Tribunal sets aside service tax demand on property value, partially allows appeal

The Tribunal held that the demand of service tax on the value of immovable property amounting to Rs. 30,60,000/- with penalties was set aside. The demand of service tax of Rs. 33,53,890/- with interest remained undisturbed as it was not contested. The total penalty of Rs. 75 lakhs imposed under Section 78 was also set aside. The appeal was partly allowed, granting relief to the appellants.

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Issues Involved:
1. Demand of service tax on the value of immovable property received as part of a settlement.
2. Applicability of amended Section 67 of the Finance Act, 1994.
3. Contesting penalties imposed under Section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on the Value of Immovable Property:
The appellants provided consultancy and management services to hotels and resorts and were registered under Management Consultancy Services and Intellectual Property Service. During an audit, it was found that they had not paid service tax on time and had not discharged the appropriate service tax on the gross service charges received. A difference of Rs. 2.50 crores was noted in the profit and loss account compared to the ST-3 returns, attributed to the value of property acquired in lieu of management fees. The appellants contested the demand of service tax on Rs. 2.50 crores, arguing that the settlement agreement dated 1.3.2006 involved the transfer of property as part of the settlement, which was not subject to service tax as per Section 67 before its amendment on 18.4.2006.

2. Applicability of Amended Section 67 of the Finance Act, 1994:
Section 67, prior to its amendment on 18.4.2006, contemplated the levy of service tax on the gross amount charged in the nature of money only. The department issued a show cause notice based on the amended Section 67, which included consideration other than money. The appellants argued that the amendment was not applicable to their case as the settlement took place on 1.3.2006, before the amendment. The Tribunal agreed, stating that the consideration in the nature of immovable property received before the amendment was not subject to service tax.

3. Contesting Penalties Imposed Under Section 78 of the Finance Act, 1994:
The appellants contested the penalties imposed, stating that they had already paid the service tax of Rs. 33,53,890/- and interest of Rs. 2,93,093/- on 27.3.2008, before the issuance of the show cause notice dated 15.5.2008. The Tribunal found that the appellants had reflected their receipts in their accounts and that it was a matter of belated payment. Hence, it invoked Section 80 to set aside the penalties imposed under Section 78.

Conclusion:
The Tribunal held that the demand of service tax on the value of immovable property to the tune of Rs. 30,60,000/- with the penalties thereon could not sustain and required to be set aside. The demand of service tax of Rs. 33,53,890/- with interest thereon was not contested by the appellants and thus remained undisturbed. The total penalty of Rs. 75 lakhs imposed under Section 78 was set aside. The appeal was partly allowed, providing consequential relief to the appellants.

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