Manufacturing not Taxed: Service Tax Exemption for Renting Premises

The Tribunal held that the appellant, engaged in manufacturing excisable goods, was not liable to pay service tax on the rent of leased premises under renting of immovable property service. The appellant was found entitled to exemption under Notification No. 06/2005-ST as they did not violate the specified conditions. The Tribunal concluded that the renting of immovable property and the manufacturing activity were distinct, and the appellant's cenvat credit for manufacturing did not impact their service of renting immovable property. Therefore, the appellant was not liable to pay any service tax, and the appeal was allowed.

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Issues:
1. Liability to pay service tax on rent of leased out premises under renting of immovable property service.
2. Entitlement for exemption under Notification No. 06/2005-ST.
3. Violation of conditions (iii) & (iv) of paragraph 2 of the Notification.

Analysis:
The case involved the appellant engaged in manufacturing excisable goods who rented out open space of the factory premises during 2007-08 & 2008-09. The department claimed the appellant was liable to pay service tax on the rent of leased premises under renting of immovable property service and was not entitled to exemption under Notification No. 06/2005-ST due to alleged violations of conditions (iii) & (iv) of the Notification.

The appellant argued that the renting of open space had no connection with the manufacturing unit and even though they availed cenvat credit on inputs and capital goods, it was for use in or in relation to the manufacture of their final product. The rent received was within the exemption limit specified in the Notification, thus exempted under Notification No. 06/2005-ST.

The Tribunal considered the issue of whether renting of immovable property by the appellant, who availed cenvat credit on inputs and capital goods for manufacturing, was eligible for exemption under Notification No. 06/2005-ST. It was noted that the appellant had independent manufacturing activity and rented out part of the factory premises, with the rent received below the threshold limit. The Tribunal analyzed the conditions (iii) & (iv) of the Notification and found that the appellant did not violate them.

Regarding condition (iii), it was observed that no capital goods were received or used in the rented premises by the appellant, so the condition was not violated. As for condition (iv), since no input or input service was received or cenvat credit availed for renting of immovable property, this condition was also met. The Tribunal concluded that the appellant's cenvat credit in relation to manufacturing activity did not affect their service of renting immovable property, as they were distinct activities.

Therefore, the Tribunal held that there was no violation of any condition under Notification No. 06/2005-ST for the renting of immovable property service, and the appellant was not liable to pay any service tax. The impugned order was set aside, and the appeal was allowed.

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