Interest on Renting of immovable property - whether applicable before 01.07.2010

CASE STUDY

CA.PRADEEP JAIN

CA. NISHIT SHAH

MOHIT SINGH CHAUHAN

INTRODUCTION:-

In the case under study, the issue involved was that whether interest shall be payable on Renting of Immovable property, if the assessee had paid the same suo – moto before 01.07.2010 before issue of explanation to the definition of Renting of Immovable property definition.

Whether adjudicating authority can appropriate entire amount of service tax along with interest if the same is excess paid and doesn't grant either refund or adjustment?

In the case of M/s Ganga Devi Chaudhary, Jodhpur Vs Deputy Commissioner, Central Excise Division, Jodhpur

[Order-In-Appeal No. 04 (AKJ) ST/JPR-II/2012 Dated 27.01.2012]

Relevant Provision:-

Renting of Immovable Property Services” is defined under Section 65(105) (zzz) of the Finance Act, 1994. The said section reads as under:

“(zzzz) to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce”

Explanation 1.—For the purposes of this sub-clause, “immovable property” includes—

(i) Building and part of a building, and the land appurtenant thereto;

(ii) Land incidental to the use of such building or part of a building;

(iii) The common or shared areas and facilities relating thereto; and

(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include-

(a) Vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) Vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2.—For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;

BRIEF FACT OF THE CASE:-

The appellant is engaged in providing service of “Renting of Immovable Property” having Service Tax Registration No. ACEO7169CST001.The Show Cause Notice V (ST) SCN/133/JDR/10/18421 was issued dated 30.09.2010 alleging that the appellant did not pay Service Tax amounting to Rs 1, 66, 620/- on the taxable value of Rs 16,17,670/- received during the period 01.04.2009 to 31.03.2010. But before the issuance of the notice demand amount on it volition of the appellant deposited a sum of Rs 1,11519/- as Service Tax and Rs 6289/- as interest thereon. The notice was adjudicated by the impugned order confirming the demand of Rs 1,08,211/- along with the interest of Rs 6289/- as the Correct taxable value was found to be Rs10,82,710/- only and refrain from imposing any penalty under Section 76 of the Act.

However the adjudicating authority appropriated the entire amount of service tax alongwith interest deposited by the appellant. Being aggrieved by the impugned order the appellant filed this appeal on the following grounds; (i) that in the adjudicating order itself it was held that there was an excess payment of service tax Rs.3308/- but rather than allowing refund the same or adjustment towards future payment of service tax the same was also appropriated in the government account, therefore adjudication order was not proper to that extent, and is liable to be quashed; (ii) that no interest was leviable on the appellant for delayed payment of service tax as the definition of 'Renting of Immovable Property Services' under Section 65(105)(zzzz) of the Act was amended retrospectively w.e.f. 01.7.2007 and the appellant paid service tax immediately before July 1, 2010, it is therefore, submitted that when the tax was levied retrospectively than, the question of paying interest did not arise, hence levying interest under Section 75 was not sustainable, and liable to be set aside; (iii) that the reason for non payment of service tax by the appellant was due to the fact that the judgement of Hon'ble Delhi High Court in the case of Home Solutions Retail India Ltd. and others vs. UOI 2009 (237) E.L.T. 209 (Del) was operating in their favour, wherein it was held that "Renting of Immovable Property Services" was not liable to service tax but services in relation to "Renting of Immovable Property Services" therefore there was no fault on the part of the appellant for belated payment of service tax.

Appellant Contention :-

The Appellant submitted that Hon’ble Delhi High Court in case of Home Solutions Retail India Ltd. and others Vs. Union of India [2009 (237) E.L.T. 209 (Del.)] has said that-

Renting of Immovable Property not liable to Service tax but services in relation to Renting of Immovable Property taxable - Service tax being a value added tax, value addition absent in renting of immovable property for use in the course or furtherance of business or commerce - Renting of immovable property by itself cannot be regarded as a service - Renting out of immovable property by itself for business or commercial use not constitutes a taxable service as per Section 65(105)(zzzz) of Finance Act, 1994 - Any service connected with renting of immovable property covered and eligible to Service tax - Other services such as air conditioning service provided along with renting of immovable property covered - Renting of immovable property as such not liable to Service tax - Services in relation to such renting alone liable - Sections 65(90a) and 65(105)(zzzz) ibid. - In so far as renting of immovable property for use in the course or furtherance of business or commerce is concerned, we are unable to discern any value addition. We hold that Section 65(105)(zzzz) ibid does not in terms entail that the renting out of immovable property for use in the course or furtherance of business or commerce would by itself constitute a taxable service and be eligible to Service tax. [Paras 35, 36]

The above judgement makes it clear that the service tax cannot be levied on the renting of immovable property. Therefore the show cause notice issued is not sustainable and is liable to be set aside.

The said judgement by the High Court was appealed by the Central Government in the Supreme Court. The Supreme Court has admitted the SLP. Further in the Finance Act, 2010, Section 65 (105) (zzzz) has been amended retrospectively w.e.f. 1.7.2007 thereby specifically levying service tax on renting of immovable property. This is done to nullify the effect of the Judgement of the Hon’ble High Court. It is proposed that the amendment will have effect as if it was so from the beginning of the levy, irrespective of anything contained in any judgement, decree or order of any court, tribunal or other authority. As such it is aimed to so as to levy the service tax on renting of immovable property as such.

The Appellant further submit that the impugned show cause notice is alleging that the Central Government has appealed against the Delhi High Court order to the Supreme Court and Supreme Court had admitted the SLP. As such, the decision of Hon’ble Delhi High Court has not attained finality. In this regard it is submitted that Hon’ble Delhi High Court in the case of SSIPL Retail Ltd. v. UOI [2010 (18) S.T.R. 262] (Del.) had held that during the pendency of the SLP, the judgment of the High Court was applicable and in the absence of any stay from the Supreme Court, the service tax department was bound to follow the same. As such, the service tax department cannot pursue the assessees for payment of service tax. As such, due to applicability of decision of Hon’ble High Court; action cannot be taken against us for recovery of service tax on the impugned services. Therefore, the demand proposed in the impugned show cause notice has no legal validity as such it is liable to be quashed.

In this regard it relied upon the decision of:-

UNION OF INDIA Vs KAMLAKSHI FINANCE CORPORATION LTD. [1991 (1991 (55) ELT 433 (SC)].
GRASIM INDUSTRIES LTD. Vs COLLECTOR OF CENTRAL EXCISE, MADRAS [1996 (82) ELT 457 (MAD)

Appellant further submit that the case laws cited here above made us believe that we are not liable to pay service tax on the renting of immovable property service. As such, penalty cannot be imposed on us for our bonafide belief caused by various decisions. The Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”

The analysis of above decision makes it clear that since we have acted under bonafide belief, no penalty can be imposed on us. Therefore, the benefit of above decision of Hon’ble Supreme Court should be extended to us and the whole proceedings should be dropped.

Appellant further submit that the there was decision in our favour of Delhi High court and have paid the tax when the retrospective amendment has been done by the Parliament. Thus, the show cause notice should not be issued to us under provisions of Section 73 to us. Further the proviso to section 73(3) says that

3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid

So the analysis of the above section makes it clear that the Show cause notice cannot be issue if before the issuance of the show cause notice service tax along with interest has been paid by the assessee. Further penalty cannot be levied on the assessee when the assessee has already discharged the duty liability along with interest. The show cause notice that too with penalty imposition issued has no sense when already tax with interest had been paid by the assessee. There are a number of decisions where it is said that when the duty liability is discharged along with interest, penalty cannot be imposed on the assessee. The assessee has informed this to the department vide its letter dated 6.10.2010. Also before taking the step by the department the assessee when discharges the tax liability means the assessee has no intentions of evading the tax. But mere because of the confusions caused due to the various decisions, the assessee did not pay the tax on time. But on becoming clear about the facts when tax is paid with interest that means the assessee is compiling all the provisions and no intentions of evading any tax. Therefore penalty cannot be imposed on such assessee. Further to support our contentions we rely on:-

VARSANA ISPAT LTD Vs COMMISSIONER OF CENTRAL EXCISE, RAJKOT [2010 (19) S.T.R. 359 (Tri- Ahmd.)]
NISCHINT ENGINEERING CONSULTANT PVT.LTD Vs COMMR. OF C.EX AHMEDABAD [2010(19) S.T.R. 276 (Tri.Ahmd.)]
COMMISSIONER OF C. EX., MANGALORE Versus CHANNAMMA BAJAJ [2010 (19) S.T.R. 68 (Tri. - Bang.)
COMMISSIONER OF CENTRAL EXCISE, LUCKNOW Versus PUSHPA SINGH [2009 (14) S.T.R. 100 (Tri. - Del.)]
K.D. SALES CORPORATION Versus COMMISSIONER OF C. EX., BELGAUM [2007 (6) S.T.R. 418 (Tri. - Bang.)]
M.G. MOTORS Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I [2010 (17) S.T.R. 468 (Tri. - Del.)]
COMMISSIONER OF CENTRAL EXCISE, MANGALORE Versus SHANTHA SATELITE VISION [2009 (13) S.T.R. 76 (Tri. - Bang.)]
MODERN MACHINERY STORE Versus COMMISSIONER OF C. EX., JAIPUR-I [2008 (12) S.T.R. 162 (Tri. - Del.)]
MAHARASHTRA STATE CO-OP. MKTG. FED. LTD. Versus C.C.E., NASHIK [2008 (12) S.T.R. 57 (Tri. - Mumbai)]

Therefore all the above cited cases say that when the assessee has discharged the duty liability with interest well in advance before the issuance of show cause notice, penalty u/s 76 cannot be imposed on the assessee. Therefore the show cause notice issued to us is totally erroneous and is liable to be set aside.

REASONING OF ORDER-IN APPEAL:-

As regards the issue of legality of the appropriation of excess payment of Rs 3308/-, the Appellate Authority hold that this was not legally just and correct, therefore hold that this much amount is to be refunded to the Appellant for the payment of Service Tax suo motto toward future liability of Service Tax, thus the impugned order is modified to that extent only.

As regards charging interest on the belated payment of service which happened due to judgement of Hon’ble Delhi High Court in the case of Home Solution Retail India Ltd and others vs UOI 2009 (237) E.L.T. 209 (Del) and due to amendment of Section 65(105)(zzzz) of the Act retrospectively w.e.f. 01.7.2007, hence the appellant was nowhere at fault, Appellate Authority observe that the contention of the appellant is not true as 'Renting of Immovable Property Services' was already defined under Section 65(90a) of the Act, and in the case of Home Solutions Retail India Ltd. and others vs. UOI 2009 (237) E.L.T. 209 (Del) the Hon'ble Delhi High Court pointed out the defect in the definition of taxable services as defined under Section 65(105)(zzzz) of the Act, which the government removed by the Finance Act 2010 retrospectively w.e.f.01.7.2007. It means that this service was already taxable only the defect in the definition under Section 65(105)(zzzz) of the Act, was removed retrospectively therefore, the payment of interest on belated payment of service tax and appropriation thereof in the impugned order was legally just and valid and needs no intervention.

DECISION OF APPELLATE AUTHORITY

The appeal is disposed off in above terms.

CONCLUSION

Though the Commissioner appeal took judicial view and refunded the amount of excess service tax paid by assessee which was appropriated unjustly by adjudicating authority. However the commissioner did not allow the interest on belated payment of service tax in view of the above reasoning.

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PJ/CASE STUDY/2012-13/03
22 April 2012

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PJ/CASE STUDY/2012-13/03 22 April 2012

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PJ/CASE STUDY/2012-13/03
22 April 2012