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

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 expenses for water, electricity, and diesel charges, and termination charges for early lease termination was set aside as not applicable. The Appellant was granted eligibility for Cenvat credit on works contract services for construction of immovable property and event management services for business promotion. All four appeals were allowed with consequential relief to the Appellant.

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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.

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