By TIOL News Service

MUMBAI, JULY 26, 2017: THE appellant is engaged in the manufacture of excisable goods and have rented out open space of the factory premises during the period 2007-08 & 2008-09.

The case of the department is that the appellant is liable to pay service tax on the rent of leased out premises under the category of ‘Renting of immoveable property service' and the appellant is not entitled for the exemption notification No. 06/2005-ST dt. 1.3.2005. Inasmuch as it is the contention of the department that the appellant had violated the Condition No.(iii) & (iv) of paragraph 2 of the Notification since they had availed the CENVAT credit on capital goods and inputs received during the said period.

In appeal before the CESTAT, the appellant submitted that the renting of open space of the factory premises has no connection with the manufacturing unit of the appellant. Moreover, although they availed CENVAT credit in respect of the inputs or capital goods,the same was for use in or in relation to the manufacture of their final product in their factory and, therefore, the said availment cannot be taken as a violation of the notification 6/2005-ST. Resultantly, the appellant is entitled for the exemption laid down in the notification and since the rent collected is below the threshold limit, no tax liability accrues.

The AR reiterated the findings of the impugned order.

The Bench inter alia observed -

"4. … In the present case, the premises which was rented out, the appellant is provider of service only to that premises. In that premises, no capital goods was received and used on which the credit was taken. Therefore the condition (iii) of para 2 of the notification does not get violated. As per the condition (iv) as reproduced above, the said condition is related to the situation when the service provider starts paying service tax and availed the cenvat credit on the input or input service received and used for provision of taxable services. In the present case for renting of immoveable property, the appellant have not received any input or input service and no cenvat credit was availed. Accordingly, the condition No. (iv) also stands complied with…We are of the view that the availment of cenvat credit in respect of input, input service or capital goods by the appellant only in relation to the manufacturing activity will not debar them from availing the exemption notification NO. 06/2005-ST for their service of renting of immoveable property. The excisable activity in the manufacturing unit and the service related to renting of immoveable property are two distinct activities and therefore the availment of cenvat credit in relation to manufacturing activity cannot be applied to their service of renting of immovable property…."

Concluding that there is no violation of any condition on the part of the appellant in respect of Notification No. 06/2005-ST, the impugned order confirming the service tax demand was set aside and the appeal was allowed.

(See 2017-TIOL-2602-CESTAT-MUM)