2025 (8) TMI 5 - AT - Service Tax

Service Tax Demands on Advocate Expenses and Utility Reimbursements Quashed to Avoid Double Taxation Under Reverse Charge Rule

M/s. Forum Project Holding Pvt. Ltd. Versus Commissioner of Service Tax Audit, Kolkata And Deepak Agarwal-Manager Accounts M/s. Forum Project Holding Pvt. Ltd. Versus Commissioner of Service Tax Audit, Kolkata

The CESTAT Kolkata set aside the service tax demands relating to reimbursement of advocate expenses under reverse charge, holding no fraud or suppression ... Levy of service tax - amount reimbursement of expenses of Advocate - reverse charge mechanism - Liability of service recipient to pay service tax - Service Provider has charged and collected the Service Tax from the appellant - applicability of reverse charge mechanism - Levy of service tax - Reimbursement of electricity charge, water consumption charge, diesel generating charge - Levy of service tax - Sale of immovable property by way of long terms lease for 999 years. Levy of service tax - amount reimbursement of expenses of Advocate - reverse charge mechanism - HELD THAT:- In the instant case, there is no element of fraud, collusion or suppression of facts is present. The appellant has been filing returns regularly and disclosed all information in the returns filed. Therefore, invocation of the larger period is not applicable in this case. In support of this view, reliance placed on the decision of the Hon'ble Apex Court in the case of Jet Airways (India) Ltd. Versus Commissioner [2018 (1) TMI 210 - SC ORDER]. Thus, the demand confirmed on this count is not sustainable and hence the same is set aside. Liability of service recipient to pay service tax - Service Provider has charged and collected the Service Tax from the appellant - applicability of reverse charge mechanism - HELD THAT:- The service provider has charged, collected and paid Service Tax. Therefore, the demand of service tax on the same service again would tantamount to double taxation. In support of this view, reliance placed on the decision in the case of SHREE SAIBABA CHEMICALS INDUSTRIES VS. COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, VADODARA-II, [2025 (3) TMI 383 - CESTAT AHMEDABAD]. Thus, the demand confirmed on this count is not sustainable and hence the same is set aside. Levy of service tax - Reimbursement of electricity charge, water consumption charge, diesel generating charge - HELD THAT:- The appellant states that they have collected the actual amount on the basis of consumption. In support of this claim, the appellant submitted a Chartered Accountant’s Certificate and ledger account, payment particulars. On perusal of the same, it is found that the amount paid by the appellant to the WBSEDCL is more than what is collected. It is also found that that the issue is squarely covered by the decision of this Tribunal in their own group companies appeals, in Forum Mall Management Services Pvt Ltd VS. Commissioner of Service Tax, [2024 (10) TMI 146 - CESTAT KOLKATA]. The same view has been taken in the decision rendered by this Tribunal in the case of M/s. Choicest Enterprises limited Vs. Commissioner of Service Tax, Kolkata [2024 (7) TMI 1533 - CESTAT KOLKATA] - the demand of service tax confirmed on this count is not sustainable and hence we set aside the same. Levy of service tax - Sale of immovable property by way of long terms lease for 999 years - HELD THAT:- The clauses of the agreement clearly indicate that the said agreements were not for 'renting' but for outright transfer of the property. In this regard, we observe that the permanent assignment of commercial space together with proportionate right on leasehold land cannot be called as ‘lease’ and hence it would not fall under the definition of taxable service as defined under Section 65(105)(zzzz) of the Finance Act, 1994 - the demand of service tax confirmed on this count is not sustainable and hence the same is set aside. As the demands of service tax confirmed in the impugned order are not sustained, the question of demanding interest and imposing penalty on the appellant company does not arise and hence the same is set aside - Regarding the penalty imposed on the Manager (Accounts), it is observed that penalty has been imposed on him for his role in the alleged offence. Since the demand of service tax is held as not sustainable, the role of the Manager (Accounts) in the alleged offence is also not established. Appeal allowed. ISSUES: Whether service tax demand under reverse charge mechanism (RCM) on reimbursement of advocate expenses is sustainable, particularly when invoked beyond the normal limitation period.Whether service tax demand under RCM is sustainable when the service provider has already charged, collected, and paid service tax on the same service, raising the issue of double taxation.Whether service tax is payable on reimbursement of electricity charges, water consumption charges, and diesel generating charges collected on actual consumption basis.Whether consideration received on transfer of assignment/sub-lease of leasehold property for a long term (999 years) constitutes taxable 'rent' under Section 65(105)(zzzz) of the Finance Act, 1994, or is exempt as a transfer of interest in property.Whether penalty and interest can be imposed where the underlying service tax demand is not sustainable.Whether penalty imposed on an individual officer (Manager Accounts) is sustainable where the service tax demand is set aside. RULINGS / HOLDINGS: Demand of service tax under RCM on reimbursement of advocate expenses is not sustainable as the situation is revenue neutral and the appellant is entitled to take credit on the same day; further, invocation of the extended period of limitation is not justified in absence of fraud, collusion, or suppression of facts. The demand is therefore set aside.Demand of service tax under RCM where the service provider has already charged, collected, and paid service tax amounts to double taxation and is not sustainable; such demand is set aside.Service tax is not payable on reimbursement of electricity charges, water consumption charges, and diesel generating charges collected on actual consumption basis where the appellant acts as a 'Pure agent' and the amount paid to the supplier exceeds the amount collected; the demand confirmed on this count is set aside.The consideration received for transfer of assignment/sub-lease of leasehold property for 999 years on an outright basis is not 'rent' but a one-time premium or salami, which does not fall under the definition of taxable service under Section 65(105)(zzzz) of the Finance Act, 1994; thus, such demand is not sustainable and is set aside.Since the service tax demands are not sustainable, the corresponding interest and penalties imposed on the appellant company are also set aside.Penalty imposed on the Manager (Accounts) is not sustainable as the underlying service tax demand is set aside and the individual's role in the alleged offence is not established; hence, the penalty is set aside. RATIONALE: The Court applied the provisions of the Finance Act, 1994, particularly Section 65(105)(zzzz) defining taxable services related to renting of immovable property, and Sections 78 and 78A relating to penalty provisions.The Court relied on authoritative precedents, including the Supreme Court decision in Jet Airways (India) Ltd. v. Commissioner, which restricts invocation of extended limitation periods to cases involving fraud or suppression, and the principle that service tax under RCM is revenue neutral if input credit is available simultaneously.The Court emphasized the principle against double taxation, holding that where the service provider has discharged service tax liability, the recipient cannot be taxed again on the same service under RCM.For reimbursement of electricity and related charges, the Court followed prior Tribunal decisions recognizing such reimbursements as payments made by a 'Pure agent,' not constituting a taxable service, and relying on the classification of electricity as goods under tariff laws exempt from service tax.The Court analyzed the nature of the transaction involving long-term leasehold property transfer, distinguishing between 'rent' (periodical payments for use and enjoyment) and 'premium' or 'salami' (one-time payment for transfer of interest), referencing the Transfer of Property Act Section 54 and Supreme Court jurisprudence in Commissioner of Income Tax v. Panbari Tea Co. Ltd., concluding that one-time premium payments are capital receipts not subject to service tax on renting.The Court applied consistent Tribunal rulings, including Greater Noida Industrial Development Authority and Bengal Silver Spring Projects Ltd., affirming that permanent transfer of leasehold rights without reversionary interest does not amount to taxable renting service.Consequently, penalties and interest tied to unsustainable tax demands were held unjustified and set aside, including penalties on individual officers where no culpability was established.