Service tax under reverse charge mechanism doesn't apply to rent paid by company to directors for leased premises

The CESTAT Ahmedabad held that service tax under reverse charge mechanism does not apply to rent paid by a company to its directors for leased premises. The tribunal distinguished between services provided by directors in their official capacity versus individual capacity. Since the directors owned the property individually and not as directors, the rental transaction was in personal capacity. The tribunal followed precedent from Cords Cable Industries case, ruling that mere directorship status doesn't convert individual property transactions into director services. The appeal was allowed and the impugned order was set aside.

---

---

Issues:
Interpretation of Notification No.30/2012-S.T. dated 20.06.2012 and Notification No.45/2012-S.T. dated 07.08.2012 regarding reverse charge mechanism for services provided by directors of a company. Applicability of service tax on rent paid by a company to its directors who own the leased building.

Analysis:
The case involved a dispute regarding the applicability of service tax on rent paid by a company to its directors who owned the leased building, based on Notification No.30/2012-S.T. dated 20.06.2012 and Notification No.45/2012-S.T. dated 07.08.2012. The issue revolved around whether such rental payments fell under the reverse charge mechanism as per entry serial No. 5A of the notification, which specified services provided by a director of a company to the company or body corporate. The appellant contended that renting of immovable property was not covered under this entry as it did not relate to the director's capacity within the company. The appellant relied on a previous Tribunal decision to support their argument.

The respondent, on the other hand, supported the findings of the adjudicating authority, asserting that the rental service provided by the directors should be subject to service tax under the reverse charge mechanism. However, the Tribunal, upon careful consideration of the submissions and records, found that the rental payments for the leased premises were made in the directors' individual capacity, not in their capacity as directors of the company. The Tribunal referred to a previous order where a similar issue was addressed, emphasizing that services covered under the reverse charge mechanism were those provided by directors to the company in their capacity as directors, such as director fees or seating fees.

The Tribunal highlighted that the rental payments for immovable property did not fall under the scope of services covered by the notification, as they were not provided in the directors' capacity as company directors. The Commissioner (Appeals) had erred in assuming that the directors were providing the rental service as directors of the company. The Tribunal concluded that the appellant should not be liable to pay service tax under the reverse charge mechanism for the rent paid to the directors. The impugned order was set aside, and the appeal was allowed based on the precedent set by the previous Tribunal decision with identical facts and issues.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the issue was no longer res-integra based on the previous decision, and the rental payments for immovable property made to the directors in their individual capacity were not subject to service tax under the reverse charge mechanism. The impugned order was overturned, and the appeal was allowed.

---