Tribunal Grants Refunds in Tax Case

The Tribunal ruled in favor of the Appellants, M/s. Alembic Ltd. and M/s. Shreno Ltd., in a case involving preferential location services and renting of immovable property services. The Appellants were granted refunds for differential tax paid on preferential location services and service tax on renting of immovable property, as the services were found to be naturally bundled with other services and not subject to separate taxation. The Tribunal quashed the demands for tax, interest, and penalties, allowing the appeals and granting consequential relief to the Appellants in accordance with the Central Excise Act, 1944.

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Issues Involved:
1. Preferential Location Service
2. Renting of Immovable Property Service

Detailed Analysis:

1. Preferential Location Service:

The Appellants, M/s. Alembic Ltd. and M/s. Shreno Ltd., were engaged in real estate projects and had recovered charges for preferential location services (e.g., garden view, road side location) in the course of providing construction of residential complex services. They discharged service tax at the same rate applicable to construction of residential complex services. However, revenue authorities insisted on payment of tax at the full rate, leading to a demand for differential tax. The Appellants paid this tax with interest during an audit and sought a refund, which was denied by the revenue authorities.

The Tribunal noted that the issue was no longer res integra and had been decided in favor of the Appellants in several cases, including SJP Infracon Ltd. v. CST, Noida, Logix Infrastructure Ltd., Friends Land Developers, and Radhekrishna Technobuild P. Ltd. These cases established that preferential location charges should be taxed at the same rate as the construction of residential complex services, as they are naturally bundled services under Section 66F(3) of the Finance Act, 1994. The Tribunal emphasized that preferential location services are not provided on a standalone basis but are part and parcel of the construction of residential complex services.

The Tribunal also referred to the Hon’ble Gujarat High Court's judgment in Torrent Power Ltd., which discussed the principles for considering a service naturally bundled with the main service and taxed at the same rate. The Tribunal concluded that the differential demand of service tax along with interest and penalty must be quashed and set aside. Consequently, the Appellants were entitled to a refund as claimed, in terms of Section 11B of the Central Excise Act, 1944.

2. Renting of Immovable Property Service:

In the case of M/s. Shreno Ltd., they had let out a residential property to M/s. Alembic Pharmaceuticals Ltd. for use by their Directors/Senior Management personnel for accommodation purposes. The revenue authorities raised a demand for service tax on this transaction as renting of immovable property service. The Appellant paid the tax and interest during an audit and sought a refund, which was denied.

The Tribunal found that the demand was based on the assumption that the service availed was essentially for a business entity and the property was used for accommodation of Directors/Senior Management personnel. However, the Appellant provided evidence, including electricity bills and a certificate from the Co-Op Housing Society, showing that only one Director was permanently residing at the leased premises and the property was not used for commercial purposes. The Tribunal concluded that the leased premises were used solely as a residential dwelling, and therefore, the demand of service tax on this count must be quashed and set aside.

The Tribunal ruled that the Appellants were entitled to a refund of the tax and interest already paid, in accordance with Section 11B of the Central Excise Act, 1944.

Conclusion:

The appeals were allowed, and the Appellants were granted consequential relief, including refunds, as per the provisions of the Central Excise Act, 1944. The judgment was pronounced in the open court on 25.05.2021.

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