2023 (8) TMI 252 - AT - Service Tax

Tribunal ruling: Service Tax on rental income upheld, some services taxable. Extended limitation period valid.

The Tribunal held that the appellant is subject to Service Tax as it does not perform sovereign functions exempt from taxation. The rental income from ... Levy of service tax - Non-payment of service tax - non-registration with the Department for the services - appellant is a ‘State’ discharging / performing sovereign duty - Renting of Immovable Property - Management, Maintenance or Repair (MMR) - Business Auxiliary Service (BAS) - Technical Inspection and Certification Agency (TIC) - Extended period of limitation. Whether the appellant is a ‘State’ discharging / performing sovereign duty and hence, not amenable to Service Tax? - HELD THAT:- Article 12 of the Constitution defines the term ‘State’ only for the purposes of Part III of the Constitution, which deals with fundamental rights. Therefore, this definition will not, apparently, apply to other provisions of the Constitution or indeed, the provisions of statutes. This is clear when we refer to Article 289 in Part XII of the Constitution, which deals with Finance, Property, Contracts and Suits, including taxation. Article 289 (2) permits the Union to tax the States in respect of a trade or business of any kind carried on by or on behalf of such States. Therefore, the fact whether a particular assessee is a State or not within the meaning of Article 12 has no bearing on whether Service Tax could be levied on that assessee. The Hon’ble Apex Court had an occasion to consider ‘Sovereign’ in the context of the Industrial Disputes Act, 1947, in the case of AGRICULTURAL PRODUCE MARKET COMMITTEE VERSUS ASHOK HARIKUNI [2000 (9) TMI 930 - SUPREME COURT] has held that Hence even if some of the functionaries under the State Act could be said to be performing sovereign functions of the State Government that by itself would not make the dominant object to be sovereign in nature or take the aforesaid Act out of the purview of the Central Act. Thus the issue decided against appellant. Renting of immovable property service - HELD THAT:- There is a clear finding by the adjudicating authority that the appellant had in fact received rental income, which was also reflected in their P&L Account and therefore, the fact of rental receipt stands proved - The appellant has placed reliance on the decision of the Hon’ble Delhi High Court in the case of HOME SOLUTION RETAIL INDIA LTD. VERSUS UOI & ORS. [2009 (4) TMI 14 - DELHI HIGH COURT], wherein, it has been held that Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. But the very same Hon’ble Delhi High Court in the subsequent / second HOME SOLUTIONS RETAILS (INDIA) LTD. VERSUS UNION OF INDIA & ORS [2011 (9) TMI 46 - DELHI HIGH COURT] has set aside the above decision and it was held that the decision in the first Home Solution case does not lay down the law correctly inasmuch as in the said decision, it has been categorically laid down that even if a building/land is let out for commercial or business purposes, there is no value addition. Being of this view, we overrule the said decision. In view of the above 3-Judge Bench decision in M/s. Home Solutions Retails (India) Ltd. the appellant cannot escape the Service Tax liability and hence, the impugned order, to this extent, is in order. The grounds-of-appeal insofar as this ground is concerned are dismissed. Management, maintenance or repair service - HELD THAT:- It is a well-known fact that the appellant has its own account department, duly supported by accountants / chartered accountants and statutory auditors and hence, they cannot plead ignorance of law and/or procedures prescribed thereunder. Every procedure is applicable to all litigants irrespective of their status. But however, in the interest of justice, it is deemed appropriate to remit this issue to the file of the adjudicating authority for fresh consideration. The appellant, if so advised, can file the supporting documents before the lower authority. Business Auxiliary Service - Revenue has not specifically pointed out as to which limb of the categories of business auxiliary service covers scope of the alleged services rendered by the appellant - HELD THAT:- Unless a specific charge/service is alleged, put across in the Show Cause Notice and the scope of the services alleged to have been rendered by the appellant stands examined in the context of such service, mere allegation alone is not sufficient to fasten with tax liability. Hence, to this extent, the impugned order cannot sustain and the impugned order is set aside to this extent. Consequently, the grounds-of-appeal relating to this issue stand allowed. Technical Inspection and Certification Agency (TIC) - HELD THAT:- Even if it is accepted that the above service is not rendered to outsiders, but nevertheless, the appellant has collected service charges by deducting from the total consideration being paid to the contractors. That means, the said service was rendered to the contractors, for which payment is also made. The income so generated is thus shown as income under the category of ‘Quality Control inspection testing fees’ in Schedule-4 to their P&L Account. In any case, it is not the case of the appellant that such contractors were not on their rolls and that what was paid to them was only salary. If it is their view that it is not taxable, then why the service charges were deducted from payments and under which provision did they do so has not been explained anywhere by the appellant - The finding and the consequential demand on this issue in the impugned order is sustained. The grounds-of-appeal on this issue are therefore not entertained. Extended period of limitation - HELD THAT:- It is a clear case of suppression of facts, collecting / deducting Service Tax but withholding the same without remitting to the appropriate Government account, the same has also established the intent to evade payment of tax - the extended period of limitation has been rightly invoked and hence, to this extent also, the impugned order is correct. Consequently, the grounds-of-appeal relating to this issue lack merit and they are dismissed. Appeal disposed off. Issues Involved:1. Whether the appellant is a 'State' discharging/performing sovereign duty and hence, not amenable to Service TaxRs.2. Whether the service of renting of immovable property by the appellant is correctly taxedRs.3. Whether the demand of Service Tax under Management, Maintenance, or Repair (MMR) service is correctRs.4. Whether the demand of Service Tax under Business Auxiliary Service (BAS) is sustainableRs.5. Whether the demand of Service Tax under Technical Inspection and Certification (TIC) service is justifiedRs.6. Whether the extended period of limitation was rightly invokedRs.Summary:1. Whether the appellant is a 'State' discharging/performing sovereign duty and hence, not amenable to Service TaxRs.The Tribunal held that the definition of 'State' under Article 12 of the Constitution is limited to Part III of the Constitution and does not apply to other statutes, including the Finance Act. The appellant's contention that it performs sovereign functions was rejected, citing the Supreme Court's decision in Agricultural Produce Market Committee v. Shri Ashok Harikuni, which clarified that not all governmental functions are sovereign. Thus, the appellant is subject to Service Tax.2. Whether the service of renting of immovable property by the appellant is correctly taxedRs.The Tribunal upheld the lower authority's decision that the rental income received by the appellant is taxable under the service of 'renting of immovable property' as per Section 65(105)(zzzz) of the Finance Act, 1994. The reliance on the earlier Delhi High Court decision in Home Solution Retail India Ltd. was dismissed, as it was overruled by a subsequent 3-Judge Bench decision.3. Whether the demand of Service Tax under Management, Maintenance, or Repair (MMR) service is correctRs.The Tribunal remitted the issue back to the adjudicating authority for fresh consideration, allowing the appellant to submit supporting documents. It noted that the appellant had not provided sufficient evidence to prove that the charges collected were mere reimbursements for water charges.4. Whether the demand of Service Tax under Business Auxiliary Service (BAS) is sustainableRs.The Tribunal set aside the demand under BAS, noting that the Revenue failed to specify which limb of the BAS definition applied to the appellant's activities. The adjudicating authority did not adequately establish that the services provided by the appellant fell under BAS.5. Whether the demand of Service Tax under Technical Inspection and Certification (TIC) service is justifiedRs.The Tribunal upheld the demand under TIC service, finding that the appellant collected service charges for quality control inspection testing fees and did not provide a valid explanation for why these charges were deducted from contractor payments.6. Whether the extended period of limitation was rightly invokedRs.The Tribunal held that the extended period of limitation was rightly invoked, as the appellant had collected Service Tax but failed to remit it to the government, indicating suppression of facts and intent to evade tax.Conclusion:- The appeals on the issue of renting of immovable property and TIC service were dismissed.- The appeal on the issue of MMR service was partly allowed by way of remand.- The appeal on the issue of BAS was allowed.- The extended period of limitation was upheld against the appellant.