CASE STUDY

Prepared By: CA Neetu Sukhwani,
Arpita Birla &
Kavita Thanvi

A Show cause notice was served upon the noticees wherein it was alleged that they appears to have evaded service tax amounting to Rs. 29,13,947/- during the period from 01.06.2007 to 31.03.2011. It appeared that the noticee has provided renting of immovable property services to M/s Indian Hotels Company (IHC) Limited, Mumbai and service tax is leviable on the renting of immovable property services on the amount which was paid by the IHC Ltd., Mumbai and the said amount is recoverable from the service provider i.e., from Ex-Maharani Mahendra Kumari (Wife) and Rajkumari Premkumari (Daughter) of Late Ex-Maharaja Hari Singh, Jodhpur under the proviso to Section 73(1) of the Act along with interest thereon u/s 75 of the Finance Act, 1994. The noticee is contending that they have not rented out any premises; rather it was a vacant land that was later on developed and expanded as a hotel. The contract was a type of collaboration whereby the land was provided by them and the other party – M/s IHC Limited was responsible for its development and expansion. Hence, it is clear that as per contract it was a sort of joint venture wherein the return was “profit sharing” rather than rent as contended by the impugned show cause notice.

M/s EX MAHARANI MAHENDRA KUMARI AND RAJKUMARI PREM KUMARI V/s A.C., Central Excise Commissionerate, Jaipur-II
 [OIO No. 91/ST/JP-II/2012, dated: 30.07.2012]

Relevant Legal Provisions:
 
Section 65 (zzzz) of Finance Act, 1994:-
 
Definition of “Renting of Immovable property service”:-Any service provided or to be provided to any persons, by any person, in relation of immovable property for use in the course of furtherance of business or commerce',
“Explanation 1 - For the purpose of this sub-clause immovable property includes-
(a)        (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,
(v) vacant land given on lease or license for construction of building or temporary structure at   a later stage to be used for furtherance of business or commerce, but does not include‑
(a)  vacant area solely used for agriculture, farming, forestry, animal husbandry, mining purposes;
(b)   vacant land, whether or not having facilities clearly incidental to the use of such vacant land
(c)   land used for educational, sports, circus, entertainment and parking purpose; and
(d)  building solely used 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 purpose of this sub-clause, an immovable property partly for use in the course of 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 of furtherance of business or commerce.
 
Definition of “Renting of Immovable property service”[Sec. 65(90a)]:- 'Renting of immovable property' includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business or, commerce but does not include -
(v)        Renting of immovable property by a religious body or to a religious body; or
(vi)       Renting of immovable property to an educational body, imparting; skill or knowledge or lessons on any subject or field, other than acommercialtraining or coaching centre.
Explanation- 1 - For the purpose of this clause, “for use in the course of furtherance of business or commerce" includes, use of immovable property as factories, office buildings, warehouse, theatres, exhibition halls and multiple - use buildings.
Explanation- 2 - For the removal of doubts, it is hereby declared that for the purposes of this clause "renting of immovable property" includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property.

Brief Facts:-
 
It was alleged that M/s Ex Maharani Mahendra Kumari (Wife) and Rajkumari Prem Kumari (Daughter) of late Ex Maharaja Hari Singh, resident of 5, residency road, Jodhpur (the noticee), are engaged in providing taxable service namely Renting of Immovable Property under Sub Clause (90a) of Section of the Finance Act, 1994 and that the noticee did not obtain registration from Central Excise Department under the provision of Section 69 of the Finance Act, 1944 read with Rule 4 of the Service Tax Rules, 1994 for discharging their Service tax liabilities. Therefore, the noticee appears to have evaded Service Tax amounting to Rs. 29,13,947/- (Service Tax- Rs. 28,29,075/- + Ed. Cess- Rs. 56,581/- + SHE Cess- Rs 28,291/-) during the period 01.06.2007 to 31.03.2011 in contravention of the provisions of Section 67,68,69 & 70 of the Finance Act,1994 read with sub- rule (1) of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 and Rule 4, 5,6 & 7 of the Service Tax Rules, 1994. During the audit of the records of M/s Taj Hari Mahal, Jodhpur, it appears that the noticee has rented out their premises through M/s Indian Hotels Company Limited, Colaba, Mumbai and had entered into a contract on 16.4.1994, which gives right the Indian Hotels Company Limited, Colaba, Mumbai to develop, expand, run and operate a hotel on 7 acres land and building against a consideration of (as per Para 8 of the contract) 2.5% of the gross income and 2% of gross operational profit per annum or a minimum guaranteed annual business profit. This contract permits the Indian Hotels Company Limited, Colaba, Mumbai to use the said premises as Taj Had Mahal Hotel against the consideration which is specified in Para 8 of the contract dated 16.4.1994.
As already discussed, the noticee was directed to pay service tax at the rates applicable on the consideration received against the permitting the IHC Ltd., to run and operate the hotel in the said premises. The said hotel is not used exclusively for hotel activities but also being used for many other commercial activities such as conferences, weddings, seminars training programme, other functions in their banquet hall, allowing mobiles companies to install their mobile towers on the building, running commercial shops in the same premises etc. Therefore, the rent/consideration received by the noticee is clearly covered under the purview of service tax under renting of immovable property. The Superintendent, Central Excise (ST) Range-II, Jodhpur vide his letter dated 17.3.2010, reminder of even No. 11 dtd. 5.4.2010, 326 dtd. 10.5.2010, 666 dtd. 22.06.2010, 930 dtd. 15.07.2010 and 2969 dtd. 05.10.2011 has requested M/s Taj Had Mahal Palace who is registered under Service lax, for depositing the amount of service tax on the amount shared as profit with the noticee. A letter of even No. 2610 dated 29.08.2011 was issued to the noticee to provide consolidated information regarding total income received or due on account of rent/lease money/licence fee received. The noticee vide their letter dated 06.09.2011 submitted that they had to collect information and one month time be provided. The noticee vide letter submitted that the agreement by them with M/s Taj Had Mahal Palace is not of renting of immovable property but it is an agreement for sharing profit in the hotel. It has been intimated by M/s Taj Hari Mahal Palace vide their letter dated 13.5.2010, that the said property is not given on rent to M/S Indian Hotels Company Limited, Colaba, Mumbai. But they have entered into a contract that they will be given shares in the profit earned by the said hotel company. M/s Taj Hari Mahal Palace, Jodhpur further submitted that it is not rent and agreement of profit sharing. It is linked with the income from hotel industry. The said amount is not rent and therefore, no service tax can be levied on the amount received by them.
In view of above facts, M/s Ex Maharani Mahendra Kumari (Wife) and Rajkumari Prem Kumari (Daughter) of late Ex Maharaja Han Singh, was called upon to show cause as to why:-
(i)      Service tax amounting to Rs. 29, 13, 947/- (Service Tax – Rs. 28, 29, 075/- + Ed. Cess – rs. 56, 581/- + SHE Cess – Rs. 28, 291/-) should not be recovered from them under proviso to Section 73 (1) of the Finance Act, 1994;
(ii)        Interest at the prevailing rate should not be recovered from them under Section 75 of the Finance Act, 1994;
(iii)       Penalty should not be imposed upon them under Section 76 of Finance Act, 1994 for non-payment of Service Tax in contravention of the provisions of Section 68 of the Act;
(iv)    Penalty should not be imposed upon them under Section 78 of Finance Act, 1994 for non-payment of Service Tax by reason of suppression of the fact and contravention of the provisions of Section and Rules made thereunder;
(v)        Penalty should not be imposed upon them under Section 77 of Finance Act, 1994 for contravention of the provisions of Sections 67, 68, 69 & 70 of the Act read with sub-rule (1) of Rules 5 of the Service tax (Determination of Value) Rules, 2006 and Rule 4, 5, 6 & 7 of the Service Tax Rules, 1994.
  
Issue: -
 
Following issue was made before the Additional Commissioner (Adjudicating Authority):-
 
Whether consideration received from M/s IHC Ltd. was liable to Service Tax under the category of Renting of Immovable Property?
  
Assessee’s Contentions:-
 
The following contentions were made before the Additional Commissioner (Adjudicating Authority):-
-          They submitted that the impugned show cause notice is alleging that they have rented their premises to M/s Indian Hotels Company Limited, Colaba, Mumbai to develop, expand, run and operate a hotel on 7 acres land and building against a consideration decided in the contract. The said contract permits M/s Indian Hotels Company Limited to use the premises as Taj Hari Mahal Hotel. To this, it was submitted that they have not rented out any premises; rather it was a vacant land that was later on developed and expanded as a hotel. The contract was a type of collaboration whereby the land was provided by them and the other party – M/s Indian Hotels Company Limited was responsible for its development and expansion. Hence, it is clear that as per contract, it was a sort of joint venture wherein the return was “profit sharing” rather than rent as contended by the impugned show cause notice. Thus, the foundation on which the show cause notice is resting; is itself vague. Hence the show cause notice is void ab initio and is liable to be set aside.
 
-          In continuation to above it was submitted that as stated above, the contract was entered for undertaking the development of land as a hotel. It was a sort of collaboration wherein two parties were there – one providing the land and other for developing it as a hotel. Thus, there was a business undertaking between the two parties and return in such cases is known as “profit”. This fact is also clear from the wordings of the contract. A plain reading of the relevant clause in Para 8 of the Contract dated 16.04.1994 makes it clear that contract is for profit sharing and the said amount is not rent. The said para was also reproduced thereunder:
“In consideration of the permission hereby granted to carry on the business of the said hotel in terms of clause ‘1’ hereinabove (i.e. to develop, expand, run and operate a hotel…), Indian Hotel Company Limited, Mumbai shall pay to the owner every year ‘business profits’ equivalent to 2.5% of the gross income plus 2% of the gross operating profit per annum of the Hotel in any year OR the minimum guaranteed business profits, as per schedule given below, whichever is higher.”
 
Therefore, it is clear that the return to be received as per contract is for “profit sharing” in the business and not of “rent”. Therefore, no service tax can be levied on this amount under the category of Renting of Immovable property. Thus, the contention of the impugned show cause notice is not tenable and it is liable to be set aside.
-          They submitted that the contention of impugned order that the amount received by them is “rent”; is not correct as per discussion done in foregoing paras. In this regard, it was further submitted that the amount received by them is well described in the contract which says that it is a “profit” based upon percent of income/net operating profit earned by the said collaboration. There is vital difference between “profit” and “rent”. The first and foremost difference is as already stated above – the profit is the result of joint venture or business undertaking. Here the relation between both the parties is directly related to earnings of the undertaking/venture. On the other hand, where there is rent agreement, the owner has nothing to do with the business of the other party, i.e., the tenant; his rights are restricted to the rent and property so rented out. Rent is an amount received by the owner for letting out his property. On the other hand, having share in profit gives the right in the business income which is directly related to the activities of the business. The person receiving the share in profit has all the rights to receive knowledge of company’s affairs – its incomes and expenses; so as to ensure himself that he has been given proper share. Rent is fixed and increase is only based upon pre defined time periods. On the other hand, profit is based upon the activities of business; the sudden increase in business income will increase the share in profit. The decrease in business income will lower down the share in profit. However, losses will have to be borne unless there is specific agreement of minimum guaranteed business profit. This case clearly falls under this category as it is a sort of venture, which gives returns in form of business profit which rises with the rise in the income of venture. It is a case just like partnership wherein two partners are there, who have agreed to share the profits earned by the partnership firm. It is a case where one partner is active – who carries on the entire business and other one is dormant who has simply invested in any form – whether cash or an asset, say land and building. In such cases, when the contract between them specifically provides that they will share the profits in future; then it cannot be said that the dormant or sleeping partner has rented out his assets to the firm. Their case is just like this form of partnership, though it is specifically not a partnership firm, yet the situation is the same. Thus, their case does not fall in the purview of “renting of immovable property”, rather it is a sort of joint venture which gives them profits. As such, the business profits cannot be alleged as a rent to be taxed under the service tax provisions as renting of immovable property.
 
-          It was submitted that as per above discussion it is ample clear that they are receiving the share in business profit which cannot be taxed under the service tax law. However, even if it is assumed for the sake of argument only that the income received by them fall under the purview of Renting of immovable property; then too it is exempted by virtue of exclusion clause given in explanation 1 to section 65 (105) (zzzz) of the Finance Act, 1994. This section defines the taxable service for renting of immovable property. The analysis of sub clause (d) to explanation 1 clarifies that for the purpose of this clause, immovable property will not include the buildings used as hotels. In other words, this clause says that the immovable property used as hotel will not be taxable under the category of “Renting of immovable property” service. Thus, the contention of the impugned show cause notice is not sustainable and is liable to be quashed.
 
-          It is further submitted that the impugned show cause notice is alleging that the said hotel is not used exclusively for hotel activities but also being used for many other commercial activities such as conferences, weddings, seminars training programme, other functions in their banquet hall, allowing mobile companies to install their mobile towers on the building, running commercial shops in the same premises etc. It is therefore alleged that since the hotel is not exclusively used for accommodation purpose, the above exclusion clause does not apply in the instant case. In this regard, it is submitted that there are two parts of the clause (d) as given in said Explanation 1, which is once again reproduced as follows:-
           
(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.
           
            The analysis of this clause makes it clear that this clause is broken into two parts being segregated by the word “and”. The use of word ‘and’ makes it clear that the first part is different than other. It covers two types of buildings:-
 
1.         Buildings used solely for residential purposes; and
 
2.         Buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.
 
The word solely is used in the first part of the clause (d). Thus, the first part says that it covers buildings that are purely meant for residential purposes. The residential complexes or flats that are very common in metros will fall under this clause. However, the second includes the buildings used for the purposes of accommodation including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities, etc. This part specifically includes the hotels, holiday accommodations, tents, etc. where mere accommodation is very rare because these are also meant for leisure and hence besides accommodation, food, health and fitness equipments, gaming equipments, internet, and similar services are also indispensible part of the same. Therefore, the said clause is being bifurcated into two parts. If only the buildings meant for residential purposes were to be included in this clause its language would have been like “building used solely for residential purposes like hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities, etc.” or something like this. In other words where the intention of the law would have been to include only residential purpose building, then there was no use of segregating the sentence by using the word “and”. Hence, if the interpretation taken by the learned adjudicating authority is accepted, it will make the use of word “and” redundant. It has been held by the hon’ble Supreme Court that any interpretation which results in rendering any portion of rule or legislation redundant should be avoided. This has been decided in the case of Amrit Paper vs. CCE, Ludhiana [2006 (200) ELT 365]and also in the case of Rajesh Kumar Sharma vs. UO [2007(209) ELT 0003(SC).]. In both of these cases, the highest court of India has decided that the interpretation which results in rendering any portion of rule or legislation redundant should be avoided. Therefore, in the light of these two decisions, the contention of impugned order that exclusion clause is applicable only where hotels provide only letting of rooms service are exempted is not sustainable as it will make the drafting of this clause redundant. Therefore, the impugned show cause notice is not sustainable and is liable to be set aside.
 
-          Aligning with above, it is reiterated that when we say “Hotel”, it is not limited to merely the letting out of rooms but includes all the allied services and facilities like food, room service, dry cleaning service, restaurants, swimming pool, conference halls/rooms etc. However, even if the contention of the impugned show cause notice that the exclusion clause includes hotels with letting rooms facility only, the intention of the law makers behind framing this provision would be defeated. A hotel with no or very few allied services besides letting of rooms is a scene of small town hotels. Obviously, government was not required to provide this exclusion clause for people renting their properties to such small hotels as they are already exempted by virtue of notification no. 6/2005-ST dated 01.03.2005. This notification provides the exemption to small service providers having the gross receipts of less than Rs. 10 lacs in the preceding financial year. Thus, small hotels which provide only rooms with very few facilities will be covered under this exemption notification and there was no need to provide the exclusion clause in explanation 1 to section 65 (105) (zzzz) of the Finance Act, 1994. It is further submitted that this exclusion clause is meant for large hotels. When we say large hotels, a hotel with a number of services and amenities comes to our mind. These hotels provide a no. of allied services besides simply letting out rooms. In fact, the income of these hotels depends on the variety of allied services provided by them, besides quality of services. The intention of the government is to levy the service tax on large service providers else it would not have provided exemption to small service providers. However, exceptions and exclusions are being provided along with levy of service tax on such large service providers. One such exclusion is being given to building used as hotel by virtue of above referred exclusion clause. Therefore, even if they accept it for the sake of argument also, that the said exclusion clause is meant for hotels which simply let out the rooms and does not provide any allied services; then the intention of the government behind framing this provision will be defeated. The intention of law makers was to exempt the big hotels as the small hotels are already exempted under notification no. 6/2005-ST dated 01.03.2005. If the contention of the impugned show cause notice is accepted, the intention of government (to exclude the large immovable properties used as hotels from purview of renting of immovable property service) would be defeated. It has been decided by hon’ble Supreme Court that while interpreting any provision, the intention of the law makers is to be kept in mind. This is being decided in the following cases:-
·         BALWANT SINGH Versus JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]
·         COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Versus RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]
The analysis of these decisions of hon’ble Supreme Court and High Court makes it clear that the intention of the law makers is to be kept in mind while interpreting any provision. If any interpretation defeats the intention of the law makers, it should be avoided. In present case also, the interpretation taken by the impugned show cause notice is defeating the intention of law makers, hence it should be avoided. Therefore, the impugned show cause notice is not viable in the eyes of law and it should be quashed.
-          Further, if the contention of the impugned show cause notice is accepted, the hotel should provide only the rooms for getting exemption under the said clause. In this regard, they we would like to bring kind attention to the statutory guideline issued by Ministry of tourism. As per this guideline, in order to have five star status, the hotel should provide certain prescribed facilities. Since M/s Taj Hari Mahal is also a five star hotel, it is mandatory for it to provide those facilities prescribed by the Ministry of tourism. An analysis of this guideline makes it clear that there a no. of facilities that are must to be provided in order to get the status of “five star hotel”. These facilities include bar licence, multi-cuisine restaurant cum coffee shop facility, laundry and dry cleaning, paid transportation facility, public telephone, health and fitness services, access to travel desk, utility shop, money changing facilities, swimming pool, business centre, etc.  These are certain services out of a long list which are mandatory to be provided by the hotel in order to get the status of five star. Thus, a hotel cannot get the status of five star without providing these services besides room facility. This makes it clear that the intention of the government is to provide a no. of facilities along with rooms in order to boost the tourism. On the sole intention to motivate the people to let out their building to the hotels, government added the hotels in the exclusion clause. The intention was not to impose the service tax under the head of renting of immovable property service if the building is used as the hotel. The Ministry of tourism is also a part and parcel of government of India which has laid down above stated criteria for five star hotel. Further, the Ministry of revenue which provides for exemption to the specified sectors from service tax is also the part of the same government. Thus, the intention of both of these wings of the government is to be seen which ultimately intends to promote the tourism by motivating the people to let out their property to the hotels. For the sake of this intention, service tax should not be levied on the buildings let out to hotels that provide a no. of facilities as per guidelines of the ministry of tourism. Thus, the contention of the impugned show cause notice that the providing of ancillary services along with the letting of rooms will debar it from exemption contained in the renting of immovable property service; is not tenable and is liable to be quashed.
-          It was further submitted that the impugned show cause notice is alleging that since the hotel is carrying out other activities besides letting out rooms, the exemption will not be applicable. In this regard, it is restated that the prime activity of the hotel is letting out the rooms for short term occupation. However, the other activities like providing food, laundry, etc. are merely incidental to the main activity. Rooms were exempted from levy of service tax, i.e., the main activity of hotel was exempted from tax. When the main activity is exempted, allied activities cannot be charged to tax and the attempt to bring the hotel into purview of service tax in the guise of existence of allied activities therein is not sustainable. It has been decided in the case ofCST VS SAI PUBLICATIONS (2002) 4 SCC 57 that where the main activity is exempted from tax, allied activities cannot be brought under the net of tax. In this case, some devotees of Saibaba of Shridi had formed a Trust namely Sai Publication Fund. It was formed to spread the message of Saibaba. It also published the books, booklets, pamphlets, photos, stickers, etc. which were sold against a consideration. The issue to be decided in the case was that whether the income received against sale of these publications can be covered under the sales tax when the main activity of running trust was exempted. In this case, it was decided that the tax cannot be levied on ancillary activities when the main activity was exempted. It was further held that the intent of the Act is to be seen. When the main activity is exempted, one cannot levy the tax in the guise of allied activities. Though this decision pertains to sales tax, yet its ratio is clearly applicable in the instant case. Here, the main activity of rooms is exempted by the government. But the department is seeking to bring the same into the service tax net on the grounds that allied services are being provided and thus, the exemption is not available. In the case of Sai Trust, the allied activities were held to be not taxable as the main activity was exempted. While deciding the case, the dominance of main activity was preferred rather than the ancillary activities. Going by the same analogy, it is simply contested that where the dominating activity of hotel – rooms are exempted, service tax cannot be levied in the guise of fact that ancillary activities are being provided. Since the intent of service tax law is to exempt the buildings let out to hotel, it cannot be denied merely because of fact that certain other allied services are being provided besides letting out of rooms by the hotel. Thus, the allegation of impugned show cause notice is not tenable and is liable to be set aside.
-          It was further submitted that the hotel – M/s Taj Hari Mahal is a leading hotel in the city of Jodhpur which is also registered with the service tax department for providing a no. of taxable services including renting of immovable property service (for the utility shop run therein), health and fitness services, dry cleaning services, banking and financial services, business auxiliary services, beauty parlour services, etc. The hotel is prompt in payment of service tax and filing of prescribed returns. This shows that there is no intention to retain the government money. The service tax paid during the preceding three years by M/s Taj Hari Mahal is as follows:-

The above figures make it clear that the service tax payment is very high. Thus, when this much amount is already being paid under various heads, there seems no sense that the government money was retained intentionally. Hence, there was no reason for not bearing the incidence of service tax under the renting of immovable property services. The reason was as simple that the hotel building was exempted by virtue of exclusion clause. Therefore, the contention of the impugned show cause notice is not sustainable and is liable to be set aside.
-          They submitted that the submissions made in foregoing paras makes it ample clear that the impugned show cause notice is totally erroneous and is based upon wrong facts and misinterpretation of the legal provisions. However, even if it is accepted for the sake of argument also that the renting of immovable property head is applicable in the instant case, then too the demand proposed in the impugned show cause notice is not viable as the “Renting of immovable property service” has been a matter of litigation since its implementation. Till now, it is a sub-judicious matter. The following submission will clear this fact:-
 
a) Service tax was imposed on the services provided in relation renting of immovable property w.e.f 1.6.2007. This was done by Finance Bill, 2007 by inserting section 65(105)(zzzz) to the Finance Act, 1994 which read as under:
Taxable service means services provided: “(zzzz) to any person, by any other person in relation torenting of immovable property for use in the course or furtherance of business or commerce.”
The language of this section clearly stated that the services provided in relation renting of immovable property were chargeable to tax under service tax. Renting in itself was not chargeable to service tax.
b) Government issued notification No. 24/2007-ST dated 22.5.2007 which exempted the “taxable service of renting of immovable property” from so much of the service tax levy that was in excess of the service tax calculated on a value equal to the gross amount charged for renting as reduced by property tax levied or collected by local bodies. This exemption notification used the words “taxableservice ofrenting immovable property ”.  
Further, circular no. 98/1/2008 – ST dated 4.1. 2008 was issued by the Board which while giving a clarification in respect of commercial and industrial construction service, once again used the words “Right to use immovable property is leviable to service tax under renting of immovable property service”.
As such, both the notification and circular indicated that the taxable service is “service of renting of immovable property” rather than “services in relation to renting of immovable property”. As such, the language used in both of these notification and circular was contradictory to the language of charging section. Thus, they travelled beyond the scope of original section. 
C) The matter went to High Court to decide the applicability or otherwise of the service tax on renting or immovable property, Delhi High Court held in the case of Home Solution Retail India Ltd and Others Vs. Union of India [2009] 20 STT 129 (Delhi)] as follows:-
Service tax is a tax on the value addition provided by some service provider. This element is missing in the service of renting of immovable property for use in the course or furtherance of business or commerce, as such, no service tax is leviable on renting as such. In this regard, judgement of Hon'ble Supreme Court in case of All India Federation of Tax Practitioners vs. Union of India (2007) 7 SCC 527 was relied upon. It was held that the interpretation placed by the impugned notification and circular on the said provision is not correct. As such, both of them were declared as ultra vires.
Thus, hon’ble Delhi High Court denied the applicability of service tax on renting of immovable property service.
d) However, the above decision of hon’ble Delhi High Court was appealed to the Supreme Court by Central Government and SLP was admitted by Supreme Court. However no interim stay was granted to the Government.
e) In consequence of the decision of Delhi High Court, many assessees have stopped paying the service tax. So, CBEC issued an instruction no. F. No 336/10/2009 – TRU dtd. 15th July 2009 informing the service tax formations that the Department had filed an appeal against the Delhi High Court order. It was instructed therein to take necessary actions to safeguard revenue. 
f) Writ petitions were filed before Delhi High Court against these instructions. While deciding the writ petitions in the case of SSIPL Retail Ltd. v. UOI [2010] 24 STT 571, hon’ble High Court held that in absence of any stay from Supreme Court, High Court judgment in case of Home Solutions was applicable and the department is bound to follow the same. The department promised to withdraw these instructions and issue fresh instructions to the service tax officers not to proceed further in recovery of service tax.
g) In the Finance Bill 2010, Hon'ble Finance Minister brought a retrospective amendment in section 65(105) (zzzz) w.e.f. 1.6. 2007. It was proposed to specifically levy the service tax on “renting of immovable property service”. As such, this amendment brought the renting per se under the net of service tax; that too, retrospectively since levy, irrespective of anything contained in any judgment, decree or order of any court, tribunal or other authority. The Finance bill, 2010 got assent from President on 8.5.2010.
h) After retrospective amendment, Delhi high Court has granted stay from recovery of Service Tax in respect of renting of immovable property service in the case of Home Solutions Retails Ltd Vs UoI [2010-TIOL-341-HC-DEL-ST]. The verdicts of hon’ble Delhi High Court are as follows:-
“Service Tax - Renting of immovable property - Stay granted after amendment by Finance Act 2010: Prima facie, it appears that renting of immovable property itself has been regarded as a service by virtue of the recent amendment even though this Court by virtue of the said decision on 18.04.2009 had categorically concluded that renting of immovable property by itself cannot be regarded as a service.
In the meanwhile, there shall be no recovery of service tax from the petitioner in respect of renting of immovable property alone: DELHIHIGH COURT;”
The above decision clearly states that no recovery is to be made from the petitioner. In other words, this decision is not applicable to all the assessees; it is limited to the petitioner only. Though the decision is applicable to the petitioner only, its importance cannot be overlooked in the entire issue.
i) Trent Limited & Future Value Retail Ltd. challenged the validity of the retrospective amendment brought by the Finance Act, 2010. The Andhra Pradesh High Court has stayed the recovery of service tax for the period June 1, 2007 to March 31, 2010 as decided in TrentLtd. v. Union of India and Others [2010-TIOL-402-HC-AP-ST]. But the verdicts of hon’ble Andhra Pradesh High Court that service tax is not leviable for the period from 1.6.2007 to 1.4.2010. 
j) Right now, the matter is before the Hon’ble Supreme Court in the case of M/s Retailers Association of India v/s UOI in Civil Appeal No. 8390 of 2011 and others as well as in the case of Home Solutions Retail (India) Ltd v/s UoI in Special Leave Civil Appeal No. 27636/2011. Therefore, as the matter is sub-judicious before the Hon’ble Supreme Court, till the final judgment is passed the certainty of the levy itself is not there.
-          In the light of foregoing paras, it is ample clear that the levy of service tax on Renting of immovable property service has been a matter of litigation since its implementation. The decisions given by various courts have also created confusions in the minds of the assessees. Still after more than four years of its implementation, the levy is suspicious as the matter is pending before hon’ble Supreme Court. Thus, in such a case of utter confusing situation, the benefit of doubt should be allowed to us. It has been held in the case of Siddharth Tubes Ltd. Vs Commissioner of C. Ex., Indore [2008 (228) ELT 193 (Tri.-Del.)] that where there is any confusion amongst the department and assessee; the benefit of doubt should be extended to the assessees. In the light of this decision, the benefit of doubt should be extended to them and the impugned show cause notice should be set aside.
-          They further submitted that the impugned show cause notice is proposing the penalties under section 76, 77 and 78 of the Finance Act, 1994. In this regard, it is submitted that they are receiving the profits rather than rent; as such their case does not fall under the Renting of immovable property service. Therefore the show cause notice itself is not sustainable. However, even if it is accepted for the sake of argument also that it falls under Renting of immovable property service then too it is exempted by virtue of exclusion clause as already discussed here above. Even if the said exclusion clause is not made applicable to them due to interpretation taken by the impugned show cause notice, the levy itself is suspicious as discussed in foregoing paras. Thus, the entire case revolves around the interpretation of statutory provisions. In the cases where issue pertains to interpretation of legal provisions, no penalty is warranted. It has been decided by hon’ble Supreme Court in the following cases:-
·         Uniflex CablesLtd v/s Commissioner of Central Excise, Surat-II [2011-TIOL-85-SC-CX]
·         COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)]
·         M/s Power Grid Corporation of India Ltd v/s CST, New Delhi [2011-TIOL-1457-CESTAT-DEL]
·         M/s Sujana Metal Products Ltd v/s CCE, Hyderabad [2011-TIOL-1170-CESTAT-BANG]
·         CCE, Lucknow v/s M.s Rosa Sugar Works [2010-TIOL-82-CESTAT-DEL]
 
In the light of above decisions, it is ample clear that where the issue involved is related to interpretation of legal provisions, no penalty is warranted. Their case also is based upon the interpretation of legal provisions, hence the benefit of above decisions should be extended to them and the impugned show cause notice should be quashed. It is restated that their case do not fall under the purview of Renting of immovable property service as they are receiving the business profits rather than rent. However, even if they accept for the sake of argument only that their case fall under Renting of immovable property service, then too the penalty is not imposable. It is so because penalty is not warranted in the case of retrospective amendment. It has been decided by hon’ble Karnataka High Court in the following case of CCE & ST, Bangalore Vs M/s BharatElectronics Ltd [2011-TIOL-239-HC-KAR-CX].  Thus, hon’ble High Court has held that penalty is not imposable in the case of retrospective amendment. So, even if it is assumed that their case falls in the category of Renting of immovable property service; then too, the penalty is not imposable. As such, the impugned show cause notice is not viable and it should be withdrawn.
-          It is further submitted that the impugned show cause notice is proposing to impose penalties under Section 76 as well as under Section 78. In this regard, they submit that the penalties under Section 76 and Section 78 are mutually exclusive and penalty cannot be imposed simultaneously under the provisions of both the Sections. It is provided in section 78 of the Finance Act, 1994 that if penalty is payable under section 78 than penalty under section 76 will not leviable. It has been held by hon’ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Chandigarh-I Vs M/s Cool Tech Corporation, Chandigarh [2011-TIOL-23-HC-P&H-ST] that the penalty under section 76 & 78 are mutually exclusive and cannot be imposed simultaneously. Similar decision has been given in following cases:-
·         M/s Anand Agencies v/s CCE (Service Tax), Coimbatore [2010-TIOL-364-CESTAT-MAD]
·         M/s AR AS PV Motors Erode (P) Ltd v/s CCE, Salem [2010-TIOL-1241-CESTAT-MAD]
·         SAFE TEST ENTERPRISES Versus COMMR. OF C. EX., SALEM [2010 (18) S.T.R. 172 (Tri. - Chennai)]
·         M/s SRI Selvam Agency Vs Commissioner of Central Excise, Salem [2010-TIOL-1616-CESTAT-MAD]
 
All the above decisions say that the penalty under section 76 and 78 are mutually exclusive and therefore cannot be imposed together. The benefit of these decisions should be extended to them and the impugned show cause notice should be set aside.
-           They submitted that the impugned show cause notice is issued on 3.2.2012 and it covers the period of 1.6.2007 to 31.3.2011. The show cause notice is based upon audit records of M/s Taj Hari Mahal. It is worthwhile to mention here that during the period of 2007 to 2011, audit of said concern has been conducted many times prior to current audit. All the records were duly checked and verified, but no such allegation was raised. The audit of the concern many times indicates that the department was fully aware of all the facts and situation. Thus, the extended period is not invokable in such cases as held by hon’ble Supreme Court in the following case of CC, Kandla Vs M/s Shah Alloys [2011-TIOL-35-SC-CUS]. Thus, hon’ble supreme court has held that where department has knowledge about the concern, extended period is not invokable. In present case also, the show cause notice is based upon records of M/s Taj Hari Mahal whose records were audited many times before the current audit. This proves that all the facts were in the knowledge of the department. Hence, in the light of above decision, extended period is not invokable in the instant case.
-           They submitted that for invoking the extended period, the fraud, collusion or willful misstatement should be there. It was held in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] that for invoking the extended period, two ingredients are essential – (i) Wilful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This is also held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC- CX) - [1989 (40) E.L.T. 276 (S.C.)] that extended period of limitation can only be invoked in case of fraud, collusion, suppression or willful misstatement. In absence of these essential ingredients, extended period cannot be invoked. Thus, in the light of that decision, extended period cannot be invoked blindly in every case. Similar decision is given in the following cases:-
Ø  Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )
Ø  M/s Idea Cellular Ltd Vs CCE, Rohtak [2009-TIOL-387-CESTAT-DEL]
-           In the above cases, it was held that mere inaction would not be a valid ground for invoking the extended period of limitation. Further, in the case of PADMINI PRODUCTS vs. CCEreported at 1989 (43) ELT 195 (Supreme Court) it was held that mere negligence or failure to pay duty on part of manufacturer is not sufficient to invoke the extended The extended period was held to be wrongly invoked in this case.
All the above cited decisions makes it clear that for invoking the extended period of limitation, something positive is required to be proved. In the instant case, the income is in form of business profits not the rent as alleged in the impugned show cause notice. Therefore, the Renting of immovable property service is not attracted in the instant case and it has already been proven with the help of above submissions. For this reason, the impugned show cause notice is barred by the clause of limitation and the proceedings are liable to be dropped.
-           They submitted that though their case does not fall under the head of Renting of immovable property service, yet even if it is accepted for the sake of argument also that this head is applicable then too, the extended period is not invokable. This is so because Renting of immovable property service has been a matter of litigation since its implementation and there is a no. of divergent decisions relating to this service. It has been held by hon’ble Tribunal that extended period is not invokable where divergent decisions are there. This has been decided in the case of M/s Shobha Digital Lab Vs CCE, Bhopal [2011-TIOL-1622-CESTAT-DEL]. Thus, where there are divergent views, extended period is not invokable. Hence, in the light of this decision, extended period cannot be invoked by the impugned show cause notice as it pertains to Renting of immovable property service which is flooded with divergent decisions. Thus, the impugned show cause notice is barred by limitation and it should be withdrawn.
-           Further, information that is collected by the department is through the records that were provided by M/s Taj Hari Mahal. Further when the demand of the department is based on the Balance sheet and other records, allegation of suppression is not sustainable. Reliance placed on the following decisions:-
 
Ø  ROLEX LOGISTICS PVT. LTD. Versus COMMISSIONER OF SERVICE TAX, BANGALORE 2009 (13) S.T.R. 147 (Tri. - Bang.)
Ø  KIRLOSKAR OIL ENGINES LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NASIK 2004 (178) E.L.T. 998 (Tri. - Mumbai)
Ø  HINDALCO INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., ALLAHABAD [2003 (161) E.L.T. 346 (Tri. - Del.)]
Ø  Martin & Harris Laboratories Ltd v/s Commissioner of C. Ex., Gurgaon [2005 (185) E.L.T. 421 (Tri. - Del.)]
-           Thus, in the above decisions, it is held that where the demand is based upon the balance sheet and other records of a company, allegation of suppression is not sustainable. This fact is substantiated more when the records were previously audited many times, but no allegation was raised. Therefore, in the light of above decisions, the impugned show cause notice is not tenable and is liable to be quashed.
 
 
Order of the Commissioner:-
 
-          The Commissioner (Appeals) held that for examining the issue in the present case, it is appropriate to refer the amended definition of taxable service “Renting of Immovable Property” which was introduced with retrospective effect from 01.06.2007 under the sub clause (zzzz) of Section 65 of Finance Act, 1994. On reading the definition of taxable service, it is clear that if the building is provided/given on rent for sole use for residential purpose/ for the purposes of accommodation to the person taking the building on rent including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities then such service is not taxable. In other words, if the immovable property is provided/given on rent for use of furtherance of business of commerce then such activity is taxable and if the immovable property is given on rent for the purpose of residence then the same is exempted. If the hotels, hostels, boarding house, holiday accommodation, tents, camping facilities etc provides/ gives the immovable property for accommodation purposes therefore the same has been exempted for payment of Service Tax as the same re used for accommodation/ loading purpose. Further, the Board vide Circular NO. D0F133412007-TRU, dated 28.02.2007, in para 6.3.1, has also clarified that "where renting of immovable property is a single composite contract involving part of property for use in commerce or business and part of it for residential/ accommodation purposes, for the purpose of levy of service tax under this sub-clause, entire property under the contract is treated as property for use in commerce or business and accordingly the total value of the contract shall be the taxable value."
-          From the definition of renting of immovable property, it is clear that the renting, letting, leasing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce i.e. use of immovable property as factories, office building, warehouse, theatres, exhibition hall and multiple use building are covered under the definition of renting of immovable property. However, renting of immovable property by a religious body or to a religious body or renting of immovable property to an educational body other than a commercial training or coaching centre is not covered under the said definition.
-          It was found that the noticee is engaged in providing the services under the category of Renting of Immovable Property to their service receiver namely M/s Indian Hotels Company Limited, Colaba, Mumbai) during the period from 01.06.2007 to 31.03.2011 and received a total amount of Rs. 2,03,23,896/- on which Service Tax is leviable as per the definition incorporated under Section 65[105(zzzz)] of Finance Act, 1994. But the noticee has not paid any service tax on the taxable amount received during the said period by citing para 8 of the Agreement Dated 16.04.1994 entered into by them with the service receiver which itself guaranteed minimum business profit. This means that the service receiver has assured the noticee of minimum guaranteed return in lieu of rent to be paid on the immovable property used by the service receiver for furtherance of their business as no business could guarantee any sort of guaranteed return from day one. Hence, the noticee received rent in the guise of minimum guaranteed profit from the service receiver on the property given by them to the service receiver. Thus, the noticee contravened the provisions of Rule 6 of the Service Tax Rules 1994 read with Section 68 of Finance Act 1994. Hence they find that the Service Tax amounting to Rs.29,13,947/-(Service Tax Rs 2829075/- + Ed. Cess Rs 56581/- +SHE Cess Rs 28291/-) along with interest at the rate applicable during the said period is recoverable on the taxable value of Rs. 2,03,23,896/- collected during the said period from the said customer. They observe that the noticee has contested that the contract has been entered for undertaking development of a land as a hotel. It is sort of collaboration wherein two parties are there as one providing land and other developing it as hotel. Thus, this is a business undertaking between two parties and return in such cases is known as profit. From the relevant clause in para 8 of the contract, it is the return to be earned as per contract is available for profit sharing and not of rent. Further they observe that the plea taken by the noticee is incorrect and not sustainable. This is mere a jugglery of the words to take benefit of tax by way of not paying the same to the department. It is established practice in the business parlance that both the partners get equal share of the benefit but here one partner, without finalizing the balance sheet, gets benefit as agreed upon. This arrangement is nothing of the sharing profit but a rent which is being taken in guise of profit. As per pleading, the noticee will always be in gaining position if the other partner looses in the business. This plea of noticee is not at all sustainable and the profit agreed upon is nothing but only the rent. In view of this, they hold that the amount of service tax of Rs. 29,13,947/-(Service Tax Rs 2829075/- + Ed. Cess Rs 56581/- +SHE Cess Rs 28291/-), not paid by the noticee, as discussed above, is recoverable from the noticee along with interest in terms of provision of Section 73 and 75 of the Finance Act, 1994. As regards imposition of the penalty under Sections 76, 77 and 78 of the Finance Act, 1994 as proposed in the Show Cause Notice, they find that the levy of Service Tax on renting of immovable property has been revalidated by way of retrospective amendment made in the definition of taxable service as provided under Section 65(105)(zzzz) of the Finance Act, 1994, by the Finance Act, 2010, therefore, provisions of Finance Act, 2010 in respect above amendment needs to be discussed.
-          On plain reading of the above provisions it is clear that demand of Service Tax, interest and penalty etc. if any already imposed is recoverable as the service of renting of immovable property was deemed to be taxable w.e.f. 1.6.2007 by virtue of retrospective amendment made by Finance Act, 2010.  Therefore, Service Tax along with interest is recoverable for the past period i.e. from 1.6.2007 to 31.03.2010. However, after revalidation of taxable service no penalty is imposable in such case by virtue of explanation mentioned above which provides that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable had this amendment not come into force. The noticee has also pleaded that in the present case, there was a bona fide on the part of noticee that the impugned activities were not subject to service tax. Therefore, there was reasonable cause for failure, if any, on part of the noticee to pay service tax and file service tax return. Hence, in terms of Section 80 of the Act, penalties should not be imposed under Section 76, 77 and 78 of the Act. In view of this, they find that in the instant case the penalty proposed under Section 76, 77 and 78 of the Finance Act, 1994 in the Show Cause Notice is not imposable on the noticee in the light of the above legal provisions. Accordingly, they do not impose any penalty on the noticee in the facts and circumstances of the present case.
 
 
Decision of the Commissioner:- Penalty u/s 76, 77 and 78 of the Finance Act, 1994 has been waived.
 
Conclusion:- The inference drawn from this case is that penalty is not imposable for any omission or commission made on account of retrospective amendment in the provisions of law. In the instant case also, the levy of service tax on renting of immovable property was doubtful and ambiguous on which there were divergent views and so benefit of section 80 was extendable to the assessee on observing the bonafides of the case. Hence, the assessee was relieved from the burden of penalty running into lakhs.

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