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CENVAT credit availed on Input Services used in or in relation to manufacturing activity at Pune factory has no nexus with rendering of output service of Renting of Immovable property in Mumbai: CESTAT

By TIOL News Service

MUMBAI, SEPT 19, 2014: THE applicant availed CENVAT credit of various input services such as legal services, CHA service, repair and maintenance service, manpower recruitment service, account and audit service which were used in relation to manufacturing activity undertaken at the Pune factory.

They had constructed an immovable property at Mumbai & which they rented out. Service Tax was being paid under the category of ‘Renting of Immovable Property Service' by utilizing the Input Service credit taken in respect of the service received in the Pune factory.

The CCE, Pune-I was not pleased with this concept of ‘borrowing' CENVAT credit for discharge of ST liability and, therefore, issued a SCN proposing to deny the utilisation of CENVAT credit and for recovery of the same.

In adjudication, the demand of Rs.54,44,777/- was confirmed and against this order the applicant is before the CESTAT seeking a stay on the recovery.

Both sides justified their stand.

The Bench observed -

++ It is a basic principle of CENVAT credit that there has to be a nexus between the input and input service and the output and output service. Only in respect of input and input service which goes into the manufacture of output or which are used in or in relation to rendering of output service, credit can be taken. This is what Rule 3 of the CENVAT Credit Rules, 2004 stipulates.

++ If there is no nexus between the input and input service and the output or output service, credit cannot be taken or utilised. In the present case, it is not in dispute that the credit was earned in respect of input/input service which were used in or in relation to the manufacturing activity of the appellant. The same has no nexus with the rendering of the output service of renting of immovable property in Mumbai.

Holding that the applicant had not made out a prima facie case for waiver of dues as utilisation of the CENVAT credit for payment of service tax on ‘Renting of immovable property' at Mumbai is clearly not permissible in law, the Bench directed the applicant to make a pre-deposit of the entire amount of CENVAT credit of Rs.54,44,777/- wrongly taken and utilised and report compliance.

In passing: By the way, hope the ST authorities at Mumbai aware of this!

(See 2014-TIOL-1799-CESTAT-MUM)


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