during December 2010 to November 2011 paid on rent charged by Harvinder Sethi, for facilitating display of the appellant’s goods in New Delhi and various places. As it appeared that such services did not qualify as input service in Rule 2(1) of Cenvat Credit Rules, 2004, a show cause notice dated 9-12-2011 was issued to the appellants proposing the recovery of cenvat credit amount of Rs. 1,11,240/- under Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 11A(1) of Central Excise Act, 1944, invoking extended period along with interest under Rule 14 ibid of the Rules ibid read with Section 11AB of the Act ibid. In this notice penalty was also proposed to be imposed on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. The adjudicating authority vide the impugned order, confirmed the recovery of the cenvat credit of service tax amounting Rs. 1,11,240/- along with appropriate rates of interest as proposed in the notice. He also imposed a penalty of Rs. 1,11,240/- on the appellants as proposed in the notice.

Aggrieved by such an order, appellant preferred an appeal before the first appellate authority. The first appellate authority also did not agree with the contentions raised by the appellant and held that the appellant is not eligible to avail cenvat credit of service tax under the category of renting of immovable property by owners of such properties. Hence, these appeals.

Appellant’s Contention:-The appellant submits that the property which was rented out by the appellant for the purpose of displaying their vitrified tiles is in the course of business. It is his submission that these properties which were rented by the appellant were in line of the business of sale of their products and also relied on the decision given in the case of Bharat Fritz Werner Ltd. 2011 (22) S.T.R. 429 (Tri.-Bang.) for the proposition and also of Micro Labs Ltd. – 2012 (26) S.T.R. 383 (Kar.) = 2011(270) E.L.T. 156(Kar.).

Respondent’s Contention:- The Respondent on the other hand would submits that there is a difference in the cases as in this case, appellant has not demonstrated that the amount of service tax paid by him. This being a factual position, has to be satisfied by the appellant before availing cenvat credit of service tax paid.

Reasoning of Judgment:-We have considered the submissions made from both parties and perused the record, and we find that the issue involved in this case is regarding the eligibility of the appellant to avail cenvat credit of the service tax paid on the renting of their property. It is undisputed that such properties have been taken on rent by appellant for display of their final product. i.e. vitrified tiles. It is also undisputed that service provider has discharged the service tax under the category of renting of immovable property services. It is also found that the appellant has produced the Chartered Accountant certificate before the first appellate authority who has recorded that the said certificate does not indicate anything. In order to appreciate the correct position, the said certificate was also produced.

It can be seen from the certificate that the Chartered Accountant has clearly and categorically stated that the expenses are considered under the selling and distribution overhead which, understandably, goes into the costing of the final product.
Tribunal finds strong force in the contentions raised by the ld. Counsel that identical issue has been decided by the Tribunal in the case of Bharat Fritz Werner Ltd. (Supra). The ratio of the said decision is as under:

“ The issue involved in this case is whether the appellant is eligible to Cenvat Credit of the service tax paid on the services i.e.architect services, authorized service station, interior decoration services, real estate agents services and stock broker services. It is undisputed that the services were utilized by the appellant for the purposes which as recorded in lower authorities order is reproduced:

(a)   Architect Services and Interior Decoration Services: Cenvat credit availed on the Service Tax charged by the Architect towards construction of BFW Tech Center at Pune which is used for marketing purposes such demonstration of range products and for giving training to customers on using their product to their client. Hence, this service is rendered beyond the place of removal and as such the Cenvat credit availed on these services are not admissible.

(b) Authorized Service Stations:-Cenvat credit availed on Service Tax charged by Authorized Service Station towards repair and maintenance of vehicles used by their executives involved in production marketing, administration and finance at their factory and their branch offices. This being the case of usage of vehicle for transportation beyond the place of removal, the Cenvat credit availed on this service is not admissible.

(c)   Real Estate Agent Services(termed as renting of immovable property wrongly accounted as Real Estated service):- Cenvat credit availed on Service Tax charged by the Landlord towards rent for letting out the property for marketing offices at few centers such as Coimbatore and Jamshedpur wherein these offices are used for marketing of their product. This service is also rendered beyond the place of removal and as such the Cenvat credit availed on this service is not admissible.

(d) Stock Broker Service: Cenvat credit availed on Service Tax charged by the Service Provider towards operating the DMAT Account for business purpose with Karvy Stock Broking Ltd. this service is also rendered beyond the place of removal and as such the Cenvat credit availed on this service is not admissible.
It can be seen from the above that the services were utilized by the appellant for the purpose of enhancement of his business. The definition of input service under Rule 2(l) of the Cenvat Credit Rules very clearly indicates this. The said rule is reproduced hereunder:-

2(l) “input service” means and service-
(i)            Used by a provider of taxable service for providing an output service, or
(ii)           Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal.
And includes services used in relation to setting up , modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement of sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of input or capital goods and outward transportation upto the place of removal;

Hon’ble High Court of Bombay in the case of Coca Cola India Pvt. Ltd. 2009(242) E.L.T. 168(Bom.) = 2009(15)S.T.R. 657 (Bom.) (Supra) had an occasion to interpret the very same definition. After interpreting has definition. Hon’ble High Court in para 39 held as under:

“ The definition of input service which has been reproduced earlier, can be effectively divided into the following five categories, in so far as a manufacturer is concerned:

(i)            Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final product
(ii)           Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal
(iii)          Services used in relation to setting up modernization, renovation or repairs of a factory, or an office relating to such factor.
(iv)          Services used in relation to advertisement or sale promotion, market research, storage upto the place of removal, procurement of inputs,
(v)           Services used in relation to activities relating to business and outward transportation upto the place of removal.
Each limb of the definition of input service can be considered as an independent benefit or concession exemption. If an assessee can satisfy any one of the limbs of the above benefit, exemption or concession, then credit of the input service would be available. This would be so even if the assessee does not satisfy other limb/ limbs of the above definition. To illustrate, input services used in relation to setting up, modernization, renovation or repair of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products upto the place of removal. This would follow from the observation of Supreme Court in Kerala State Co-operative Marketing Federation Ltd. and Ors. V. Commissioner of Income tax – 1998 (5) SCC 48, which is as under:

We may notice that the provision is introduced with a view to encouraging and promoting growth of co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each a separate and distinct head of exemption. Whether a question arises as to whether any particular category of an income of a co-operative society is exempt from tax what has to be seen is whether income fell within any of the several heads of exemption, it would be free from tax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption.’

It can be seen from the above reproduced ratio of the Hon’ble High Court, each limb of the definition can be considered as independent eligible for exemption. If that be so, in the factual matrix of this case, as narrated hereinablve, as the said services were, directly or indirectly, used for the purpose of their business, credit cannot be denied. Accordingly, impugned order is set aside and appeal is allowed with consequential relief.

Since the present member decided the issue on merits, the member did not record any finding on the submissions made by appellant as lower authorities have decided the issue beyond the allegations raised in the show-cause notice.

In view of the foregoing, it was found that the appellant has made out the case in his favour and the impugned orders are liable to be set aside.

Decision:- Appeals are allowed with consequential relief.

Comment:-The essence of this case is that cenvat credit on Service tax paid on renting of immovable property for display of final product is admissible when such expenses are treated as selling and distribution overhead and form part of the cost of the final product and also certified by a Chartered Accountant’s Certificate.

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