2022 (7) TMI 1030 - AT - Service Tax

Appellant wins service tax dispute, granted Cenvat credit for construction and event management services.

M/s. VITP Private Limited (formerly known as Vanenburg IT Park Private Limited) Versus Commissioner of Central Tax, Hyderabad-IV

The tribunal ruled in favor of the Appellant in all aspects of the case. The demand for service tax on refundable security deposits, reimbursement of ... Levy of Service Tax - refundable security deposit collected by the Appellant from its customers - reimbursement of expenses from its customers on account of water, electricity and diesel expenses incurred for provision of services - termination charges collected from customers for early termination of lock in period of lease - Cenvat credit of works contract services and other services for construction of immovable property - Cenvat Credit on event management services for promotion of business of the Appellant. Applicability of service tax on refundable security deposit collected by the Appellant from its customers - HELD THAT:- It is found from the case records that it is not in dispute that the said amounts are collected as a refundable security deposit by the Appellant and the same is returned to the customers at the end of the lease period with no interest as per section 5 of the Lease Deed as submitted by the Appellant - the said amounts are not collected towards any provision of service but as a refundable deposit and as such the amounts cannot be treated as consideration for renting/leasing of immovable property services. Tribunal in the case of SAMIR RAJENDRA SHAH VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR [2014 (11) TMI 499 - CESTAT MUMBAI], it was held that As per the agreement, the Service Tax is payable separately by the lessee. As the appellant has not recovered Service Tax from the lessee, they may recover separately. Therefore, the contention of the appellant as they have not recovered the Service Tax from the lessee, the rent recovered by them be treated as cum-Service Tax is not acceptable. Thus, the demand of service on security deposit cannot be sustained and is thus set aside. Demand of service tax on reimbursement of expenses of diesel, water and electricity from the customers - HELD THAT:- The issue of inclusion of reimbursements in the consideration for value of services was dealt by Hon’ble Supreme Court in the case of Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (3) TMI 357 - SUPREME COURT] and Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 was held to be ultra vires the section 67 of the Finance Act, 1994. In the case at hand, the fact that the expenses are mere reimbursement based on total cost incurred by the Appellant and the total floor area of the customers is not in dispute which goes to show that there is no profit element involved in the above reimbursements. The department has not been able to contradict the above fact either. Hence, having regard to the judgment of the Hon’ble Supreme Court, it is found that the Appellant cannot be saddled with the liability on such reimbursements on account of water, electricity and diesel charges and thus the demand of service tax on this ground cannot be sustained either and is thereby quashed. Service tax on termination charges - HELD THAT:- There was no service rendered by the Appellant towards such charges and the same was in the nature of penalty for early termination than the agreed terms of lease. Thus, it is not a consideration for the service of renting of immovable property but a compensation or liquidated damages for reneging the contract of renting. Also, it is on record that the department has considered the above amounts for termination charges also in the demand under security deposit above as these charges were adjusted with the deposit lying with the Appellant and thus on this score also, the demand cannot be sustained as it will lead to taxing the same amount twice - the demand on account of termination charges is also liable to be quashed. Eligibility of Cenvat credit on input services used for construction of immovable property - HELD THAT:- The period covered in the present appeals is June 2007 to March 2011 i.e. prior to the Cenvat credit Rules, 2004 which were amended w.e.f 01.04.2011 - Cenvat credit of input services as availed by the Appellant for construction of immovable property which was further let out to various customers is allowed. Cenvat credit on event management services - HELD THAT:- Rule 2(l) of the Cenvat Credit Rules, 2004 doesn’t exclude any such service from the eligibility of availment of Cenvat credit as these expenses have been incurred in the course of furtherance of business and are thus business promotion expenses and the same is eligible as Cenvat credit. Appeal allowed - decided in favor of appellant. Issues Involved:1. Applicability of service tax on refundable security deposit collected by the Appellant from its customers.2. Applicability of service tax on reimbursement of expenses from its customers on account of water, electricity, and diesel expenses incurred for the provision of services.3. Applicability of service tax on termination charges collected from customers for early termination of the lock-in period of the lease.4. Eligibility of Cenvat credit of works contract services and other services for the construction of immovable property and Cenvat credit on event management services for the promotion of the business of the Appellant.Issue-wise Detailed Analysis:1. Applicability of Service Tax on Refundable Security Deposit:The tribunal found that the refundable security deposit collected by the Appellant from its customers is not in dispute and is returned to the customers at the end of the lease period without interest. The amounts are not collected towards any provision of service but as a refundable deposit, and thus cannot be treated as consideration for renting/leasing of immovable property services. This position is supported by the Tribunal's judgment in the case of SAMIR RAJENDRA SHAH v. COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR and ELECTRONICS TECHNOLOGY PARK v. COMMISSIONER OF CUS., C. EX. & S.T., TRIVANDRUM. Therefore, the demand of service tax on security deposits was set aside.2. Applicability of Service Tax on Reimbursement of Expenses:The tribunal referred to the Supreme Court's ruling in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., which held Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 as ultra vires section 67 of the Finance Act, 1994. The Appellant's case showed that the expenses are mere reimbursements based on the total cost incurred and the total floor area of the customers, with no profit element involved. The department did not contradict this fact. Thus, the tribunal quashed the demand of service tax on reimbursements for water, electricity, and diesel charges.3. Applicability of Service Tax on Termination Charges:The tribunal found that the termination charges collected by the Appellant were misinterpreted by the Adjudicating authority. These charges were in the nature of a penalty for early termination of the lease and not a consideration for renting of immovable property. The department had also considered these amounts in the demand under security deposit, leading to potential double taxation. Hence, the tribunal quashed the demand on termination charges.4. Eligibility of Cenvat Credit on Construction and Event Management Services:The tribunal noted that the period covered in the appeals was prior to the amendment of the Cenvat Credit Rules, 2004 effective from 01.04.2011. The issue of eligibility of Cenvat credit on input services used for construction of immovable property was settled in favor of the Appellant by the Principal Bench of the CESTAT, New Delhi in REGENCY PARK PROPERTY MANAGEMENT SERVICES P. LTD. v. COMMR. OF S.T., DELHI. The tribunal allowed the Cenvat credit of input services for construction of immovable property which was let out to various customers. Additionally, Cenvat credit on event management services was deemed eligible as these expenses were incurred in the course of furtherance of business and are considered business promotion expenses.Conclusion:a. Applicability of service tax on refundable security deposit collected by the Appellant from its customers - Not Applicable.b. Applicability of service tax on reimbursement of expenses from its customers on account of water, electricity, and diesel expenses incurred for provision of services - Not Applicable.c. Applicability of service tax on termination charges collected from customers for early termination of lock-in period of lease - Not applicable.d. Eligibility of Cenvat credit of works contract services and other services for construction of immovable property and Cenvat credit on event management services for promotion of business of the Appellant - Cenvat credit eligible.All four appeals were allowed with consequential relief to the appellant as per law.