CESTAT rules one-time premium for sub-leasing industrial lands not taxable as rent under service tax provisions

CESTAT Mumbai held that one-time premium received by appellant for sub-leasing MIDC industrial lands cannot be classified as rent under renting of immovable property service. The tribunal distinguished between rent for continued occupation and premium for lease transfer, ruling that premium paid for obtaining lease and infrastructural facilities does not constitute consideration for letting out property. Following precedent from Greater Noida Industrial Development Authority case, service tax under Section 65(105)(zzzz) cannot be charged on premium amounts. Appeal allowed, impugned order set aside.

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Issues: Classification of service under the category of 'renting of immovable property' for sub-leasing industrial lands and taxation liability under the Finance Act, 1994.

Summary:

Issue 1: Classification of Service
The appellant sub-leased industrial lands and received a premium, contending it is not rent but more akin to 'Salami'. The Department argued the premium should be considered as rent under 'renting of immovable property'. Relying on precedents, the appellant argued the issue is settled. The Tribunal examined the agreement and noted the premium was separate from the fixed rent, not for occupation of the property, thus not taxable as rent.

Issue 2: Taxation Liability
The appellant was engaged in developing an Integrated Textile Park under a government scheme. The Department considered the premium as consideration for 'renting of immovable property' under Section 66E of the Finance Act, 1994. The Tribunal referred to a previous order distinguishing between premium and rent, stating Service Tax is leviable only on rent for continuous enjoyment, not on premium for transfer of interest in the property. As the premium was not for continued enjoyment, the Tribunal found no merit in the Department's demand, allowing the appeal in favor of the appellant.

Separate Judgment: No separate judgment was delivered by the judges in this case.

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