2019 (4) TMI 1890 - AT - Service Tax

Tribunal Rules Service Tax Applies Only on Rent, Not One-Time Lease Premium; Extended Demand Period Inapplicable.

Punjab Small Industries and Export Corporation Ltd. Versus Commissioner of Central Excise & Service Tax, Chandigarh-I

The Tribunal set aside the Order-in-Original, ruling that service tax is applicable only on the rent component of the lease, not on the one-time premium. ... Valuation - public sector undertaking primarily engaged in the development and sale of Industrial and residential plots (Sheds) on 99 years lease hold basis - inclusion of lease money collected by the appellant in the form of tentative sale proceeds, transfer and extension fee as well as the rent/ lease rent collected by them, in the assessable value - extended period of limitation - HELD THAT:- All the issues involved in this appeal have already been settled by decision of this Tribunal in the case of Greater NOIDA Indl. Development Authority vs. CCE & ST, NOIDA [2014 (9) TMI 306 - CESTAT NEW DELHI] where it was held that services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis have no nexus with the renting of immovable property for business or commerce, and as such, the activities in relation to the construction of building on the vacant land allotted on lease basis i.e. the charges of map approval, validation, map revision, malba charges, etc. would not attract Service Tax. It was also held that the rent/licence fee received by the appellant from their staff to whom the residential units has been let out, such letting out the residential units to the staff is not renting of immovable property for use in or for furtherance of business or commerce and hence, the licence fee/rent received from such letting out of houses of Noida Authority would not attract Service Tax. Demand set aside - appeal allowed - decided in favor of appellant. Issues Involved:1. Applicability of service tax on the lease of industrial and residential plots.2. Classification of payments as rent or sale proceeds.3. Applicability of Notification No. 12/2003.4. Invocation of extended period for demand under Section 73(1) of the Finance Act, 1994.5. Penalties under Sections 76, 77, and 78 of the Finance Act, 1994.Issue-wise Detailed Analysis:1. Applicability of Service Tax on Lease of Industrial and Residential Plots:The appellant contended that the allotment of plots/sheds to various industrial units and individuals is essentially an outright sale of plots/sheds on a 99-year leasehold basis. They argued that this transaction does not amount to renting of immovable property and thus, should not attract service tax under the Finance Act, 1994. The Tribunal referred to the decision in the case of Greater NOIDA Indl. Development Authority vs. CCE & ST, NOIDA, where it was held that service tax is chargeable only on the lease rent and not on the one-time premium amount charged for long-term leases. The Tribunal concluded that the premium is a capital income and not a revenue receipt, and service tax would be leviable only on the rent component.2. Classification of Payments as Rent or Sale Proceeds:The appellant argued that the sale proceeds of the plots, recovered in installments, should not be equated with rent, which is generally collected on a monthly basis. The Tribunal agreed, citing the distinction between premium and rent as established by the Supreme Court in Commissioner of Income Tax, Assam and Manipur v. Panbari Tea Co. Ltd. It was reiterated that service tax is chargeable only on the rent, not on the premium or salami paid for obtaining the lease.3. Applicability of Notification No. 12/2003:The appellant claimed entitlement to the benefit of Notification No. 12/2003, which exempts the value of goods and materials sold by the service provider to the recipient of service. The Tribunal did not specifically address this issue in the judgment, focusing instead on the broader applicability of service tax on the transactions in question.4. Invocation of Extended Period for Demand under Section 73(1) of the Finance Act, 1994:The Tribunal examined whether the extended period of five years for issuing a show cause notice under Section 73(1) was applicable. It was noted that the extended period is applicable only in cases of fraud, willful misstatement, suppression of facts, or deliberate contravention of tax provisions with the intent to evade payment of tax. The Tribunal found merit in the appellant's plea of bona fide belief that their transactions did not attract service tax, thus ruling out the applicability of the extended period.5. Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:The Tribunal invoked Section 80 of the Finance Act, 1994, which allows for the waiver of penalties if the assessee proves reasonable cause for failure to comply with tax provisions. Given the appellant's bona fide belief and the nature of their operations as a government body, the Tribunal deemed it appropriate to waive the penalties under Sections 76, 77, and 78.Conclusion:The Tribunal set aside the Order-in-Original, finding no merit in the service tax demand and penalties imposed. The appeal was allowed, with the operative part pronounced in the open court.