Service tax valuation on leased area fails without proof of extra consideration; Cenvat credit denied for lack of nexus

Service tax on alleged differential leased area could not be sustained because the lease deeds covered the area in question and no extra consideration was proved; valuation under Section 67 of the Finance Act, 1994 must rest on consideration actually received, so the demand was set aside. Cenvat credit on bank loan processing charges was inadmissible because the charges had no demonstrated nexus with renting of immovable property service, so denial of credit was upheld. However, suppression was not established, as returns were filed and the department had knowledge of the availment, so the demand survived only for the normal period and the penalty was set aside.

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Issues: (i) Whether service tax could be demanded on the alleged differential leased area in the absence of evidence of any additional consideration received; (ii) whether Cenvat credit on service tax paid on bank loan processing charges was admissible and whether the demand was confined to the normal period in the absence of suppression; (iii) whether penalty was sustainable.

Issue (i): Whether service tax could be demanded on the alleged differential leased area in the absence of evidence of any additional consideration received.

Analysis: The lease deeds on record covered the leased area reflected in the notice, and no further lease deed or material was shown to establish renting of any additional space. Under Section 67 of the Finance Act, 1994, service tax is chargeable on the value or consideration received for the taxable service. In the absence of proof of any extra consideration for the alleged differential area, the valuation adopted by the department could not be sustained.

Conclusion: The demand of service tax on the alleged differential leased area was set aside and the issue was decided in favour of the assessee.

Issue (ii): Whether Cenvat credit on service tax paid on bank loan processing charges was admissible and whether the demand was confined to the normal period in the absence of suppression.

Analysis: The bank loans were taken for takeover of existing loans and other project purposes, and the processing charges had no demonstrated nexus with the renting of immovable property service. The credit was therefore not admissible under Rule 2(1) of the Cenvat Credit Rules, 2004. However, the record did not establish suppression of facts, as the assessee had been filing returns and the availment was within the knowledge of the department, so the demand could survive only for the normal period.

Conclusion: Denial of Cenvat credit was upheld, but the extended period was not available and the demand survived only for the normal period, in favour of the revenue on the credit issue and in favour of the assessee on limitation.

Issue (iii): Whether penalty was sustainable.

Analysis: Since the demand was confined to the normal period and suppression was not established, the statutory basis for penalty could not be maintained in the manner imposed in the impugned order.

Conclusion: The penalty was set aside.

Final Conclusion: The appeal succeeded on the service-tax demand and penalty, but failed on the credit entitlement beyond the normal period, resulting in partial relief to the assessee and partial affirmation of the revenue's demand.

Ratio Decidendi: Service tax on renting of immovable property can be sustained only on proved consideration received, and Cenvat credit on input services lacking nexus with the taxable service may be denied, while extended limitation requires proof of suppression.

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