Whether the appellants are liable to pay service tax on the rent received for leasing the fit outs when VAT is paid against it?

PJ/Case Law/2020-2021/3628

Khivraj Techpark Pvt Ltd vs The Commissioner of Service Tax, Chennai Final Order No. 42117-42119 / 2018 dated 25.07.2018

Issue- Whether the appellants are liable to pay service tax on the rent received for leasing the fit outs when VAT is paid against it?

Brief facts-The appellants have entered into two different agreements for leasing the premises and leasing the fit outs. The fit outs include air conditioners, CCTV, fire alarms, etc. It was noticed that the appellants are not discharging service tax on the fit outs leased to the tenants. The Department was of the view that the appellants are liable to pay service tax on the rent received on leasing the fit outs in the premises. Show Cause Notice was issued and after due process of law, the Original Authority confirmed the demand, interest and imposed penalties. Aggrieved, the appellants are now before the Tribunal.

Appellant Contention- It is argued by him that the leasing of fit outs is a transaction in the nature of transfer of right to use goods and the appellants have discharged sales tax/VAT. The appellant has been thus discharging sales tax on renting of fit outs even prior to introduction of levy of service tax on Renting of Immovable Property Services. The Department has issued these Show Cause Notices for the period June, 2007 to September, 2010, proposing to demand service tax on the amounts received as rent for office fit outs under the category of renting of immovable property service.

A separate agreement was entered with the tenants for leasing the fit outs in the premises and does not form part of renting of immovable property at all. Since the appellants have discharged VAT on the said amount, the Department cannot again levy service tax. Service tax and VAT are mutually exclusive. To support this proposition, he relied upon the decision in the case of Imagic Creative Pvt. Ltd.’s. Commissioner of Commercial Taxes - 2008 (9) S.T.R. 337 (S.C.). He also relied upon the decision in the case of Ascendas IT Park (Chennai) Ltd. Vs. Commissioner of Service Tax - 2018 SCC Online CESTAT 128 in Appeal No. ST/249/2012.
Department Contention-They submitted that the Hon'ble High Court of Delhi, in the case of Homes Solutions Retails (India) Ltd. Vs. Union of India - 2011 (24) S.T.R. 129 (Del.) has held that services provided along with renting of immovable property is taxable under the said category. Since fit outs are nothing but part of renting of premises, they should also fall under the category of renting of immovable property. Further, as per the lease deed for renting fit outs, the effective control over the fit outs which are leased is on the lessor and not transferred to the tenant. This would show that there is no transfer of right to use or deemed sale and the appellants are liable to pay service tax on the rent received for leasing out fit outs. Thus, contended that the demand raised is legal and proper.

Tribunal View and Decision-The decision in the case of Imagic Creative Pvt. Ltd. (supra) has held that service tax and VAT are mutually exclusive. Further, the Tribunal in the case of Ascendas IT Park (Chennai) Ltd. (supra) has considered the very same issue and held that VAT and service tax being mutually exclusive, service tax cannot be demanded on the very same consideration received for renting of movable properties. Since there are two separate agreements for renting of fit outs and renting of premises, it can never be said that the amount received for renting of fit outs/movable properties would fall under renting of immovable properties. Following the above decisions, the impugned orders are set aside.

Comment- This is a path breaking decision because in GST also, due to the concept of composite supply, even after different agreements are being formed, the department demands for the GST. Like in case of sale of land and development of it, if separate agreements are being prepared, AAR rulings have pronounced that GST will be leviable on both supply. It is already known that stamp duty is already being discharged on sale of land. This decision can really be helpful for various taxpayers.

Prepared by – CA Preksha Jain

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PJ/Case Law/2020-2021/3628

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