2024 (9) TMI 1496 - AT - Service Tax

Service tax demand set aside as no actual renting service provided after lease termination and refunds made

CESTAT New Delhi allowed the appeal and set aside the service tax demand. The tribunal held that the respondent rendered renting of immovable property ... Levy of service tax - renting of immovable property service - Blue Coast sub-leased commercial spaces in the Plaza to the unit holders - marketing and sub-leasing of commercial space in the hotel project of Silver Resort - extended period of limitation - penalty u/s 78A of the Finance Act. Whether Silver Resort rendered “renting of immovable property service” to the unit holders? - HELD THAT:- The Silver Resort rendered “renting of immovable property service” to the unit holders. Under the said Agreement DIAL granted the exclusive right and authority to Silver Resort to undertake and implement designing, development, financing construction, ownership, operation and maintenance of Asset Area-3 of the IGI Airport. Silver Resort, in turn entered into a JDA with Blue Coast for joint development of the said project. In terms of this JDA, Blue Coast identified interested unit holders and a tripartite agreement was entered between Silver Resort, Blue Coast and the unit holders for grant of leasehold rights to the unit holders of the commercial units. Blue Coast was entitled to receive consideration from the customers in terms of the tripartite agreement, a part of which was shared with Silver Resort in terms of the JDA. It is on such amount received by Silver Resort that the impugned order has confirmed the demand of service tax by holding that Silver Resort provided “renting of immovable property service” to the unit holders. In HOME SOLUTIONS RETAILS (INDIA) LTD. VERSUS UNION OF INDIA & ORS [2011 (9) TMI 46 - DELHI HIGH COURT], the constitutional validity of sections 65 and 66 of the Finance Act came up for consideration. The larger bench of the Delhi High Court upheld the validity of these two sections. The consequence of termination of the agreement was neither raised nor decided. This decision would, therefore, not help the department - The confirmation of demand of service tax under this part, therefore, cannot be sustained. Whether any service was provided either by Joy Hotel or Blue coast under “renting of immovable property service” when the lease deed executed between Joy Hotel and the Chandigarh Administration was terminated? - HELD THAT:- In terms of this agreement, Blue Coast identified interested unit holders and a tripartite agreement was entered between Joy Hotel, Blue Coast and the unit holders for the grant of leasehold rights to the unit holders with respect to the commercial units for a consideration. It is on such amount of Rs. 6,50,00,000/- received by Joy Hotel and the consideration received by Blue Coast from the unit holders that the impugned order has confirmed the demand of service tax by holding that Joy Hotel provided “renting of immovable property service” to Blue Coast, and Blue Coast provided “renting of immovable property service” to the unit holders. In terms of the lease deed entered between Joy Hotel and the Chandigarh Administration, Joy Hotel was required to get the conversion of such land from industrial to commercial. As the conversion fee was not paid, the lease deed was terminated. The lease deed entered between Joy Hotel and the Chandigarh Administration forms the very basis of the entire transaction between Joy Hotel, Blue Coast and the unit holders. It was terminated and so there is no provision of any service between the parties. The advance amount paid by the unit holders in terms of the tripartite agreement was also refunded by Blue Coast in terms of the Settlement Agreement entered between the parties. Since the lease deed with the Chandigarh Administration has been terminated, subsequent agreements such as agreement between Joy Hotel and Blue Coast, and the tripartite agreement with the unit holders also stands repudiated. The question of rendition of any service by Joy Hotel or Blue Coast does not, therefore, arise. The confirmation of the demand in the impugned order under this part is, therefore, liable to be set aside. The impugned order dated 20.06.2016 is liable to be set aside and is set aside - Appeal allowed. Issues Involved:1. Levy of service tax on transactions between Silver Resort, DIAL, Blue Coast, and unit holders.2. Levy of service tax on transactions between Joy Hotel, Chandigarh Administration, Blue Coast, and unit holders.3. Imposition of penalties under various sections of the Finance Act.4. Invocation of the extended period of limitation.5. Liability of Sushil Suri under section 78A of the Finance Act.Issue-Wise Detailed Analysis:1. Levy of Service Tax on Transactions Between Silver Resort, DIAL, Blue Coast, and Unit Holders:The tribunal examined whether Silver Resort rendered 'renting of immovable property service' to the unit holders. The adjudicating authority had confirmed the demand of service tax on Silver Resort based on agreements with DIAL and Blue Coast. However, the Development Agreement between DIAL and Silver Resort was terminated due to a breach by Silver Resort, as evidenced by a termination notice dated 16.07.2015. This termination was upheld by an Arbitral Award and the Delhi High Court. Consequently, the tripartite agreements with unit holders were repudiated, and amounts paid by unit holders were refunded. The tribunal concluded that there was no provision of service by Silver Resort to the unit holders, setting aside the demand of service tax.2. Levy of Service Tax on Transactions Between Joy Hotel, Chandigarh Administration, Blue Coast, and Unit Holders:The tribunal assessed whether Joy Hotel or Blue Coast provided any service under 'renting of immovable property service' following the termination of the lease deed between Joy Hotel and Chandigarh Administration. The lease deed required Joy Hotel to convert land from industrial to commercial, which was not done, leading to its termination. As this lease deed formed the basis of subsequent agreements, its termination meant there was no provision of service by Joy Hotel or Blue Coast. The tribunal set aside the demand of service tax on both entities.3. Imposition of Penalties Under Various Sections of the Finance Act:Penalties were imposed under sections 77 and 78 of the Finance Act on Blue Coast, Silver Resort, and Joy Hotel. The tribunal, upon setting aside the service tax demands, also nullified the penalties. It was established that since there was no provision of service, penalties were not applicable.4. Invocation of the Extended Period of Limitation:The appellants contended that the extended period of limitation could not be invoked. The tribunal, agreeing with the appellants, noted that the demand itself was not sustainable, thereby making the invocation of the extended period of limitation irrelevant.5. Liability of Sushil Suri Under Section 78A of the Finance Act:A penalty of Rs. 1,00,000/- was imposed on Sushil Suri under section 78A of the Finance Act. The tribunal, in light of the findings that no service was provided and no tax was evaded, concluded that there was no mala fide intention on the part of Sushil Suri. Hence, the penalty imposed on him was also set aside.Conclusion:The tribunal set aside the impugned order dated 20.06.2016 in its entirety, concluding that there was no provision of service by Silver Resort or Joy Hotel, and thus, no service tax was leviable. Consequently, all associated penalties and demands were nullified, and the appeals were allowed.