Appellant liable for service tax on renting property for commercial use. Penalties set aside.

The Tribunal held the appellant liable to pay service tax on renting of immovable property services for commercial activities, while setting aside penalties imposed and restricting demands to the normal period only.

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Issues:
1. Liability of service tax on renting of immovable property services.
2. Applicability of negative list regime of taxation.
3. Validity of penalties imposed on the appellant.

Issue 1: Liability of service tax on renting of immovable property services

The appellant, engaged in providing "Renting of Immovable Property Services," did not obtain Service Tax Registration or pay service tax on rent received for letting out mandi shops from June 2007 to March 2013. A demand was raised, confirmed in the Order-in-Original No. 22 dated 27.03.2015, and the subsequent appeal was rejected. The appellant contended that the services provided were exempted from service tax under Section 66D(iv) and (vii) of the Finance Act, 1994. However, the Tribunal found that the appellant's activities were not in line with the Rajasthan Agricultural Produce Markets Act, 1961, and the fees received for allotments constituted renting of immovable property for consideration. The Tribunal held that the appellant was liable to pay service tax on the rent received for letting out shops/land for commercial activities.

Issue 2: Applicability of negative list regime of taxation

The Tribunal noted that with the introduction of the Negative List Regime of Taxation from July 1, 2012, services provided by Agricultural Produce Marketing Committees were excluded from tax liability under Section 66D. However, the Tribunal clarified that services related to temporary storage of agricultural produce in notified market areas were exempt, but renting out shops/land for commercial purposes other than agricultural produce was not covered by the negative list. As the appellant had rented out mandi shops to firms and businessmen for commercial activities unrelated to agricultural produce, the Tribunal held them liable to pay service tax.

Issue 3: Validity of penalties imposed on the appellant

The Tribunal acknowledged that the tax entry "renting of immovable property service" had been a subject of litigation, with the Hon'ble Delhi High Court ruling that the activity of rent per se cannot be subjected to service tax, but activities related to renting are taxable. Considering the legislative changes following this ruling, the Tribunal found that penalties imposed on the appellant should be set aside due to the appellant's status as a Government Organization and the absence of grounds for invoking demands for an extended period. Consequently, the demands raised were restricted to the normal period, and penalties were waived.

In conclusion, the Tribunal partly allowed the appeal, holding the appellant liable to pay service tax on renting of immovable property services for commercial activities, while setting aside penalties imposed and restricting demands to the normal period only.

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