2024 (12) TMI 1609 - AT - Service Tax

Appeal allowed: transaction treated as sale of immovable property; service tax demands and penalties set aside; time-barred claims upheld

M/s. Safari Retreats Private Limited Versus Principal Commissioner of G.S.T. and C. Ex., Bhubaneswar

CESTAT allowed the appeal, holding the transaction constituted transfer/sale of immovable property not Renting of Immovable Property Service, and set ... Classification of service - Renting of Immovable Property Service or Commercial or Industrial Construction Service? - benefit of abatement claim - service tax on One time premium’ in case of long term leasing - disallowance of input service credit - time limitation - Security/Legal Service. Classification of service - Renting of Immovable Property Service or Commercial or Industrial Construction Service? - benefit of abatement claim - service tax on One time premium’ in case of long term leasing - HELD THAT:- From the various documents like Application for purchase of the office space, Allotment Letter, Agreement for Sub-Lease and registered Indenture of Assignment (Sub-lease) and clauses contained therein, it is seen that the appellant has transferred the constructed office space with all rights, title and interest which is treated sale of immovable property under Section 54 of the Transfer of Property Act, 1882. On the consideration received, the requisite Stamp Duty is paid. Occupancy certificate is being issued, once the construction is complete in all respect and the unit is fit for operation as a commercial premise. As per judgment in [1980 (12) TMI 33 - MADRAS HIGH COURT], in case of Renting or Leasing, the Lessee makes periodical payments for the continuous enjoyment of the benefits under the lease. When such payments are not made on periodical basis, the amount paid cannot be equated to ‘Rent’ - This judgement clarifies that while the Premium or Salami is a one-time payment, the ‘rent’ is payable at regular intervals. It also recognizes that in trade and commerce practice of payments on account of premium and rent exists. Thus, the appellant has not rendered any service under the category of ‘Renting of Immovable property’. Therefore, the confirmed demand of Rs. 11,58,32,907/-, is legally not sustainable and the same is set aside and the Appeal filed by the appellant allowed on merits to this extent. Disallowance of input service credit - HELD THAT:- The service rendered by the appellant would not fall under the category of ‘Renting of Immovable Property Services’. However, even if it is hypothetically assumed for a moment that the service falls under this category, the Revenue cannot deny the CENVAT Credit since there is a catena of decisions of the Tribunals and the Hon’ble High Courts holding that when the Renting of Immovable Property Service is rendered, the assessee would be eligible to take the CENVAT Credit. The CENVAT credit would thus be eligible not only for the input services, but also for the inputs and capital goods in such cases. In the present case, the Department has taken a stand that the appellant is rendering the service of ‘Renting of Immovable Property’. As per the cited decisions of High Courts and the Tribunal, the appellant would not only be eligible for the CENVAT Credit of Inputs Services, but also for the CENVAT Credit in respect of the inputs. In such a case, the entire confirmed demand of Rs. 11,58,32,907/- as Service Tax on Renting of Immovable Property Service, would get fully off-set by the CENVAT Credit of Rs. 18,11,64,407/- taken by the appellant. Thus, the contrary stand taken by the Revenue is fatal to their case. Therefore, even on this count, the confirmed demands of Rs. 18,11,64,407/- and Rs. 11,58,32,907/- are legally not sustainable and hence the same set aside on merits. Time limitation - HELD THAT:- The Department had no qualms in accepting the Service Tax payments and the ST-3 Returns filed. No queries have been raised about the CENVAT being taken and Service Tax being paid. All the details required for the quantification of demand have been gathered from the books of accounts of the appellant. Hence, the Department has not made out any case of suppression, with an intent to evade, against the appellant. Therefore, the confirmed demand in respect of the extended period is hit by time bar. Accordingly, the confirmed demand for the extended period set aside on account of time bar also. Security/Legal Service - HELD THAT:- Coming to the demand of Rs. 86,892/- towards Service Tax to be paid on Legal Services on reverse charge basis, it is observed that the period involved pertains to 2013-14 to 2015-16. The entire demand is hit by time bar. However, the appellant has already provided evidence towards payment of Rs. 75,296/-, which is not being agitated by them. Therefore, the penalty imposed of Rs. 86,892/- set aside on this count. Appeal disposed off. ISSUES: Whether the service provided by the appellant falls under the category of 'Renting of Immovable Property Service' or 'Commercial or Industrial Construction Service' (CICS).Whether the appellant is eligible to avail CENVAT Credit on input services while discharging Service Tax under CICS with abatement benefit.Whether the demand raised under the extended period of limitation is sustainable or barred by time.Whether Service Tax is payable on one-time premium (salami) received on long-term lease/sub-lease of immovable property.Whether penalty imposed on the appellant for alleged non-compliance is justified. RULINGS / HOLDINGS: On classification of service: The service rendered is not 'Renting of Immovable Property Service' but 'Construction of Industrial Complex Service' (CICS), as the appellant permanently transferred leasehold rights by way of sub-lease premium, which constitutes 'sale of the immovable property' within the meaning of Section 54 of the Transfer of Property Act, 1882.On CENVAT Credit eligibility: The appellant is eligible to take CENVAT Credit on input services even after availing the 70% abatement under Notification No. 26/2012-ST dated 20.06.2012, as the abatement conditions restrict credit denial only on inputs, not input services.On time bar: The demand raised under the extended period is hit by time bar, as the appellant had bonafide belief in classifying the service as CICS, paid Service Tax accordingly, filed returns, and there was no suppression with intent to evade tax.On Service Tax on one-time premium: Service Tax is not leviable on the one-time premium (salami) received on long-term lease/sub-lease, since such premium is capital receipt and distinct from periodic rent which is exigible to Service Tax under 'Renting of Immovable Property Service'.On penalty: Penalty imposed is set aside as the demands themselves are not sustainable and no intent to evade tax is established. RATIONALE: The Court applied the legal framework under Section 54 of the Transfer of Property Act, 1882, distinguishing 'sale' (transfer of ownership for a price) from 'rent' (periodical payments for use). It relied on authoritative precedent including the Hon'ble Supreme Court's decision in Commissioner of Income Tax v. The Panbari Tea Co. Ltd., which differentiates between premium and rent, and the Madras High Court decision in A.R. Krishnamurthy & Anr. v. Commissioner of Income Tax, clarifying lease premium and rent concepts.The Tribunal followed the precedent set in Greater Noida Industrial Development Authority v. Commissioner of Central Excise and Service Tax and Kolkata CESTAT's decision in Bengal Silver Spring Projects Ltd., holding that one-time premium on long-term lease is not subject to Service Tax as 'Renting of Immovable Property Service'.Regarding CENVAT Credit, the Court interpreted Notification No. 26/2012-ST to allow credit on input services despite abatement, consistent with the distinction between inputs and input services in the CENVAT Credit Rules, supported by High Court and Tribunal decisions including D L F Promenade Ltd. v. Commissioner, Service Tax-Delhi.The Court recognized that the appellant's consistent tax filings, absence of concealment or suppression, and documentary evidence including stamp duty payments demonstrate bonafide belief and compliance, negating extended period demand under limitation principles.There was no dissenting opinion; the judgment reflects a doctrinal affirmation of established principles distinguishing sale and rent in the context of Service Tax and CENVAT Credit eligibility.