CENVAT Credit Allowed on Construction-Related Services Used for Renting of Immovable Property: CESTAT

The Chandigarh Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a major service tax demand holding that CENVAT credit on inputs, input services and capital goods used for construction of immovable property is admissible when such property is used for providing taxable Renting of Immovable Property Service. The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that renting of Immovable Property Service cannot be provided without construction of the building, and therefore, construction-related input services have a direct nexus with the output taxable service. The definition of “input service” prior to 1 April 2011 expressly included services used in relation to “setting up of premises of the provider of output service.” Construction services were excluded from the definition of input service only with effect from 1 April 2011, and the amendment was not retrospective. Departmental circulars cannot override statutory provisions or judicial precedents. The appellant/assessee, DLF Cyber City Developers Ltd., engaged in providing taxable services including Renting of Immovable Property, Transportation of Goods by Road and Advertisement Services, was issued multiple show cause notices for the period June 2007 to March 2011. The Department alleged that the company had wrongly availed CENVAT credit on inputs, input services and capital goods used for construction of commercial buildings, which were subsequently rented out. The Commissioner of Service Tax, New Delhi, confirmed the demand and ordered recovery of credit along with interest and penalties under Rule 14 of the CENVAT Credit Rules, 2004, on the ground that construction of immovable property does not amount to manufacture or provision of taxable service. The central question before CESTAT was whether inputs and input services used for construction of commercial buildings—later rented out on payment of service tax—qualify as “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004, for the period prior to 1 April 2011. DLF argued that Renting of Immovable Property Service cannot be provided without first constructing and maintaining the building, making construction-related services integrally connected with the output service. It was contended that the definition of “input service” under Rule 2(l) is broad and covers services used directly or indirectly for providing output services. Services such as architect services, consulting engineer services, legal consultancy, management consultancy, security services, chartered accountant services and works contract services were essential for setting up the premises from which renting services were provided. Prior to 1 April 2011, construction-related services were not excluded from the definition of input service. The appellant relied on several Tribunal and High Court decisions, including earlier rulings in its own case and in the cases of sister concerns, where similar credits were allowed. The Department argued that immovable property is neither goods nor a taxable service and, therefore, CENVAT credit on construction services was inadmissible. It relied on CBEC Circular dated 4 January 2008 and contended that the matter should be kept in abeyance as similar issues were pending before the Supreme Court. The Tribunal also rejected the Department’s plea to keep the matter pending merely because similar issues were before the Supreme Court, noting that there was no stay on the operation of existing judgments. CESTAT further held that the extended period of limitation was not invocable, as DLF had been regularly filing ST-3 returns and the Department failed to establish suppression of facts or intent to evade tax. The Tribunal set aside the impugned order in its entirety, allowed the appeal filed by DLF Cyber City Developers Ltd., and granted consequential relief as per law. Case Details Case Title: M/s DLF Cyber City Developers Limited Versus Commissioner of Central Excise & Service Tax, New Delhi Case No.: Service Tax Appeal No. 3090 of 2012 Date: 03.02.2026 Counsel For Appellant: Anubhav Goel and Ms. Preeti Goel, Advocates Counsel For Respondent: Shyam Raj Prasad (Special Counsel), Authorized Representative Click Here To Read Order Read More: Supreme Court Hears Plea Seeking SIT Probe into Anil Ambani Group under PMLA and FEMA

CENVAT Credit Allowed on Construction-Related Services Used for Renting of Immovable Property: CESTAT

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