Unreported Decisions – ST – May 2019

By Vinay Jain & Sachin Mishra, Advocates

1. Whether the Appellants are eligible to avail CENVAT Credit on ‘inputs’, ‘capital goods’ and ‘input services’ used in the construction of mall wherein the input services and capital goods were availed / procured both prior and post 1.6.2007 i.e. introduction of levy on ‘Renting of Immovable Property Services’?

Facts and Pleadings: Deepak Fertilisers & Petrochemicals Corporation Ltd. (hereinafter referred to as the Appellants) have been providing taxable service under the head ‘Renting of Immovable Property Service’ from its mall located in Pune. The Appellants have availed CENVAT Credit on Capital Goods and Input services used in construction of said mall.

Department alleged that Cenvat credit cannot be availed solely on the ground that mall is an immovable property and construction of such mall is neither subjected to service tax nor excise duty.

Appellant contended that Cenvat credit on the capital goods cannot be denied as the credit availed pertains to eligible chapter headings such as Air Conditioners, Escalators, Transformers etc falling under chapter 82, 84, 85 etc. Further, Appellant argued that mall is an immovable property which comes at the intermediate stage and ultimately is used in providing taxable output services. The Appellant have interpreted the definition of “input service” and submitted that the activities relating to setting up of premises of provider of output service also falls within the ambit of input service. The Appellant have relied on Navaratna S.G. Highway Prop. Pvt. Ltd, Vamona Developers Pvt. Ltd, Oberoi Mall Ltd, City Centre Mall Nashik Pvt Ltd cases to substantiate its arguments. Appellant further contended that Cenvat credit on input services received prior to 1.6.2007 also cannot be denied on the ground that as on date of commencement of provision of output services, all the services provided by the Appellant were liable to service tax. Thus, in effect all the services received by the Appellant in constructing the mall have been used in providing output services which are liable to service tax.

Judgment: The Appellate Tribunal while relying on various judgements held that the CENVAT Credit is admissible to the Appellant on the duty paid on capital goods and service tax paid on input services used in the setting up of the Mall. The Court reiterated the findings of City Centre Mall Nashik held that the definition of input service includes service used in relation to set up, premises of provider of output service or an office relating to such premises.

Deepak Fertilisers & Petrochemicals Corporation Ltd. vs. CCE, Pune, CESTAT, Mumbai, decided on 1.4.2019 in the Final Order No. A/85699/2019

Deepak Fertilisers & Petrochemicals Corporation Ltd.

2. Whether the services received by the Appellant from M/s Lear Corporation, USA against software usage agreement are in the nature of ‘Management, Maintenance Or Repair service’ as alleged by the Revenue or in the nature of ‘Information Technologies Software Service’ claimed by the Appellant? Whether the amount received under he said Agreement prior to 01.03.2008 chargeable to service tax under Reverse Charge Mechanism?

Facts and Pleadings: Lear Automotive India Pvt. Ltd. (hereinafter referred to as ‘the Appellant’) entered into an ‘software usage agreement’ with Lear Corporation, USA, wherein the Appellant was allowed usage of the said software. The charges paid by the Appellant for usage of the said software were equivalent to the annual maintenance charges paid by Lear Corporation, USA to its vendors of the software depending on the usage by the Appellant. The Appellant started paying Service Tax on the said services w.e.f. 16.5.2008 under the category of ‘Information Technology Software Service’.

The Department alleged that the services rendered by Lear Corporation, USA to the Appellant being in the nature of ‘support software maintenance’, the Appellant is liable to pay service tax on the amount paid by to Lear Corporation, USA under the reverse charge mechanism.

The Appellant contended that the Appellant is liable to service tax under ‘Information Technology Software Service’ i.e. from 16.5.2008 as the present transaction is in the nature of development of software. The Appellant also contended that the as the services received through internet was taxable only from 1.3.2008, the Appellant is not liable to pay service tax under reverse charge mechanism in view of Rule 3(ii) of the Import of Service Rules, 2006. The Appellant also submitted that in any case, ‘maintenance and repair of computer software’ was not part of ‘maintenance and repair service’ prior to 1.6.2007. Lastly, the Appellant also contended that the present transaction is merely sharing of costs which does not amount to provision of any service.

Judgment: The Hon’ble Appellate Tribunal held that the amount charged to the Appellant is for software maintenance services and not for usage of software per se. The Hon’ble Tribunal further held that there were no evidence in support of the claim of the Appellant that they were required to pay Lear Corporation, USA was not maintenance charges of the software but the charges for usage of software and the services received by the Appellant under the category of ‘Management, Maintenance, or Repair Service’. However, the Hon’ble Appellate Tribunal granted relief on the count that the services received through internet is taxable only from 1.3.2008 in view of Vodafone Cellular Ltd. vs. CCE, Order No. A/91120/2017 dated 30.11.2017.

Lear Automotive India Pvt. Ltd. vs. CST, Mumbai, CESTAT, Mumbai, decided on 8.10.2018 in Final Order No. A/88338/2018

Lear Automotive India Pvt. Ltd.