2018 (7) TMI 274 - AT - Service Tax

Tribunal allows interest, Tax Value benefit but deems lock-in penalties as taxable services

The appeal was partly allowed as the Tribunal upheld the demand of interest on amounts paid post the retrospective amendment but granted the appellant the ... Demand of Interest and penalty - activity in relation to renting of removable property for use in the course of or furtherance of business or commerce - the appellant has paid the Tax due for the period November 2008 to May 2010 on 05.07.2010, immediately after the activity was made taxable by virtue of retrospective amendment, with effect from 01.06.2007 - Held that:- As far as demand of interest on the amounts paid consequent to retrospective amendment are concerned the decision of Tribunal, in case of Indiabulls Properties Pvt Ltd [2016 (11) TMI 583 - CESTAT MUMBAI] is relevant, where the validating provisions of Section 77 (c) of the Finance Act 2010 has held that Recovery shall be made of all such amounts of service tax, interest or penalty or fine or other charges which may not have been collected or, as the case may be, would not have been refunded as if the said amendment had been in force at all material times - the demand of interest in respect of the amounts paid by the appellant on amount of retrospective amendment upheld. Exclusion of value of Penalties imposed on tenants - breach of contract - Held that:- It is apparent that the amounts received or account of breach of contract would be covered under the scope of the term “any other services in relation to such renting”. it is pertinent to note that the arrangement with the tenant is that if the property is rented for ‘x’ period the rent is ‘y’ an if the property is vacated before completion of the ‘x’ period an additional amount is required to be paid. The amount to be paid cannot treat as the penalty but as a condition of renting or differential rent - the amounts recovered on account of pre mature vacation of the rented premises can be treated has amount received ‘in relation to the renting of removable property’ and thus would be taxable Services. Penalties - Held that:- The appellant has paid the duty immediately after the enactment of the retrospective amendment. Prior to that they were genuine disputes regarding liability of Service Tax of the said activity and the matter had reached to Hon’ble Apex Court - penalty not warranted. Appeal allowed in part. Issues:1. Challenge against demand of Service Tax, interest, and penalty.2. Liability of interest and penalty post retrospective amendment.3. Demand of Service Tax on compensation for breach of lock-in period.4. Benefit of Cum Tax Value.Analysis:Issue 1 - Challenge against demand of Service Tax, interest, and penalty:The appeal was filed against the confirmation of demand of Service Tax, interest, and penalty. The appellant did not contest the duty liability but challenged the interest and penalty imposition. The argument was based on the retrospective amendment imposing Service Tax on renting of immovable property services. The appellant had paid the tax immediately after the amendment, questioning the justification for interest and penalty. Reference was made to relevant judicial decisions to support the argument.Issue 2 - Liability of interest and penalty post retrospective amendment:The Tribunal upheld the demand of interest on amounts paid post the retrospective amendment. The decision was based on the validating provisions of the Finance Act 2010, mandating the recovery of interest on such amounts. The Tribunal found no reason to interfere in the order for the recovery of interest from the appellant.Issue 3 - Demand of Service Tax on compensation for breach of lock-in period:The appellant argued that penalties imposed on tenants for breaching the lock-in period should not be considered as part of renting of immovable property services. However, the Tribunal held that such penalties fall under the scope of 'any other services in relation to renting' and are taxable. The amounts received for premature vacation of rented premises were deemed as taxable services.Issue 4 - Benefit of Cum Tax Value:The appellant sought the benefit of Cum Tax Value as they had paid the Service Tax post the retrospective amendment from their own funds. The Tribunal allowed the appeal on this count, as there was no evidence that the amount paid was collected from clients. The imposition of penalty was set aside due to genuine disputes regarding the liability of Service Tax before the retrospective amendment.In conclusion, the appeal was partly allowed based on the arguments presented and the Tribunal's analysis of the issues raised. The judgment highlighted the application of relevant legal provisions and judicial decisions to determine the liability of interest, penalty, and Service Tax in the context of the retrospective amendment.