CENVAT Credit Availed On ‘Banking And Financial Services’ Used In Providing Renting Of Immovable Property Service Is Admissible: CESTAT

The Banglore Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit availed on ‘banking and financial services’ used in providing renting of immovable property is admissible.

The bench of D. M. Misra (Judicial Member) has relied on the decision of the Karnataka High Court in the case of Oberon Edifices & Estates Pvt. Ltd. vs. CC CE & ST, in which it was held that various input services used in providing Rental of Immovable Property services are admissible to CENVAT credit.

The appellant/assessee is in the business of providing taxable services under the categories of Renting of Immovable Property Service, Real State Agent Service, Rail Travel Agent Service, etc.

It was noticed that the appellant had short-paid interest on delayed payment of service tax amounting to Rs. 13,01,548 for the period April 2017 to June 2017 and Rs. 4,36,546 for the period July 2016 to March 2017. The appellant had availed of an inadmissible CENVAT credit. Consequently, a show cause notice was issued to the appellant for the recovery of amounts with interest and a proposal for the imposition of a penalty.

On adjudication, the demand was confirmed with interest on the irregular availment of CENVAT credit, an equivalent penalty, and the recovery of the differential interest. The appellant filed an appeal before the Commissioner (Appeals), who, in turn, rejected their appeal.

The assessee contended that the CENVAT credit was availed by them on receiving banking and financial services, which has been used in relation to the provision of output services, namely ‘Renting of Immovable Property Service’. The service is squarely covered under the definition of ‘input service’ as prescribed under Rule 2(l) of the Cenvat Credit Rules, 2004, being specifically covered under the scope of “financing” mentioned in the inclusive part of the definition.

The assessee argued that on the differential amount of interest demanded on service tax paid by the appellant, the interest was calculated by the department applying the rate of interest as 24%, whereas they have discharged 15% interest. Even though the department has alleged that the appellant collected service tax from the customers but paid the same belatedly to the department, no evidence has been placed on record. Therefore, the demand for 24% interest cannot be sustained. She also submits that since the appellant has rightly availed CENVAT Credit on banking and financial services used for providing the output service, namely renting of immovable property, the imposition of a penalty equivalent to the CENVAT Credit amount is unsustainable and hence should be set aside.

The department contended that the appellant, though collecting the rent from the clients periodically along with service tax, has not discharged service tax so collected on due dates. Accordingly, as per the notification dated March 1, 2016, the applicable rate of interest is 24%, as the appellant has applied the rate of interest of 15%. Hence, the differential interest amount is recoverable.

The tribunal noted that the department had specifically alleged in the notice that the appellant had collected rent on a monthly basis along with service tax from the tenants. However, they have not deposited the service tax collected as of the due date. The appellant has been disputing the allegation against the department at all levels. On being asked during the course of the hearing to place the invoices under which rent was collected from the tenants, the appellant expressed an inability to produce a single copy of the invoices.

The tribunal held that the appellant could not establish that service tax was not collected earlier and hence could not be deposited before the due date.

Counsel For Appellant: Suja A. Krishnan

Counsel For Respondent: Dyamappa Airani

Case Title: Bangalore Housing Development & Investments versus Commissioner of Central Tax, Bangalore North

Case No.: Service Tax Appeal No. 20370 of 2023

Click Here To Read The Order