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 service to unit holders through tripartite agreements for commercial spaces. However, since the underlying lease deed with the administration was terminated due to non-payment of conversion fees, all subsequent agreements including those with unit holders were repudiated. The tribunal found that no service was actually provided after termination, and advance amounts were refunded to unit holders. Consequently, the service tax demand under renting of immovable property service could not be sustained, and penalties were also set aside.

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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.

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