1. The MA has been filed by Revenue for change of cause title from Commissioner of Service Tax, Chennai to "The Commissioner of GST & Central Excise, Chennai South Commissionerate" consequent upon the introduction of GST and the resultant change in the jurisdiction.
2. After hearing both sides, we allow the miscellaneous application for change of cause title. The other MA filed by Revenue for early hearing of appeal also gets disposed as we are taking up the appeal for decision and disposal.
3. M/s. Ascendas IT Park (Chennai) Ltd., the appellants herein are engaged in the activity of development and maintenance of Information Technology Park. On investigation conducted by the SIR Wing of the Service Tax Commissionerate, it was noticed that appellant had short paid service tax. Show cause notices were issued proposing to recover the service tax along with interest and also for imposing penalties. After due process of law, the Commissioner disallowed credit on input services and confirmed the demand along with interest and imposed penalties. Aggrieved appellants are before this forum.
4. On behalf of the appellant, Ld. Senior Counsel Shri N. Venkatraman submitted the following oral and written submissions which can be summarized as under:
i) In terms of an agreement entered into with M/s. Tamil Nadu Industrial Development Corporation Ltd., the appellant had to develop and maintain Hi-Tech office space for IT and ITES companies. The appellant entered into an agreement with their holding company namely M/s. Ascendas (India) Private Ltd. for construction of building which included comprehensive services in relation to development and construction such as project management, conceptual and detailed design for architecture, marketing, consultancy service etc. The appellant availed credit on various input services. After completion of building in August 2005, the appellant leased out the office premises to various IT and ITES companies. Apart from rent, they also collected maintenance charges on monthly basis from the tenants for providing facilities and maintenance of the buildings. The maintenance charges collected included reimbursable expenses of electricity and water charges. Apa
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rt from this, appellant had leased fit outs like tables, chairs etc. to the tenant for which charges were collected as fit out charges. Department took the view that appellant had wrongly availed credit on input services and also that they had not discharged service tax on amounts collected towards electricity, water charges and consideration received for leasing out the fit outs.
ii) That input service credit availed on construction services can be divided into three periods i.e., (1) prior to 16.06.2005 (2) between 16.06.2005 and 01.06.2007 and (3) post-01.06.2007. The appellants after completion of the building during the above period was providing services of renting of immovable property as well as Management, Maintenance, Repair Services (MMR services, for short).
iii) It was fairly conceded that though appellant had availed cenvat credit on construction services prior to 16.6.2005 since the appellant was not providing any taxable service during the period prior to 16.6.2005, the amount of Rs. 5,16,774/- cannot be considered as eligible for availing credit. MMR services became taxable only with effect from 16.6.2005 and Renting of Immovable Property Service (RIP Service for short) became taxable only with effect from 1.6.2007.
iv) After 16.6.2005 and upto 1.6.2007, the appellant was providing both MMR services as well as RIP services which were taxable services. The credit availed on input services is correct and proper. The department has proposed to deny credit stating that the input services used for renting of immovable property is not eligible credit, for the reason that the said services have become taxable services only in 2007. The denial of credit by the department is based on erroneous interpretation of law. The department alleges that appellant used common input services for RIP and MMR services. RIP services being not taxable services these are exempted services. That appellant having utilized common input services for providing both taxable and exempted services will be hit by Rule 6(1), (2) and (3) of Cenvat Credit Rules, 2004. That therefore the credit cannot be allowed; He explained that appellant has availed credit on various input services which are specified in Rule 6(5) of the Cenvat Credit Rules, 2004; that Rule 6(5) provides that notwithstanding anything contained in sub-rules (1), (2) and (3) of CCR2004, credit of service tax paid on input services specified in the said rule is eligible unless such service is exclusively used for providing exempted services. The appellant has availed credit only in respect of services specified in these rules. Since during the period 16.06.2005 to 1.6.2007 appellant was using the services for taxable services on MMR as well as RIP services, it cannot be said that services were exclusively used for exempted services; that therefore as per Rule 6(5) appellant is eligible for credit.
v) For the period Post-1.6.2007, the department has denied credit placing reliance on the Board Circular No. 98/1/2008-STdt. 4.1.2008; that Board circular has clarified that credit on construction services is not eligible since immovable property is neither a service nor goods; that clarification issued by the Board in this regard is highly erroneous. What is relevant for availment of input service credit is the use of input services for providing taxable output service. In the present case, input service of construction services is used for providing the output service of RIP service and MMR services which are taxable; that the Commissioner has erred in relying upon the decision in Venus Investments Vs. CCE Vadodara : 2013 (29) STR 72 (Tri.-Ahd.). Ld. Counsel rely on decisions in the following cases:
(1) CCE Visakhapatnam Vs. Sai Sahmita Storages (P) Ltd. : 2012 (23) STR 341 (AP)
(2) Mundra Ports & Special Economic Zone Ltd. : 2015 (39) STR 726 (Guj.)
(3) Navaratna S.G. Highway prop. Pvt. Ltd. Vs. CST Ahmedabad : 2012 (28) STR 166 (Trj.-All.)
vi) On the issue of levy of service tax on electricity charges and water charges, it is submitted that the appellant has collected these amounts which are included in the MMR services. These amounts collected being actual reimbursable expenses cannot be subject to levy of service tax as has been decided by this very Bench in the case of Plaza Maintenance and Services Ltd. vide Final order No. 41806-41807/2017 dt. 28.8.2017 and decision of Hon'ble High Court in CST Chennai Vs. Sangamitra Services Agency : 2014 (33) STR 137 (Mad.).
vii) Another allegation is with regard to non-payment of service tax on fit out charges collected by the appellant to the tune of Rs. 34,20,527/-; that appellant was handing over the movable items like chairs, tables and other furniture items to the tenants for their use. These transaction being a transfer of right to use goods and being a deemed sale, the appellant is paying VAT on the said consideration; that when the transaction is liable to sales tax and appellant has paid the same the very same transaction cannot be again subject to service tax; that for these reasons levy of service tax on fit out charges is not maintainable.
5.1 On the other hand, on behalf of the department, Ld. Commissioner (A.R.) Ms. Hemavathi supports the impugned order. She argued that prior to 16.6.2005, appellant was not providing any taxable service and therefore credit availed on services received and consumed during this period is not eligible.
5.2 During the period 16.6.2005 to 1.6.2007, the appellant was providing only MMR services. The adjudicating authority has allowed credit in respect of input services that have nexus in relation to providing output services of maintenance and repair services. However, the credit availed on input services used in relation to providing RIP services was disallowed. The services that are used in relation to MMR services are distinct and different from the services used in relation to RIP services and therefore provisions of Rules 6(5) would not be applicable. Further the construction services are used for bringing into existence an immovable property and not for any output service and therefore credit cannot be availed for providing output service of renting of immovable property. Board has clarified in the said circular and is therefore binding. The Tribunal decision in the case of Venus Investments Vs. CCE Vadodara : 2012 (28) STR 174 (Tri.-Ahmd.) supports this stand of the department; that construction services bring into existence any immovable property/building. The immovable property thus brought into existence by the use of construction services is used for providing the rental services. In the circumstances, while nexus between the said services and the services of RIP may be established, same cannot be held to be used in or in relation to the maintenance and repair services. The MMR services are performed on the immovable property and the immovable property is not utilized to provide the service. Therefore, if at all any credit eligibility would arise, it would only be w.e.f. 1.6.2007 and not before.
5.3 In respect of the charges relating to electricity and water charges, she adverted to Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 and submitted that any expenditure or cost incurred by the service provider in the course of providing the taxable services should be included in the value for the purpose of charging tax. As the activity involves provision of uninterrupted power supply from the generators and the electricity consumption from the meter is not charged directly to the tenants, but to the appellant, it is clear that appellant fails the test of being a pure agent for deducting the charges from the total value of taxable services.
5.4 With respect to inclusion of value of fit out charges, she referred to para-11 of the impugned order and submitted that the terms of the agreement indicate that the ownership of the fit outs remain with the appellant. Therefore, there is no question of transfer or sale attracting payment of VAT. The fit outs are clearly hired as part of the consideration of the immovable property and the value relating to enjoyment of the use of the fit outs require to be included in the value of the RIP services. The claim of the appellant that they have paid VAT in respect of the consideration received for renting the fit outs cannot be accepted for the reason that payment of VAT on the transaction does not become law that VAT is correctly assessed in respect of the transaction; that the demand raised is legal and proper and the impugned order calls for no interference.
6. Heard both sides and have gone through the facts. We propose to take up the issues one by one as under.
7.1 Denial of cenvat credit on construction service The demand totalling to Rs. 23,73,56,255/- has been broken into three period wise demands by the appellants as follows:
(i) Prior to 16.6.2005 Rs. 5,16,774/-. This amount has been confirmed on the grounds that prior to 16.6.2005, appellant was not providing any taxable service and hence credit availed is not eligible. Appellant is not contesting this portion of the demand. The same is upheld. Impugned order to this extent is not disturbed and sustained.
(ii) Between 16.6.2005 and 01.06.2007 - Demand pertaining to this period is Rs. 11,63,81,259/-. It is alleged that appellants were engaged in providing taxable service under Management, Maintenance and Repair Service in terms of Section 65(64) of the Finance Act, 1994 which was brought to service tax net w.e.f. 16.6.2005. The contention of the appellant is that they had engaged contractors to provide various taxable services for construction of building and the input services credit was availed by them on these services. Appellants contend that they had started to provide MMR services for the very same building for which construction services had been availed, which is a taxable output service. The adjudicating authority has denied the credit on the construction services on the ground that renting of immovable property service was brought into tax net only w.e.f. 16.6.2005. Adjudicating authority has denied the credit on the ground of renting of immovable property was brought into service tax only w.e.f. 1.6.2007. We find merit in the assertion of the appellant is that though renting of immovable property service was not taxable till 16.6.2007, nonetheless, they had also been providing taxable MMR services during this period and as per Rule 6(5) of the CCR 2004, they are eligible for credit on whole of the service tax in respect of the specified input services listed out therein, unless such service is used exclusively in or in relation to providing exempted services. The impugned input services availed by appellant are included in the said Rule 6(5) and as the appellants were also using these services partly for rendering MMR services, availment of impugned input service credits availed during this period in entirety, amounting to Rs. 11,63,81,259/-, is very much in order. This being so, that part of the order denying this quantum of input credit is set aside.
(iii) Post 1.6.2007 - The disputed credit amount involved during this period is Rs. 12,04,53,005/-. The appellant has contended that during this period the service of renting of immovable property was made taxable. The adjudicating authority has denied this credit amount on the basis of Board Circular No. 98/1/2008 dt. 04.01.2008. On going through this circular, we find that said clarification therein is flawed. While the issue sought to be clarified concerns eligibility of certain input services for output services, namely, renting of immovable property, the clarification thereof has veered into a proposition that immovable property neither being subjected to Central Excise duty nor Service Tax, therefore input credit cannot be taken. The clarification has erroneously focussed on eligibility of the input services for immovable property whereas the clarification should have been on eligibility of such input services for output service Renting of Immovable Property. The clarification of the circular will therefore have to be disregarded. In any case, it is not binding on this Tribunal. What is required to be seen is whether the input services have the necessary nexus with the output services and whether it is falling within the ambit of the definition of input services in Rule 2(1) of the Cenvat Credit Rules, 2004 as existed during that period. On both these counts, we find the answer resoundingly in the affirmative. We also find support in this conclusion from various case laws, the relevant portions of which decisions are also reproduced for ease of reference:-
(i) CCE Visakhapatnam Vs. Sai Sahmita Storages (P) Ltd. : 2011 (23) STR 341 (AP)
"7. A plain reading of both the above definitions would show that, unless excluded, all goods used in relation to manufacture of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit. In Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III, : (2009) 9 SCC 193 : 2009 (240) E.L.T. 641 (S.C.) the Supreme Court laid down as follows.
9. Coming to the statutory definition of the word input in Rule 2(g) in the CENVAT Credit Rules, 2002, it may be noted that the said definition of the word input can be divided into three parts, namely:
(i) specific part
(ii) inclusive part
(iii) place of use
10. Coming to the specific part, one finds that the word input is defined to mean all goods, except light diesel oil, high speed diesel oil and petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. The crucial requirement, therefore, is that all goods used in or in relation to the manufacture of final products qualify as input. This presupposes that the clement of manufacture must be present.
8. Yet again considering the inclusive part of the definition of input, it was held as follows. All these considerations become relevant only when they are read with the expression used in or in relation to the manufacture of final product in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is used in or in relation to the manufacture of final product. It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression used in or in relation to the manufacture have many shades and would cover various situations based on the purpose for which the input is used. However, the specified input would become eligible for credit only when used in or in relation to the manufacture of final product. Hydrogen gas used in the manufacture of sodium cyanide is an eligible input, since it has a significant role to play in the manufacturing process and since the final product cannot emerge without the use of gas. Similarly, Heat Transfer Oil used as a heating medium in the manufacture of LAB is an eligible input since it has a persuasive role in the manufacturing process and without its use it is impossible to manufacture the final product. Therefore, none of the categories in the inclusive part of the definition would constitute relevant consideration per se. They become relevant only when the above crucial requirement of being used in or in relation to the manufacture stands complied with. In our view, one has to therefore read the definition in its entirety.
9. There is no dispute, in these cases, that the assessee used cement and TMT bar for providing storage facility without which storage and warehousing services could not have been provided. Therefore the finding of the original authority as well as the appellate authority are clearly erroneous, which was correctly rectified by the CESTAT. In so far as the levy of penalty under Rule 15(2) of the Rules is concerned, unless and until there is a finding that there was suppression of fact, and irregular claim of CENVAT credit, the question of levying penalty under Rule 15(2) of the Rules does not arise. In that view of the matter, the order levying penalty was rightly set aside by the CESTAT."
(ii) Navaratna S.G. Highway prop. Pvt. Ltd. Vs. CST Ahmedabad : 2012 (28) STR 166 (Trj.-All.)
"3.2 The definition of inputs is limited to the definition of input services as can be seen from the definition given above. Credit of duty paid on inputs is available when the inputs are used for providing an output service.
Therefore, there is a need to say that the inputs have been used for providing an output service. In the case of input service, the definition includes input services used by a provider of taxable service for providing an output service. Therefore the definition of input and input service are pari materia as far as the service providers are concerned. That being the position, the decision of the Hon'ble High Court of Andhra Pradesh would be applicable to the present case. In that case also, the Hon'ble High Court took the view that without use of cement and TMT bars for construction of warehouse assessee could not have provided storage and warehousing service. In this case also, without utilizing the service, mall could not have been constructed and therefore the renting of immovable property would not have been possible. The issue involved is squarely covered by the decision of the Hon'ble High Court of Andhra Pradesh. Since the service tax demand itself is not sustainable, the question of imposition of penalty does not arise. The appeal is allowed with consequential relief to the appellants."
Viewed in this light we find that denial of input service credit of Rs. 12,04,53,005/- for the period post-1.6.2007 also cannot be sustained and hence the relevant portion of the impugned order denying the same is also set aside. So ordered.
7.2 Demand of service Tax on Electricity and Water charges Ld. counsel for the appellant has submitted that these are amounts which are actually paid towards electricity and water charges and therefore amount collected towards reimbursable expenses cannot be subjected to levy of service. The said issue is covered by the decision in the case of Plaza Maintenance and Services Ltd. Vs. CST Chennai vide Final Order No. 41806-41807/2017 dt. 28.08.2017 and also the case of CST Chennai Vs. Sangamitra Services Agency : 2014 (33) STR 137 (Mad.). Following the said decisions, we hold that levy of service tax on the reimbursable expenses of electricity charges and water charges is unsustainable and requires to be set aside, which we hereby do.
7.3 Demand of service Tax on Fit Out charges The impugned order demands service tax to the tune of Rs. 34,20,527/- on fit out charges. From the facts explained, it is seen that these are movable items (chairs, tables and other items) which are handed over to the tenants for use by them. The appellant has paid VAT on the consideration received in the said transaction for transfer of right to use the goods. Payment of VAT is not disputed by the department. VAT and Service Tax being exclusive, further demand of service tax on the very same consideration received for transfer or right to use of goods cannot sustain. The said demand is unjust and requires to be set aside, which we hereby do.
8. From the above discussions, we find that demand of service tax on all the above disputed areas for the period from 16.06.2005 to March 2009 cannot sustain. Impugned order to the extent of demand of service tax for the said period is set aside without disturbing the demand, interest and penalty for the period prior to 16.6.2005.
9. In the result, appeal is partly allowed on above terms with consequential relief, if any, as per law.
(Pronounced in court on 17.01.2018