CENVAT credit under Rule 6(5) is available unless input services are used exclusively for exempt services.

The assessee, which developed and maintained an IT park, availed CENVAT credit without separately allocating it among its services.

The Department issued show-cause notices concerning credit claimed for 16 June 2005 to 1 June 2007 and April 2009 to March 2010; the adjudicating authority disallowed the credit, but the CESTAT allowed the assessee’s appeal.

The dispute also concerned service tax on fit-out charges included in lease arrangements. The Tribunal set aside that demand, reasoning that the fit-outs were movable items and VAT had been paid on the consideration.

The Department appealed under Section 35G of the Central Excise Act, read with Section 83 of the Finance Act, 1994.

1. Whether the assessee could claim CENVAT credit under Rule 6(5) for the period 16 June 2005 to 1 June 2007, notwithstanding that it also provided exempt services.

2. Whether the CESTAT was correct in rejecting the Department’s reliance on Board Circular No. 98/1/2008-ST dated 4 January 2008 in relation to the period after 1 June 2007.

3. Whether the CESTAT was justified in applying Safety Retreading Co. (P) Ltd. v. Commissioner of Central Excise, Salem.

4. Whether payment of VAT on fit-out charges precluded the Department from imposing service tax on those charges.

Rule 6(1)–(3) of the CENVAT Credit Rules, 2004 provides for separate accounting or prescribed allocation methods where a provider supplies taxable and exempt services; Rule 6(5), notwithstanding those provisions, permits full credit of service tax paid on specified taxable services unless the service is used exclusively in or in relation to providing exempt services.

For the post-1 June 2007 period, eligibility for input-service credit turns on the applicable definition in Rule 2(l) and the nexus between the input and output services; a Board circular is not binding on the Tribunal.

Under Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, VAT and service tax may both apply to the same transaction where the factual and legal requirements for each are met.

For the earlier period, the assessee’s credit was not used exclusively for exempt RIP services: it also related to taxable MMR services. The Rule 6(5) exclusion therefore did not apply, and the absence of service-by-service allocation did not defeat the claim.

For the later period, the Court agreed with the Tribunal that the circular had focused incorrectly on the immovable property rather than the output service of renting it; the relevant question was whether the input services had the required nexus under Rule 2(l).

On fit-out charges, the lease documents covered fit-outs and related infrastructure, not merely movable furniture, and a portion of the consideration had to be attributed to them. VAT payment alone did not rule out service tax; moreover, the assessee had produced no proof that VAT was paid on the fit-outs.

It left Issue 3 unanswered because no submissions were made on it.

It answered Issue 4 in favour of the Department.

The appeal was disposed of accordingly, with no order as to costs; the connected miscellaneous petition was closed.