CESTAT Overturns Commissioner's Order on Cenvat Credit Denial
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in Bangalore has overturned the Commissioner's decision to deny Cenvat Credit to Divyasree Holdings Pvt. Ltd. The decision was based on the absence of nexus between input and output services, specifically for the construction of a commercial complex that was later rented out.
CestatCenvat CreditService TaxConstruction ServicesRenting Of Immovable PropertyReal EstateSep 02, 2025
The Appellant, Divyasree Holdings Pvt. Ltd., is registered under the categories of Construction Services, Goods Transport Agency, and Renting of Immovable Property Services. During an audit, it was observed that the company had availed Cenvat Credit on various input services and utilized this credit for paying service tax on renting immovable property services. The Commissioner's order stated that these input services had no nexus with the taxable output service, leading to the denial of the credit.
The Chartered Accountant for the Appellant argued that the definition of ‘input service’ under Rule 2(k) and 2(l) of the Cenvat Credit Rules, 2004, does not restrict the credit for services related to renting immovable property services. They also cited that various appellate authorities have ruled that a one-to-one nexus between input and output services is not required as long as the input services were used and the output services were liable to service tax.
The Authorized Representative (AR) for the Revenue, however, maintained that the Appellant was not eligible to avail Cenvat Credit since the credit was availed on construction services, which do not attract service tax. The output service, which is the renting of the commercial property, has no direct nexus with the input services.
The key issue was whether Divyasree Holdings Pvt. Ltd. was eligible to avail Cenvat Credit on the input services used in the construction of the commercial complex, which is later rented out and subject to service tax. The tribunal referred to the judgment of the Andhra Pradesh High Court in Sai Samhita and the Gujarat High Court in Mudra Port, where Cenvat Credit was allowed on inputs used for construction.
The two-member bench of P.A. Augustian, Member (Judicial), and R. Bhagya Devi, Member (Technical), observed that the Cenvat Credit was denied solely on the ground that the input services had no nexus with the output services, as the input services were used for the construction of immovable property, which was later rented out. The tribunal concluded that the Appellant is entitled to the disputed Cenvat Credit. Consequently, the impugned orders seeking to deny and recover Cenvat Credit, along with interest and penalties, were not sustainable.
The CESTAT bench set aside the Commissioner's observations in the impugned order and allowed the appeal, providing relief to Divyasree Holdings Pvt. Ltd. This decision is a significant precedent for companies involved in similar circumstances, emphasizing the importance of a broader interpretation of the nexus requirement for Cenvat Credit.
Frequently Asked Questions
What is Cenvat Credit?
Cenvat Credit refers to the credit available to manufacturers or service providers for the excise duty or service tax paid on inputs or input services used in the production of goods or provision of services.
Why was the Cenvat Credit denied in this case?
The Cenvat Credit was initially denied because the Commissioner found no direct nexus between the input services (used for construction) and the output service (renting of immovable property).
What was the key argument of the Appellant?
The Appellant argued that the definition of ‘input service’ under the Cenvat Credit Rules, 2004, does not restrict the credit for services related to renting immovable property, and that a one-to-one nexus is not required.
What precedent did the tribunal refer to?
The tribunal referred to the judgments of the Andhra Pradesh High Court in Sai Samhita and the Gujarat High Court in Mudra Port, where Cenvat Credit was allowed on inputs used for construction.
What was the final decision of the CESTAT bench?
The CESTAT bench set aside the Commissioner's order and allowed the appeal, concluding that the Appellant is entitled to the disputed Cenvat Credit.
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