2017 (3) TMI 1221 - AT - Service Tax

Tribunal rules in favor of appellant in rental income tax dispute, citing retrospective law application

The Tribunal allowed the appeal filed by the Revenue, setting aside the order confirming a demand for 'renting of immovable property service'. The dispute ... Renting of immovable property service - retrospective amendment - vacant land given on lease - scope of taxability - levy beyond scopeRenting of immovable property service - vacant land given on lease - retrospective amendment - scope of taxability - Whether rental service rendered by the appellant was taxable from 1st June 2007 by reason of the retrospective inclusion of 'vacant land' in the explanation to the definition of 'immovable property'. - HELD THAT: - The tribunal found that the lessee had taken the land on lease and had constructed the tank farm/building thereon prior to the insertion extending service tax to 'vacant land'. Tax liability as at 1st June 2007 attached only to renting of buildings (and related components) and not to vacant land until the 2010 explanation. The retrospective addition of 'vacant land' to the explanation can apply only to land which remained vacant on the date of that insertion; it cannot be used to convert, retrospectively, a lease of land under which a building had already been constructed into a lease of 'vacant land'. As the transaction between the appellant and the lessee could not be described as a lease of vacant land even if the amendment is read retrospectively, the rental income did not fall within the scope of the service tax levy for the period in dispute.Levy of service tax (and consequential interest/penalties) on the appellant's rental income for the period 1st June 2007 to 30th September 2011 is beyond the scope of taxability and cannot be sustained.Final Conclusion: The impugned order confirming demand and penalties is set aside and the appeal is allowed, the rental receipts not being taxable as 'vacant land' rent for the period in dispute. Issues:1. Appeal against order confirming demand for 'renting of immovable property service'.2. Whether the service rendered was liable to be taxed from a specific date due to retrospective effect of the law.Analysis:1. The appeal was filed by the Revenue against an order confirming a demand for 'renting of immovable property service' under the Finance Act, 1994. The Commissioner of Central Excise (Appeals -II), Mumbai - II had confirmed a demand of Rs. 18,92,377/- along with interest and penalties under sections 76, 77, and 78 of the Act. The dispute arose from an agreement between M/s Ganesh Benzoplast Ltd and the appellant for rental of vacant land developed as a tank farm, with the period in question being from June 2007 to September 2011.2. The key issue in consideration was whether the service provided by the appellant was liable to be taxed from June 2007 due to the retrospective effect of the law. The definition of 'renting of immovable property service' was amended in 2010 to include 'vacant land given on lease', but the appellant argued that the amendment should not apply retrospectively to their situation. The appellant contended that since the building on the land was completed before the tax became applicable in 2007, the rental income derived from the lessee should not be subject to tax based on the retrospective amendment.3. The Tribunal analyzed the facts and found that the appellant had not engaged in any taxable activity at the time the levy was imposed. The tax liability was extended to include renting of vacant land only in June 2010, and the retrospective effect of this amendment should only apply to situations where the vacant land continued to be so at the time of insertion. Since the building on the land was completed before the tax became applicable, the Tribunal held that the rental income derived by the appellant from the lessee was not within the scope of taxability.4. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellant. The judgment was pronounced in court on 21/02/2017 by Shri C J Mathew, Member (Technical) of the Appellate Tribunal CESTAT Mumbai.