Renting of immovable property attracts service tax on lease rent, but lessee-incurred maintenance costs are not attributable to the lessor.
A lease of factory premises for business use fell within the taxable category of renting of immovable property, so the lessor was held prima facie liable to service tax on the lease rent. By contrast, maintenance and repair expenditure incurred independently by the lessees could not be fastened on the lessor in the absence of evidence that the lessor was the service provider, so no prima facie liability arose on that component. Interim protection was granted by keeping the balance demand in abeyance and waiving pre-deposit during the appeal.
Issues: (i) whether the appellant was prima facie liable to service tax on lease rent received for letting out factory premises under renting of immovable property; (ii) whether the expenditure incurred by the lessees on maintenance and repair of plant and machinery could be fastened on the appellant for service tax purposes, and whether waiver of pre-deposit and stay of recovery were warranted.
Issue (i): Whether the appellant was prima facie liable to service tax on lease rent received for letting out factory premises under renting of immovable property.
Analysis: The leased premises were immovable property and were let out for use in the course of business or commerce. The appellant received lease rent under the agreements and, on the face of the record, the transaction answered the statutory definition of renting of immovable property.
Conclusion: The appellant was held prima facie liable to service tax on the lease rent received, in favour of Revenue on this issue.
Issue (ii): Whether the expenditure incurred by the lessees on maintenance and repair of plant and machinery could be fastened on the appellant for service tax purposes, and whether waiver of pre-deposit and stay of recovery were warranted.
Analysis: The maintenance and repair expenditure was incurred by the lessees, and the appellant was not the service provider for those activities. On that basis, no prima facie liability was found against the appellant for the maintenance and repair charges. Since the tax on the lease amount had already been paid under protest, the balance demand was directed to be kept in abeyance during the pendency of the appeals.
Conclusion: The appellant was held not prima facie liable for service tax on the maintenance and repair s, and waiver of pre-deposit with stay of recovery was granted, in favour of the appellant on this issue.
Final Conclusion: The order granted interim protection by holding the appellant liable only prima facie on the rental component while excluding the lessees' maintenance and repair expenditure from the appellant's tax exposure, and by protecting the appellant from recovery of the balance dues during appeal.
Ratio Decidendi: For service tax purposes, a lease of immovable property for business use falls within the taxable category of renting of immovable property, but expenditure incurred independently by the lessee on maintenance and repair cannot be attributed to the lessor absent proof that the lessor was the service provider.
TaxTMI 
AI Drafter ✕
TaxTMI 
