CESTAT Mumbai Allows YRF Studios' CENVAT Credit On Studio Repair and Renovation Works

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has recently allowed YRF Studios to claim CENVAT credit on service tax paid for repair, renovation, and strengthening works carried out on its existing studio buildings.

It held that the services were used for maintaining infrastructure from which the company's taxable output services were provided and were not covered by the exclusion applicable to construction services.

The appeal was decided by Technical Member M.M. Parthiban. The tribunal set aside the impugned order, restored CENVAT credit of about ₹3.05 lakh, and quashed the penalty imposed on the company.

“Inasmuch as the disputed input services as above are covered under the 'means' and 'inclusion' part of the definition of 'input service' under Rule 2(l) ibid and are not covered by 'exclusion' part of the definition, I find that there is no legal basis for denial of CENVAT Credit on these repair or maintenance/renovation service.”, the tribunal ruled.

YRF Studios rents film and sound recording studios and provides video production and business support services. It undertook repair and strengthening work on its existing studio and audio recording buildings.

The company claimed CENVAT credit of about ₹3.05 lakh on the service tax paid for those works. During an audit, the Department objected to the credit, alleging that the services were works contract services relating to original works and were therefore ineligible for credit.

The adjudicating authority confirmed the demand along with interest and penalty. The Commissioner (Appeals) upheld that decision, prompting YRF Studios to move the tribunal.

Before the tribunal, YRF Studios argued that the work was undertaken only to repair, renovate and strengthen its existing buildings from which its taxable services were rendered.

It also relied on a Chartered Accountant's certificate showing that the expenditure had been accounted for under the head "Repairs and Maintenance – Building".

The Department defended the findings of the lower authorities. It maintained that the disputed works contract services were excluded from the scope of eligible input services.

The tribunal found that the authorities had examined the claim under the definition of "input", which applies to goods, instead of determining whether the disputed services qualified as input services. It held that the repairs were carried out on existing buildings from which YRF Studios provided its taxable output services. The services therefore satisfied the requirement for claiming CENVAT credit.

The tribunal also found that the Commissioner (Appeals) had incorrectly observed that supporting documents had not been produced. It noted that the disputed invoices formed part of the show cause notice itself and had been relied upon by the Department.

“The grounds for rejection of CENVAT Credit on input services in the order of the adjudicating authority under Rule 2(k), which was upheld by the learned Commissioner (Appeals), is not proper and justified as neither the factual details nor the legal position were examined. In view of the above, I am of the considered view that the grounds on which the input service credit was disallowed… have no legal basis.”, the tribunal ultimately ruled.

The tribunal also relied on its earlier decisions in Jai Balaji Industries Ltd., Reliance Industries Ltd., Ion Exchange (I) Ltd. and Mahle Engines Components India Pvt. Ltd.

It further referred to a CBEC circular clarifying that CENVAT credit remains available on services used for the repair or renovation of existing factories, offices, and the premises of an output service provider.

Allowing the appeal, the tribunal restored CENVAT credit of about ₹3.05 lakh and set aside the penalty imposed on YRF Studios.

For Appellant: Shri Sameer K. Sonawane, Chartered Accountant

ForRespondent: Shri Dhananjay Dahiwale, Authorized Representative