2026-VIL-1206-MAD-ST
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SERVICE TAX High Court Cases

Service Tax - Eligibility to CENVAT credit of input services used for both taxable and exempted output services - Rule 6(5) of CENVAT Credit Rules, 2004 - Period from 16.06.2005 to 01.06.2007 - Respondent, engaged in development and maintenance of an IT Park, was registered for Management, Maintenance and Repair Service (MMR) and Renting of Immovable Property Service (RIP). It did not maintain a bifurcation of credit and availed the credit in toto under Rule 6(5). SCN proposed to disallow and recover the credit with interest and penalty on the ground that the credit related to RIP, which was exempt for the period. The Tribunal allowed the Respondent's appeal against the order disallowing the credit - Whether the Respondent was entitled to credit of the whole of the service tax under Rule 6(5) when it was also engaged in exempted services - HELD - Rule 6(5) is a code by itself and allows credit of the whole of the service tax paid on the specified taxable services, including MMR. Credit is available unconditionally, barring a situation where the services have been used exclusively in relation to provision of exempted services. The RIP services were admittedly exempt for the period. However, the credit was used for all output services including MMR and RIP, and not exclusively for RIP. As the Respondent is engaged in rendition of taxable services as well, the condition of exclusivity is not attracted - The High Court concurred with the Tribunal and answered the question in favour of the Respondent-assessee - Eligibility to CENVAT credit of input services used for Renting of Immovable Property Service - Reliance on Board Circular - Period post 01.06.2007 - Respondent availed credit of input services for the output service of renting of immovable property, which became taxable post 01.06.2007. The credit was denied on the basis of a Board Circular, which clarified that credit cannot be taken as immovable property is subject neither to Central Excise duty nor to Service Tax. The Tribunal rejected the reliance on the Circular and allowed the credit - Whether the Tribunal erred in treating the Board Circular as erroneous and irrelevant for the period post 01.06.2007 - HELD - The Circular erroneously focussed on the eligibility of input services for immovable property, whereas it should have addressed their eligibility for the output service of Renting of Immovable Property. The clarification has therefore to be disregarded and is in any case not binding on the Tribunal. What is required to be seen is whether the input services have the necessary nexus with the output service and fall within the definition of input services in Rule 2(l) of the CENVAT Credit Rules, 2004, as it existed during that period - The High Court concurred with the Tribunal and answered the question in favour of the Respondent - Liability to service tax on fit-out charges forming part of consideration for renting of immovable property - Payment of VAT on fit-outs - Respondent, engaged in management of an IT Park, provided fit-outs such as work stations, cabins and meeting rooms along with the office space rented to its clients under lease agreements. The Respondent contended that VAT had been paid on the fit-outs and service tax was therefore not payable. The authority held that the fit-outs form part of the value of the immovable property rented out. The Tribunal reversed the order on the ground that the fit-outs were movable items on which VAT was remitted, and that VAT and service tax are exclusive - Whether the erroneous payment of sales tax on fit-out charges would immune the Respondent from liability to service tax - HELD - There are both factual and legal errors in the conclusion of the Tribunal. On facts, the fit-outs did not relate only to movables but also to other infrastructure such as work stations, which formed part of the lease agreements, so a portion of the consideration has necessarily to be earmarked to them. On law, mere payment of VAT does not lead to the conclusion that no service tax is payable. The Hon'ble Supreme Court has held that service tax and VAT assessments are both possible in respect of the same transaction, if the foundational requirements for such assessments are justified on the facts. Further, no proof was produced that VAT had been paid on the fit-outs - The question is answered in favour of the Appellant-Department and the Tribunal's order on this issue is reversed.
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