The Chennai Regional Bench of the Customs, Excise & Service Tax Appellate Tribunal has clarified a critical principle in service tax jurisprudence: ownership of immovable property is not a prerequisite for claiming Cenvat credit on input services related to Renting of Immovable Property Service (RIPS). This decision resolves ambiguity around whether a seller who continues to collect rent post-sale, and subsequently transfers it to the buyer, can legitimately avail input tax credit on the service received from the buyer.
Background & Facts
The Dispute
The appellant, M/s. Siva Industries and Holdings Ltd. (formerly VS NET Ltd.), owned a commercial building in Perungudi, Chennai, which it rented out to M/s. HCL Technologies Ltd. on a monthly basis under the service category of Renting of Immovable Property Service (RIPS). The appellant had been paying service tax on the rental income and availing Cenvat credit on related input services. On 18.06.2012, the appellant sold the building to M/s. Easyaccess Financial Services Ltd. (EFSL). Despite the transfer of ownership, the tenant, HCL Technologies, continued occupying the premises under the same lease arrangement.
Key Facts
- The appellant collected monthly rent for June 2012 in advance, including service tax, prior to the sale.
- From 18.06.2012 to 30.06.2012, the appellant retained the rental amount collected for the latter half of June and transferred it to EFSL, along with the corresponding service tax component.
- EFSL issued a tax invoice to the appellant for the period 18.06.2012 to 30.06.2012, describing the amount as "Rent for Office at Sterling Technopolis."
- The appellant availed Cenvat credit on this invoice under Rule 2(l) of the Cenvat Credit Rules, 2004.
- The Revenue issued a Show Cause Notice (SCN) dated 25.09.2013, denying the Cenvat credit on the ground that the appellant no longer owned the property and hence the service received had no nexus with its output service.
- The Original Authority, by Order-in-Original No. 1/2014 dated 10.01.2014, disallowed the credit, imposed interest, and levied penalty under Rule 15(1) of CCR, 2004.
- The Commissioner of Service Tax (Appeals-II) upheld the disallowance in Order-in-Appeal No. 405/2015 dated 30.12.2015.
Procedural History
- 18.06.2012: Sale of property to EFSL; possession transferred.
- 25.09.2013: Show Cause Notice issued by Revenue.
- 10.01.2014: Order-in-Original passed by Original Authority disallowing Cenvat credit.
- 30.12.2015: Order-in-Appeal by Commissioner (Appeals-II) confirming disallowance.
- 27.02.2026: Hearing before CESTAT Chennai.
- 18.03.2026: Final Order passed by Tribunal.
Relief Sought
The appellant sought setting aside of the impugned orders, restoration of the Cenvat credit of Rs. 1,25,000 (as per invoice), refund of interest and penalty paid, and consequential relief as per law.
The Legal Issue
The central question was whether Cenvat credit under Rule 2(l) of the Cenvat Credit Rules, 2004 is available to a taxpayer who receives a service (rental) from a third party, where the taxpayer continues to provide Renting of Immovable Property Service (RIPS) to its tenant despite having transferred ownership of the property.
Arguments Presented
For the Appellant
The appellant’s Chartered Accountant argued that ownership is not a condition precedent for RIPS under Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994. He contended that the appellant, having collected rent in advance and transferred it to EFSL, functioned as a sub-lessee during the period 18.06.2012 to 30.06.2012, thereby rendering the rental payment to EFSL an input service directly linked to its output service of RIPS. He emphasized that the invoice issued by EFSL clearly indicated a landlord-tenant relationship between EFSL and the appellant, and that denying credit would lead to cascading taxation.
For the Respondent
The Revenue’s Authorized Representative relied on the lower authorities’ findings that since the appellant ceased to be the owner on 18.06.2012, the rental payment to EFSL could not be considered an input service for RIPS. She argued that the appellant’s claim of being a sub-lessee was unsupported by any lease agreement and that the mere collection of rent by the appellant did not equate to provision of service post-sale.
The Court's Analysis
The Tribunal observed that the facts were not in dispute. The transfer of ownership on 18.06.2012 did not automatically terminate the landlord-tenant relationship between the appellant and HCL Technologies, as the tenant remained in occupation under the same terms. Crucially, the Tribunal noted that Section 65(105)(zzzz) of the Finance Act, 1994, explicitly includes sub-leasing and similar arrangements under RIPS, irrespective of ownership.
"A perusal of the said invoice which is placed on record indicates that the buyer who became the owner raised an invoice and the description 'Rent for Office at Sterling Technopolis' for the period 18.06.2012 to 30.06.2012. This clearly indicates the implied assertion of the new owner of the property that the property in question was rented out to the Appellant for a short period and that the Appellant had enjoyed the possession as a permissive owner who sub-let the premises in question to M/s.HCL Technologies Ltd."
The Tribunal held that the invoice issued by EFSL to the appellant constituted documentary evidence of a rental arrangement between them. The appellant’s role as a sub-lessee during the transitional period was therefore established. Since the appellant was providing RIPS to HCL Technologies during the same period, the rental payment to EFSL constituted an input service directly linked to its output service. The denial of Cenvat credit on this basis was legally unsustainable.
The Tribunal further emphasized that the legislative intent behind RIPS was to tax the service of letting, not the ownership of the property. To deny credit under these circumstances would violate the principle of input tax credit and result in double taxation.
The Verdict
The appeal was allowed. The impugned Order-in-Appeal dated 30.12.2015 and the Order-in-Original dated 10.01.2014 were set aside. The Cenvat credit of Rs. 1,25,000 availed by the appellant on the rental invoice from EFSL was restored. Any interest and penalty imposed on account of the disallowed credit were cancelled. The appellant was entitled to consequential relief as per law, including refund of amounts paid under protest, with interest at the statutory rate from the date of payment.
What This Means For Similar Cases
Ownership Is Irrelevant for RIPS Eligibility
- Practitioners can now confidently argue that RIPS eligibility under the Finance Act, 1994, hinges on the provision of rental service, not ownership.
- This applies to scenarios involving sale-leaseback arrangements, temporary transfers, or interim possession changes.
Input Credit Validated for Sub-Leasing Arrangements
- Cenvat credit is available on rent paid to a new owner if the taxpayer continues to sub-let the property to the same tenant.
- Documentary evidence (e.g., invoices, payment records) is sufficient to establish the sub-lease relationship; no formal lease agreement is mandatory.
Avoiding Cascading Taxation
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Revenue authorities must assess the economic reality of transactions, not just legal title.
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Denial of Cenvat credit in such cases constitutes double taxation and violates the Cenvat Credit Rules’ foundational principle of seamless credit flow.
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Always document transitional rental arrangements with clear invoices.
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Retain records of rent transfers and tenant continuance to substantiate the sub-leasing claim.
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Challenge disallowances based on ownership status by citing Section 65(105)(zzzz) and this judgment.
