Office of Commissioner Servivce Tax, Ahmedabad

OIO No. 62 /STC-AHD/ADC(MKR)2011-12 Page 1 of 15

BRIEF FACTS OF THE CASE :-

M/s. Manibhai & Brothers (P. C. C. Sarkhej), “MB House”, 51, Chandroday Society, Stadium Road, Ahmedabad - 14 (herein after referred to as ‘the said service provider’) are providing Renting of Immovable Property service as defined under Section 65(90a) of the Finance Act, 1994 (hereinafter referred to as “the Act”) and having Service Tax Registration No. AAFFM0673AST001 with the Service Tax Commissionerate, Ahmedabad. The said service provider has filed the ST-3 Return for the period April-10 to Sept-10 on 21.10.2010.

1.1. Whereas the said service provider vide their letter dtd. 18/12/2010, informed to the Range Superintendent that they had rented their godown to Future Supply Chain Solution Ltd (the lessee); that the lessee is not paying service tax to them on the basis of Delhi High Court judgment in the matter of Home Solutions Retails India Ltd & Others V/s Union of India, therefore they are not paying Service tax. As the said service provider had not submitted figures/amount of rent collected, a letter F. No. STC/AR-XV/ M B/26/10-11 dtd. 01.03.2011 was issued to the said service provider to provide figures for the receipt (Rent income). The said service provider vide their letter dtd. 17/03/2011, informed that they had received an amount of Rs.79,90,317/- from lessee till Feb, 2011. A further letter dtd. 05/04/2011 was issued to the said service provider for providing month wise receipt (rent income) figures up to March 2011. In reply to the said letter, the said service provider supplied month wise receipt (rent income) figures vide their letter dtd. 29/06/2011. It appeared that the said assessee had recovered an amount of Rs.91,12,266/- as rent income for the period April 10 to March 2011 but service tax was not paid on the same by them as per their letter dtd.18/12/2010. The service tax payable but not paid by the said service provider, on the said amount is detailed as per Annexure “A” of the Show Cause Notice.

1.2. The hon’ble Punjab and Haryana High Court has in CWP No. 11597 of 2010, in the case of M/s Shubh Timb Steels Ltd. v/s UOI passed an order dated 22/11/2010, upheld the validity of levy of service tax on Renting of Immoveable Property and upheld Parliament legislative competence to levy Service Tax on Renting with retrospective amendment.

1.3. Section 65 (90a) of the Finance Act, 1994 defines the services of Renting of immovable Property as under:-

“Renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include:-

(i) Renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

Explanation 1.—For the purposes of this clause, “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, 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;

1.4. The service of “Renting of immovable Property” is taxable service under Section 65(105) (zzzz) of the Finance Act, 1994 as amended by the Finance Act 2010 with the retrospective effect from 1st June 2007, according to which, the “taxable service” means any service provided or to be provided-

“to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for 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;

(v) Vacant land, given on lease or license for construction of building or temporary

1.5. Further, in the Finance Act, 2010, Validation of action taken under sub-clause (zzzz) of clause (105) of Section 65, is explained as under:-

Any action taken or anything done or omitted to be done or purported to have been taken or done or omitted to be done under sub-clause (zzzz) of clause (105) of section 65 of the Finance Act, 1994, at any time during the period commencing on and from the 1st day of June, 2007 and ending with the day, the Finance Bill, 2010 receives the assent of the President, shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done or omitted to be done as if the amendment made in sub-clause (zzzz) of clause (105) of section 65, by sub-item (i) of item (h) of sub-clause (5) of clause (A) of section 75 of the Finance Act, 2010 had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority,—

(a) any action taken or anything done or omitted to be taken or done in relation to the levy and collection of service tax during the said period on the taxable service of renting of immovable property, shall be deemed to be and deemed always to have been, as validly taken or done or omitted to be done as if the said amendment had been in force at all material times;

(b) no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for the levy and collection of such service tax and no enforcement shall be made by any court of any decree or order relating to such action taken or anything done or omitted to be done as if the said amendment had been in force at all material times;

(c) Recovery shall be made of all such amounts of service tax, interest or penalty or fine or other Charges which may not have been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, would not have been refunded, as if the said amendment had been in force at all material times.

Explanation.—For the removal of doubts, it is hereby declared 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.

1.6. Thus, as per above stand taken by the said assessee for non-payment of service tax appeared non-maintainable making the service provider liable for paying service tax on Renting of immovable property service.

1.7. It is provided under Section 68(1) of the act that ‘every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed.’ The manner and period of payment prescribed under Rule 6 of the Service Tax Rules, 1994permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;

1.8. Further, in the Finance Act, 2010, Validation of action taken under sub-clause (zzzz) of clause (105) of Section 65, is explained as under:-

Taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed.’ The manner and period of payment prescribed under Rule 6 of the Service Tax Rules, 1994. Further, in their ST-3 returns self assessment memorandum para 7, they have given declaration that they have assessed and paid the service tax and/or availed and distributed Cenvat credit correctly as per the provisions of the Finance Act,1994 and the rules thereunder. However, it appears that they have wrongly given certificate by not paying the appropriate service tax.

1.9 In the instant case the said service provider had not paid service tax of Rs.9,38,563/-and thereby violated the provisions of Section 68(1) read with Rule 6 of the Service Tax Rules, 1994.

1.10 It is provided under Section 70 of the act that ‘every person liable to pay the service tax shall himself assess the tax due on the service provided by them and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and as such frequency’. The form, manner and frequency are prescribed in Rule 7 of the Service Tax Rules, 1994.

1.11 In the instant case the said service provider had not assessed the tax due on the service provided by them and not paid the service tax of Rs.9,38,563/- and thereby violated the provisions of Section 70 of the act and Rule 7 of the Service Tax Rules, 1994 along with Section 75 of the Finance Act,1994.

1.12 In view of the above, it appeared that the said assessee had contravened the provisions of Section 68 & 70 of the Act, and Rule 6 & 7 of the Service Tax Rules, 1994. All the contraventions and violations made by the said assessee appeared to have rendered themselves liable to penalty under Section 76 & 77 of the act and the service tax of Rs.9,38,563/- is recoverable under Section 73 of the act.

1.13. Therefore, M/s. Manibhai & Brothers (P. C. C. Sarkhej), was issued a show cause notice bearing F.No.STC-13/O&A/SCN/MB/ADC/11-12 dated 28.07.2011 asking them as to why:

(i) Amount of Service Tax of Rs.9,38,563- (Incl. cess), (Rupees Nine Lakhs Thirty Eight Thousand Five Hundred Sixty Three Only) not paid by the assessee as worked out in Annexure “A”, should not be confirmed and recovered from them under the provisions of Section 73(1) of the Finance Act 1994;

(ii) Interest, at appropriate rate, should not be charged upon them under section 75 of the Finance Act 1994;

(iii) Penalty should not be imposed upon them under Section 76 of the Finance Act 1994, for contravention of Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994; and

(iv) penalty under section 77 of the Finance Act 1994 should not be imposed upon them for the contravention of Section 67 of the Finance Act, 1994, for not computing the correct taxable value for computation of service tax payable by the said assessee and non-payment of service tax read with rule 6 of the Service tax Rules.

2. Defence reply :-

2.1 The assessee has submitted their defence reply on 27.02.2012 vide their letter dated 25.02.2012 wherein they submitted that service tax payable has been duly paid on 17th February 2012 vide Challan no. 02003881702201200120 as worked out in Annexure “A” by the department.

2.2 They further submitted that interest under Section 75 of the Finance Act, 1994, should not be imposed as they have intimated the Service tax Department through registered A.D. on 20th December, 2010, about the non-payment of service tax on renting of immovable property service on the godown premises rented to Future Supply Chain Solutions Limited as it was not paying the service tax on the rent amount quoting the judgment of Delhi High Court in the matter of Home Solutions Retails India Ltd. & Ors. V/s. Union of India. It was also stated in the said letter that they are not in receipt of Service Tax amount from the recipient of service and so the said amount has not been paid by them; that since they have timely intimated the department about the same, the interest should not be levied and the same should be waived, if applicable. They further rely on the following judgement.

In the case of General Manager, Department of Telecommunications v. CC &CE [2008] 14 STT 497 (Mum. – CESTAT), during the relevant period, assessee was following procedure prescribed by Chief Controller of Accounts which resulted in delay in payment of Service Tax. Revenue demanded interest for the period of delay. The tribunal held that since it was procedure which resulted in delay and not assessee who had delayed payment of service tax, impugned demand was to be set aside.

2.3They further submitted that the penalty for failure to pay service tax under Section 76 of the Finance Act, 1994 should not be imposed as they have neither collected nor deposited the amount of service tax from Future Supply Chain Solutions Limited and the same has been intimated to department in time. They further submitted that in response to the letter received from department dated 05th April, 2011 having Ref. No. STC/AR-XV/M B/26/10-11, asking thereby to provide details of payment received from Future Supply Chain Solutions Limited, they have provided all the details vide their second letter dated 22nd June, 2011 to the Superintendent of Service Tax by registered A.D from April 2010 to March 2011. They further submitted that the penalty shall be waived under Section 80 of the Finance Act, 1994, as there was reasonable cause for the said failure. Also, the penalty is neither automatic nor mandatory.

2.4They further submitted that no penalty under section 77 of the Finance Act, 1994, should be levied as they have not contravened any rules or provisions of Act for which no penalty is separately prescribed. They have been duly paying the service tax under the category of Renting of immovable property Service since 26th June, 2007. Only in the case of renting their godown premises to Future supply Chain Solutions Limited, they have not paid the Service tax as the same has not been paid to them based on the judgment of Delhi High Court in the matter of Home Solutions Retails India Ltd. & Ors. V/s. Union of India.

3. Personal Hearing:-

Vide this office letter dated 06.01.2012, the service provider was requested to appear for personal hearing on 27.02.2012. Ms. Jyoti Banka Deora, Chartered Accountant appeared for personal hearing and reiterated their reply dated 25.02.2012.

4. DISCUSSION & FINDINGS:-

4.1 I have gone through the case records and content of the aforesaid Show Cause Notice, written submission given by the said assessee and record of personal hearing.

4.2 I find that the entire show cause notice is based on the non payment of service tax amounting to Rs.9,38,563/- on the value of Rs. 91,12,266/- which the service provider had declared in the ST-3 returns filed by them for the period from April 2010 to March 2011. The said amount of Rs. 91,12,266/- was received by the said service provider towards the “Renting of Immovable Property”. I find that the said service provider had not paid service tax on the said amount of rent on the ground that lessee M/s Future Chain Solutions Limited is not paying service tax to them on the basis of Delhi High Court’s decision as discussed in the show cause notice. The said fact has been informed by the assessee vide their letter dated 18.12.2010 to the department.

4.3 In view of the aforesaid letter and pending decisions of aforesaid cases in various courts, the present proceedings appeared to have been initiated by the department vide impugned show cause notice No. STC-13/O&A/SCN/MB / ADC/11-12 dated 28.07.2011.

4.4 In this regard, I may like to refer to the retrospective amendment vide Finance Act, 2010 which had taken place in the taxable definition of “Renting of Immovable Property”. According to the said amendment, the Section 65(105) (zzzz) of the Finance Act, 1994 was amended by the Finance Act, 2010 with the retrospective effect from 1st June 2007, as under:-

“Renting of Immovable Property Service” means any service provided or to be provided -

“to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for 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-

vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;
vacant land, whether or not having facilities clearly incidental to the use of such vacant land;
land used for educational, sports, circus, entertainment and parking purposes; and
building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.