CESTAT Allows CENVAT Credit on Construction Inputs Used for Renting Service, Sets Aside Demand on DLF Cyber City

February 04, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench, has set aside a service tax demand against DLF Cyber City Developers Limited, holding that CENVAT credit on inputs, input services and capital goods used for construction of immovable property is admissible when such property is used for providing taxable Renting of Immovable Property Service.

The ruling was delivered by a Division Bench comprising S. S. Garg, Judicial Member, and P. Anjani Kumar, Technical Member, in Service Tax Appeal No. 3090 of 2012. The appeal arose from an Order-in-Original dated 28 June 2012 passed by the Commissioner (Adjudication), Service Tax, New Delhi.

DLF Cyber City Developers Ltd. was engaged in providing taxable services including Renting of Immovable Property, Transportation of Goods by Road and Advertisement Services. For the period from 1 June 2007 to 31 March 2011, the Department issued multiple show cause notices alleging that the company had wrongly availed CENVAT credit on inputs, input services and capital goods used in the construction of commercial buildings that were subsequently rented out.

The Commissioner confirmed the demand and ordered recovery of the credit along with interest and penalties under Rule 14 of the CENVAT Credit Rules, 2004. The demand was primarily based on the view that construction of immovable property does not amount to manufacture or provision of a taxable service.

Before the Tribunal, the appellant argued that the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules, as it stood prior to 1 April 2011, was wide and covered services used directly or indirectly in providing an output service. It was submitted that architect services, consulting engineer services, legal and management consultancy, security services, chartered accountant services and works contract services were essential for constructing and maintaining the buildings from which the renting service was provided. Without construction of the building, the taxable renting service itself could not be rendered.

The appellant also pointed out that construction-related services were expressly excluded from the definition of input service only with effect from 1 April 2011 and that this amendment was not retrospective.

The Department relied on a CBEC circular dated 4 January 2008 and contended that immovable property is neither goods nor a taxable service, making CENVAT credit on construction services inadmissible. It further argued that similar issues were pending before the Supreme Court and sought deferment of the matter.

Rejecting these submissions, the Tribunal held that prior to 1 April 2011, the definition of input service specifically included services used in relation to “setting up” the premises of a provider of output service. It observed that Renting of Immovable Property Service cannot be provided in the absence of input services used for construction of the building that itself forms the basis of the taxable service. The Bench further held that departmental circulars cannot override statutory provisions or binding judicial precedents.

On limitation, the Tribunal noted that the appellant had been regularly filing ST-3 returns and its accounts were audited by the Department. In the absence of any evidence of suppression or intent to evade tax, invocation of the extended period of limitation was held to be unsustainable.

In view of these findings, the Tribunal set aside the demand, interest and penalties, allowed the appeal filed by DLF Cyber City Developers Ltd., and granted consequential relief as per law.

Cause Title: M/s DLF Cyber City Developers Limited vs Commissioner of Central Excise & Service Tax, New Delhi
Case No.: Service Tax Appeal No. 3090 of 2012
Coram: S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member)