Service tax on royalty collection dropped as recipient government department not engaged in business activities

CESTAT NEW DELHI dismissed appeal regarding service tax recovery on royalty collection and hotel rent. Tribunal held that service tax under Business Auxiliary Service category applies only when service relates to recipient's business. Since appellant collected statutory levies for government department/NHAI (not engaged in business), no service tax liability arose on royalty amounts above bid price. Demand of Rs.21,87,591 was dropped. For hotel rent service tax demand, appellant received exemption benefits under relevant notifications, reducing liability to Rs.98,933 only. Appellant had already paid Rs.8,14,094, leaving balance of Rs.98,933 plus interest payable. No penalty imposed.

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Issues:
Demand of service tax on royalty collected over bid amount, demand of service tax on rent amount received for hotel premises, applicability of cum-tax benefit, invocation of extended period of limitation.

Analysis:
The appellant appealed against an order confirming a demand of service tax of Rs.32,25,831 under Section 78 of the Finance Act, 1994, along with penalties and interest. The appellant participated in bids by the Mines & Geology Department for collecting royalty. The appellant did not pay service tax on the profit collected above bid amount, believing no service was provided. The appellant also rented out a hotel premise without paying service tax on rent before July 2012. A show cause notice proposed service tax demands for various periods. The Tribunal dropped the demand for service tax on renting immovable property before July 2012 and notional interest. However, the demand for service tax on excess royalty and rent was confirmed, totaling Rs.10,38,240.

Regarding the demand for service tax on royalty, the appellant cited a previous Tribunal decision that no service tax is leviable on collecting amounts above bid amount for government departments not engaged in business. The Tribunal found the demand unsustainable and dropped the demand of Rs.21,87,591. For the demand on rent from July 2012 to March 2014, the appellant claimed cum-tax benefit and exemption under a notification. The Tribunal confirmed a demand of Rs.98,933, as the appellant had already paid Rs.8,14,094. No penalty was imposed on the appellant. The appeal was disposed of accordingly.

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