2015 (7) TMI 197 - AT - Service Tax

Appellate Tribunal Upholds Service Tax on Lease Transactions

Jaipur Municipal Corporation Deen Dayal Versus Commissioner of Central Excise And Service Tax, Jaipur-I

The Appellate Tribunal confirmed a service tax demand under the 'Renting of Immovable Property' service for lease transactions spanning 2006-2011. Despite ... Service Tax on lease of land for 99 years - whether in nature of Renting of Immovable Property or sale - invocation of extended period of limitation - Held that:- As per Rule 3, the outright sale of the land is actually abandoned and it allows only lease-hold rights. The judgment of Rajasthan High Court in the case of Shri K.P. Sharma [2012 (5) TMI 578 - RAJASTHAN HIGH COURT] only states that 99 year lease is 'virtual' sale. In other words, it is not sale per se. Such lease rent is clearly liable to service tax under 'Renting of Immovable Property' service as the definition of renting of immovable property given in Section 65 (90a) of the Finance Act, 1994 includes leasing of immovable property for use in the course or furtherance of business or commerce. - prima facie case is against the assessee. However, there is force in the contention of the appellant that there was confusion with regard to the leviablity of service tax on 'Renting of Immovable Property' and the Delhi High Court in the case of Home Solution Retail India (2009 (4) TMI 14 - DELHI HIGH COURT) actually held that there was no service in renting of immovable property. Though the said Delhi High Court judgment has since been reversed it clearly showed that there was a genuine confusion in this regard. there is a good case to grant stay in respect of the impugned demand pertaining to the period beyond normal period of one year. - Partial stay granted. Issues Involved:1. Confirmation of service tax demand under 'Renting of Immovable Property' service.2. Interpretation of lease transactions as sale or lease rent.3. Applicability of service tax on lease rent for 99-year lease.4. Conflict between state rules and federal laws.5. Consideration of judicial precedents on similar issues.6. Grant of stay on the demand pending appeal.Issue 1: Confirmation of service tax demand under 'Renting of Immovable Property' service:The Appellate Tribunal considered an appeal against the confirmation of a service tax demand of Rs. 1,87,78,107 under the 'Renting of Immovable Property' service for the period 2006-07 to 2011. The appellant argued that the lease transactions were sales, citing the deposit of proceeds in the state fund and state rules treating such leasing as sales. The Tribunal noted the confusion regarding the levy of service tax on renting immovable property, referencing a Delhi High Court judgment that initially held such renting did not entail value addition. However, the Tribunal found the appellant liable for service tax under the Finance Act, as the lease transactions were for business or commerce use.Issue 2: Interpretation of lease transactions as sale or lease rent:The Tribunal analyzed the nature of the lease transactions, emphasizing that the amount received was for the transfer of leasehold rights only, not outright sale of the land. It clarified that the lease rent for a 99-year lease did not constitute a sale per se, as per the Rajasthan High Court judgment. The Tribunal upheld the levy of service tax under 'Renting of Immovable Property' service, as defined in the Finance Act, despite the confusion surrounding the applicability of service tax on such transactions.Issue 3: Applicability of service tax on lease rent for 99-year lease:The Tribunal addressed the argument that the immovable property leased for 99 years did not qualify as a sale, making the lease rent subject to service tax. It distinguished between leasehold rights transfer and outright sale, concluding that the lease rent fell under the 'Renting of Immovable Property' service for business or commerce use, thus attracting service tax liability.Issue 4: Conflict between state rules and federal laws:The Tribunal highlighted the conflict between state rules, such as the Rajasthan Municipalities (Disposal of Urban Land) Rules, and federal laws like the Transfer of Property Act. It emphasized that state rules could not override central legislation, and the lease transactions were subject to federal laws governing service tax liability.Issue 5: Consideration of judicial precedents on similar issues:The Tribunal referred to judicial precedents, including the Delhi High Court and Rajasthan High Court judgments, to analyze the treatment of 99-year leases as sales or lease transactions. While acknowledging the confusion and conflicting judgments, the Tribunal ultimately upheld the service tax demand under the 'Renting of Immovable Property' service.Issue 6: Grant of stay on the demand pending appeal:Considering the genuine confusion and conflicting judgments on the levy of service tax, the Tribunal granted a stay on the demand beyond the normal period of one year. It ordered a pre-deposit of Rs. 23,13,742 with interest, pending compliance within six weeks. The Tribunal stayed the recovery of remaining liabilities during the appeal, subject to the pre-deposit condition to avoid dismissal of the appeal for non-compliance.