Whether credit deniable on the ground that at the time of availment of credit, no output services were provided ?

PJ/CASE LAW/13-14/2071

Case:- M/s AMBATTUR DEVELOPERS PVT LTD. Vs. COMMISSIONER OF SERVICE TAX, CHENNAI

Citation:- 2014-TIOL-242-CESTAT-MAD

Brief Facts:- The applicant has constructed a hotel during the period April 2007 to July 2010 and took Cenvat credit on input services used in such construction activity during the said period. Revenue was of the view that at the time when they were taking Cenvat credit they were not providing any output service using the input service and therefore the credit taken was not allowable. Revenue was also of the view that the input services in question was for constructing an immovable property and had no direct nexus with the output service to be provided. Revenue issued a show-cause notice proposing to deny such credit. On adjudicating, an amount of Rs. 85,30,411/- is confirmed along with interest and penalty against the applicant. Aggrieved by the order, the applicant has filed an appeal before this tribunal along with a stay petition for waiver of pre-deposit of dues for admission of the appeal.

Appellant’s Contention:-The learned counsel for the appellant submits that during the time when credit was taken, the applicant was registered for payment of service tax on various other services and since the applicant was setting up a facility for the purpose of providing output services like outdoor catering, mandap keeping, health and fitness club, dry cleaning etc. they took credit of input services used for construction. He submits that during the relevant period the definition of input services at Rule 2(l) of the CENVAT Credit Rules, 2004 covered the services for setting up of premises of provider of output services and there is no reason for denying the Cenvat credit as per the impugned order.

Respondent’s Contention:- The learned counsel for the respondent contends that the definition in the Rule 2(l) of Cenvat Credit Rule, 2004 defines input service as services "used by a provider of output service for providing an output service" and not as services "intended to be used by a provider of output service for providing an output service". Since the word "used" is in past tense, the services should have been used when the credit was being taken and in this case at the time of taking credit, the applicant was not providing any output service using the input service in question. Therefore, the order is legal and proper. He also relies on the argument that immovable property is neither subjected to central excise duty nor service tax and credit shall be taken only for input service used for manufacture of dutiable excisable goods or for providing taxable output service. In this case, an immovable property that is a hotel has come into existence which is neither goods nor service and hence credit could not be taken.

Reasoning of Judgment:- After carefully considered submission made by both the sides, the analysis of the word “used” was done by the Tribunal. The word “used” is used in the definition of "inputs", "capital goods" and "input service" is not used as past tense of "use" but as past participle which is an adjective to the words in question. In the case of capital goods normally the goods arrive much earlier than it is put to use and credit of duty paid thereon is always allowed and there is no reason why a different interpretation should be adopted for input services.

And in the matter of immovable property coming into existence in between Input service and output service we find that the Hon'ble Andhra Pradesh High Court in the case of CCE, Visakhapatnam Vs. Sai Sahmita Storages (P) Ltd. - 2011 (270) ELT 33 (AP) = (2011-TIOL-863-HCAP-CX) and the Tribunal in the case of M/s. Navratan SG Highway Properties Pvt. Ltd. Vs. CST, Ahmedabad - 2011-TIOL-1703-CESTAT-AHMhave held that input services can be allowed in such cases. Considering these decisions, prima facie, we find it proper to waive the requirement of pre-deposit of dues for admission of the appeal. Further there shall be stay on collection of such dues during the pendency of the appeal.

Decision:- Stay granted.

Comment:- The essence of this case is that the provision of a statue should not be interpreted in a manner so as to defeat its very purpose. When the credit on duty paid on capital goods is allowed even before when the manufacturing is started, there is no reason for denying the credit on input services on the ground that at the time such services were being availed, no output services were being provided by the service provider. In the instant case, the service tax paid on construction services availed for construction of hotel was primarily held to be admissible even when the hotel provided output services much after the availment of credit.

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PJ/CASE LAW/13-14/2071

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