Whether service tax is liable before negative list regime implemented w.e.f. 1-7-2012 on compensation as taxable activity?

PJ/Case Law/2019-2020/3619

SIR SHADI LAL DISTILLERY & CHEMICAL WORKS Versus COMMR. OF C. EX., MEERUT-I Final Order No. ST/A/70364/2019-CU(DB), dated 21-2-2019 in Application No. ST/COD/55376/2014 in Appeal No. ST/54666/2014

Brief Facts: The tenants were given a notice by the appellant to vacate the premises within a period of one month. The Central Bank of India did not vacate the premises and kept on giving rent to the assessee at the agreed upon price. Thereafter, the appellant filed a civil suit against the said tenant wherein the Additional District Judge ordered the tenant to vacate the premises and also to pay the pending rent amount of Rs. 8,267/-. The tenant was also ordered to pay compensation of Rs. 30,000/- per month till the premises are not vacated by them.

However, the Revenue entertained a view that the compensation of Rs. 30,000/- per month received by the appellant from their tenant is nothing but a consideration for rent and as such the same has to be considered as rent received by the assessee. By including the said amount at the total receipts, the appellant crossed the exemption limit as provided under SSI Exemption Notification. Accordingly, proceedings were initiated against them for confirmation of demand of Service Tax to the tune of Rs. 2,14,589/- under the category of “Renting of Immovable Property”. In addition, penalty of identical amount under Section 78 and Rs. 20,000/- under Section 77 of the Finance Act, 1994 was imposed. The order passed by the Commissioner (Appeals) was upheld by except dropping the penalty imposed under Section 76 of the Finance Act, 1994.

Issue:Whether service tax is liable before negative list regime implemented w.e.f. 1-7-2012 on compensation as taxable activity?

Authorities Contention:Accordingly, learned counsel ordered that w.e.f. 3-2-2008 till the date of vacating of the premises, compensation is to be given to the appellant. For rent, the Judicial Officer has ordered for payment of the same to the extent of Rs. 8,267/-. The said reading of the order in question makes it very clear that the compensation of Rs. 30,000/- has got nothing to do with the rent amount and the same is in the nature of damages awarded to the appellant. The interpretation of the said decision by the Revenue to the effect that the same has to be treated as “Rent” cannot be accepted, as the Court has not ordered to increase the rent from Rs. 8,000/- to Rs. 30,000/- per month. The Learned Counsel has also clarified that the period involved in the present appeal is from June, 2007 to March, 2012 i.e. prior to the introduction of Negative List Taxation. It is only after 1-7-2012, when the Negative List Taxation was introduced, certain transactions were declared as taxable services under the law and compensation was one of them. However, in as much as, the period is prior to the said new regime of taxation, the compensation received by the appellant cannot be considered to be taxable.

Conclusion:The fact that compensation was declared as one of the taxable services w.e.f. 1-7-2012 also indicates that prior to the said date no tax can be collected on the compensation either indirectly or by treating the same as rent received. As such, there is no justification in the Revenue’s stand.

Prepared By: CA Kunal Karnawat

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PJ/Case Law/2019-2020/3619

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