Cenvat Credit On Occupancy Certificate

The Mumbai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that after obtaining Occupancy Certificate in respect of unsold carpet area for which no service tax will be leviable, cenvat credit already availed when the activity was taxable, the cenvat credit need not be recovered.

The bench of Anil G. Shakkarwar (Technical Member) has observed that Service Tax Law does not provide for levy of service tax on the flats or buildings constructed for which Occupancy Certificate is obtained. Therefore, carpet area of 21,010 square feet constructed by the appellant was not liable to levy of service tax. Revenue has invoked Rule 6 of Cenvat Credit Rules which provides for circumstances where cenvat credit is admissible or not admissible depending on taxability or otherwise of output service.

Background

The appellant/assessee isin the business of construction of residential flats and registered with Service Tax and also availing the benefit of Cenvat credit scheme. Appellant constructed four buildings, out of which in respect of two buildings viz. Sanctura and Serena, appellant obtained Occupancy Certificate.

The total constructed carpet area of the said two buildings put together was 2,10,640 square feet, out of which by the time Occupancy Certificate was obtained, 21,010 square feet of carpet area remained unsold.

As per the levy of service tax, the residential complex for which Occupancy Certificate is received, service tax cannot be levied on the same. From the period from 2013-14 till the Occupancy Certificate was received, appellant had availed cenvat credit of Rs.2,51,02,850/-. It appeared to Revenue that since the cenvat credit so availed has been utilized, cenvat credit apportionable or attributable to unsold carpet area should be recovered from the appellant.

A show cause notice was issued to the appellant. It was stated in the said show cause notice that out of the cenvat credit of Rs. 2,51,02,850/- availed and utilized by the appellant for total saleable carpet area of 2,10,640 square feet, appellant would not be paying any service tax on 21,010 square feet carpet area and, therefore, the appellant should not be eligible for cenvat credit of Rs.25,03,849.

Therefore, by invoking proviso to Section 73(1) of Finance Act, 1994, for extended period of limitation read with the provisions of Rule 6 and Rule 14 of Cenvat Credit Rules, appellant was called upon to show cause as to why cenvat credit amounting to Rs.25,03,849 should not be demanded and recovered from the appellant.

There was a proposal to appropriate Rs.7,00,000 paid by the appellant during investigation. There were also other proposals to recover interest and impose penalty under Section 78 of Finance Act, 1994.

Arguments

The appellant contended that the case is not covered by Rule 6 of Cenvat Credit Rules and that Rule 4(7) of Cenvat Credit Rules does not provide for the appellant to wait to take cenvat credit of input services till the output services sold to the service recipient and that the appellant can take the cenvat credit of service tax paid on input services immediately after the day on which input service invoice is received and that only Rule 11 of Cenvat Credit Rules provides that when the credit is availed at the earlier instance and subsequently when the output service becomes non-taxable, then at a later point, the availed cenvat credit need not be recovered as provided by sub-rule (4) of Rule 11.

The appellant contended that on harmonious reading of Rule 3, Rule 6 and Rule 11 of Cenvat Credit Rules, 2004, it is clear that the entitlement to cenvat credit is to be examined only at the time of receipt of input services and once it is found to be admissible for the reason that the output service is taxable and the said credit is availed legitimately and the same cannot be denied or recovered unless specific machinery provisions are made in that regard.

The appellant submitted that before the Occupancy Certificate was received, the entire cenvat credit was utilized for payment of service tax on output service. He has further relied on the ruling by Gujarat High Court in the case of Principal Commissioner vs. Alembic Ltd. The cenvat credit need not be recovered in respect of unsold carpet area on receipt of Occupancy Certificate or Completion Certificate.

Conclusion – Occupancy Certificate

The tribunal while allowing the appeal held that the appellant had availed cenvat credit of service tax paid on input services when the output service was subjected to levy of service tax. The availment of cenvat credit was in accordance with law.