Residential letting is not commercial renting merely because a lease mentions incidental personal office use; demand and penalties fail.

Premises let for residential occupation did not become taxable as renting of immovable property service merely because the lease also referred to incidental personal office use; the lease had to be read as a whole, and incidental work from the premises did not change its essential residential character. The service tax demand therefore failed on merits. Where the levy itself was subject to substantial litigation and the legal position was not free from doubt, invocation of the extended limitation period was not justified, and the penalty could not be sustained. The demand was held time-barred and the consequential penalties were set aside.

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Issues: (i) whether the consideration received for letting out the building was taxable as renting of immovable property service when the lease deed showed residential use with an incidental reference to personal office; (ii) whether the demand could be sustained for the extended period and penalties imposed.

Issue (i): whether the consideration received for letting out the building was taxable as renting of immovable property service when the lease deed showed residential use with an incidental reference to personal office.

Analysis: The lease terms, read as a whole, showed that the premises was let out for residential occupation of an employee, and the clause referring to personal office did not alter the essential character of use. Incidental personal work from the premises did not convert residential use into use for business or commerce.

Conclusion: The demand was not sustainable on merits, as the premises remained residential in character.

Issue (ii): whether the demand could be sustained for the extended period and penalties imposed.

Analysis: The levy on this category had been the subject of substantial litigation, and the legal position was not free from doubt. In that background, invocation of the extended period was not justified, and the material also supported waiver of penalty.

Conclusion: The demand was time-barred and the penalties were not sustainable.

Final Conclusion: The appeal succeeded, and the demand of service tax as well as the consequential penalties were set aside.

Ratio Decidendi: Premises let for residential use do not become taxable as commercial renting merely because the lease mentions incidental personal office use, and the extended period cannot be invoked where the levy itself was under bona fide legal dispute.

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