2025 (10) TMI 1037 - AT - Service Tax

Excess service tax on immovable renting can be adjusted or refunded; specific reimbursements and pre-July 2010 charges disallowed

CESTAT KOLKATA - AT held that the appellant's excess service-tax payments under renting of immovable property (Rs.89,303) may be adjusted against ... Denial of CENVAT Credit - Renting of immovable property service - interest on delayed payment confirmed in respect of ‘renting of immovable property service - Management, maintenance and repair service - Maintenance Deposits on the advances received from service recipients during the period 2008-09 to 2009-10 & 2011-12 - Demand confirmed on account of non-payment of Service Tax on recovery of Charges for distribution of Electricity - Non-payment of Service Tax on Construction of Residential Complex Service (Administrative Cost) - Service tax liability on the advances received - Construction service provided prior to July 2010 - Amounts towards cancellation of cheque and flat cancellation. Renting of immovable property service - period FY 2007-08 to June, 2011 - HELD THAT:- The appellant has made an excess payment of service tax amounting to Rs.89,303/- during this period, under the said category. It is found that the excess payment made by the appellant has been acknowledged by the ld. Adjudicating authority in paragraph 4.4.1. of the impugned order. The appellant has requested for allowing adjustment of the above excess payment made in respect of their liability under the above category against other confirmed demands, if any - the appellant has rightly paid Service Tax under the category of ‘renting of immovable property service’ and the excess payment made by the appellant under this head can be adjusted against the Service Tax liability payable, if any, confirmed by way of this order. Interest on delayed payment confirmed in respect of renting of immovable property service - HELD THAT:- The interest has been rightly paid by the appellant in this regard. However, considering the prayer made by the appellant, the excess payment made by the appellant against such interest liability is allowed to be adjusted against other interest liabilities, if any, arising out of this order. Management, maintenance and repair service - HELD THAT:- It is seen that the amount received under this category is nothing but reimbursement of expenses from the tenants towards the repairs and maintenance charges on actual basis, for the works carried out on the rented property. Thus, no service tax is leviable on this amount since, the reimbursements have been made on actual basis - the demand of Service Tax confirmed under the above category, on reimbursements of expenses, is not sustainable. Accordingly, the same is set aside. Regarding the aspect of leviability of interest on this score, as the demand itself does not survive, the question of demanding interest does not arise at all. Maintenance Deposits on the advances received from service recipients during the period 2008-09 to 2009-10 & 2011-12 - HELD THAT:- It is observed that such maintenance deposit taken from the intending purchaser/buyer is nothing but advance deposit towards Sinking Fund/Development Fund, which is ultimately handed over to the association/society, once the building is handed over to the association/society. The said fund is utilized for any unforeseen expenses, which might be borne by the society at a later point of time, owing to aging of the building. Accordingly, the said deposit does not attract service tax. Such amounts are mere deposits as is visible from the agreements entered into by the Appellant - the appellant’s submission in this regard also noted that the said amount has either been refunded to the flat owners or has been transferred to the residential welfare society. There is no evidence brought on record that such amounts have been utilized by the appellant. Accordingly, such deposits cannot be treated as consideration received for any taxable service. Demand confirmed on account of non-payment of Service Tax on recovery of Charges for distribution of Electricity - HELD THAT:- It is a fact that the electricity charges have been realized from the tenants is on actual basis. It is also a fact on record that there is a main meter installed in the name of appellant and from where sub-meters are installed to the individual premises of the tenants and on the basis of actual unit consumption so recorded including fixed charges due proportionately, the amount is realised and deposited with the electricity licensee within the State. It is observed that the Department has not alleged that the appellant has charged the electricity charges over and above what has actual been recorded in the energy meter. Thus, the electricity charges have been collected and deposited by the appellant as a ‘pure agent’ and hence, under such circumstances, the demand confirmed on account of this receipt is not sustainable - the demand confirmed on account of receipt of electricity charges is not sustainable and hence set aside. Non-payment of Service Tax on Construction of Residential Complex Service (Administrative Cost) - HELD THAT:- There is no evidence brought on record that the appellant has actually received this amount of ₹15,00,000/- towards administrative cost. The appellant has submitted before us that till date there is no receipt of this amount since the appellant and the said other party, with whom they entered into an agreement, went into a dispute and the project was never completed. Since there was a dispute and the project has not been completed, the incidence of tax never arose. Thus, there is no liability of service tax arising on this count. Service tax liability on the advances received - HELD THAT:- The advance received prior to July, 2010 are completely excluded from levy of Service Tax vide Notification No. 36/2010-S.T. dated 28.06.2010. It has been pointed out by the appellant that the demand has been confirmed on the advance of Rs.8,61,17,691/- received by them prior to July, 2010, due to a mere mismatch/typographical error. In support of their claim, the appellant submitted a Certificate from the Chartered Accountant and summary of the ledger account. Thus, in view of the above factual scenario and by relying on the Certificate issued by the Chartered Accountant, it is held that the demand confirmed on this count cannot be sustained. Construction service provided prior to July 2010 - HELD THAT:- The appellant has cited the Board Circular No. 151/2/2012-ST dated 10.02.2012 which has clarified that for the period prior to 01.07.2010 construction service provided by the builder/developer will not be taxable, in terms of Board's Circular No. 108/02/2009-ST 29.01.2009 - On going through the relevant point of the Chartered Accountant’s certificate dated 18.06.2025 furnished by the appellant in this regard. From the above, it is found that the said construction service provided prior to 01.07.2010 cannot be leviable to Service Tax. Accordingly, the Service Tax demand confirmed to this extent stands set aside. Amounts towards cancellation of cheque and flat cancellation - HELD THAT:- The appellant has substantiated their said plea by way of a Chartered Accountant’s certificate dated 18.06.2025 wherein at point (3), it is mentioned that “A sum of ₹3,593,727/- is reflected in the books relates to cancellation of cheques and credit note issued on account of cancellation of flat which should not form part of Advances against flat.”. As there is no service rendered in connection with the said amount received, on account of cancellation of cheque/flat, we hold that the said amount is not includable for the purpose of computation of their Service Tax liability in this regard. Hence, the demand of Service Tax confirmed on this count is set aside. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the service tax liability for renting of immovable property for FY 2007-08 to June 2011 was correctly determined on accrual/receipt basis and whether excess tax and excess interest paid by the appellant are available for adjustment. 2. Whether interest on delayed payment of service tax for periods prior to amendment of Rule 6 of the Service Tax Rules, 1994 (Notification 3/2011 dated 01.04.2011) is leviable. 3. Whether amounts characterized as reimbursements for maintenance, repair and management services (claimed on actuals) are includible in taxable value or excludible as pure reimbursements (and whether Rule 5(1), Service Tax Valuation Rules, 2006 is applicable/valid in that context). 4. Whether maintenance deposits (sinking/development fund held as advance and later refunded or transferred to society) attract service tax as consideration for a taxable service. 5. Whether electricity charges collected from tenants on the basis of a main meter and sub-meters (and deposited with the electricity licensee) are includible in taxable value or are recoveries by a 'pure agent' and hence excludible. 6. Whether administrative income of Rs.15,00,000 (project administration fee) attracts service tax where there is no actual receipt due to non-completion/dispute of the project and entries are only journal entries. 7. Whether advances/receipts relating to construction activity prior to 01.07.2010, cheque/flat cancellation receipts, and sale of investment property are taxable as advances/consideration for taxable services for FY 2011-12; and the correct method to compute taxable advances for FY 2011-12 (opening/closing balance / netting). 8. Whether interest liability on 'builder's special service' (demand admitted/paid and appropriated) can be waived. 9. Whether alleged inadmissible CENVAT credit (reversal demand) in relation to renting and maintenance services was properly disallowed by the adjudicating authority. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Renting of immovable property: tax basis and adjustment of excess payments Legal framework: Charging provisions for renting of immovable property service; principles of taxation on receipt basis applicable for the relevant period; procedural entitlement to adjust excess tax/interest paid. Precedent treatment: The adjudicating authority acknowledged excess payments in its order. Interpretation and reasoning: The Tribunal observed documentary/challan evidence showing excess payment of service tax (Rs.89,303) and excess interest (Rs.73,014) acknowledged in the impugned order. The Court accepted the appellant's contention that those amounts were in fact paid and available for adjustment. Ratio vs. Obiter: Ratio - excess payments proved by records can be adjusted against other confirmed liabilities; Obiter - none. Conclusion: Demand for service tax under renting of immovable property upheld on merits as to liability, but excess tax and excess interest paid by appellant are allowed to be adjusted against other liabilities arising from the order. Issue 2 - Liability for interest for period prior to amendment of Rule 6 Legal framework: Rule 6 of Service Tax Rules (pre- and post-amendment) and statutory scheme for interest on delayed payment. Precedent treatment: Appellant urged that amendment changed the provision and retrospective interest demands are unsustainable. Interpretation and reasoning: The Tribunal examined the contention but found no justification to quash the interest demand for the relevant period. No legal infirmity in demanding interest was accepted; however, acknowledged excess interest payment permitted to be adjusted. Ratio vs. Obiter: Ratio - interest for delay as levied by adjudicating authority was sustained; Obiter - the amendment argument was considered but rejected on facts/law of the case. Conclusion: Interest demand sustained; excess interest already paid is allowed to be adjusted against other interest liabilities arising out of the order. Issue 3 - Management, maintenance & repair reimbursements; validity/application of Rule 5(1) V.R. 2006 Legal framework: Section 66/67 charging and valuation scheme; Rule 5(1) of Service Tax Valuation Rules, 2006; principle that only consideration for taxable service is includible in value; concept of reimbursements/pure agent treatment. Precedent treatment: Reliance on Delhi High Court finding that Rule 5(1) is ultra vires insofar as it seeks to include reimbursements/costs beyond consideration for the taxable service; subsequent affirmation by the Supreme Court. Interpretation and reasoning: The Tribunal followed the Delhi High Court's reasoning (and its affirmation) that valuation must be limited to the consideration for the taxable service and that Rule 5(1) cannot be used to include expenditures/reimbursements that are not consideration for the service. The amounts in issue were reimbursements on actuals for repairs and maintenance; records showed such reimbursements were passed on and incurred on behalf of tenants. Ratio vs. Obiter: Ratio - reimbursements made on actuals for maintenance/repairs are not includible in taxable value; Rule 5(1) cannot be applied to tax such reimbursements. Conclusion: Demand of service tax (and interest) on maintenance reimbursements set aside. Issue 4 - Maintenance deposits (sinking/development fund) as non-taxable advances Legal framework: Definition of consideration and taxable service; treatment of deposits/refundable advances; contractual stipulations showing purpose and ultimate transfer/refund. Precedent treatment: Reliance on Tribunal precedent holding such deposits not liable to service tax, and Supreme Court guidance in related matters.] Interpretation and reasoning: The agreements and ledgers showed deposits were sinking/development funds intended to be handed over to association/society or refunded and not utilized by appellant as consideration for services. No evidence that appellant appropriated these funds as consideration for any service. Ratio vs. Obiter: Ratio - deposits held as sinking/development funds and refunded/transferred are not consideration for taxable services and are not taxable. Conclusion: Demand on maintenance deposits set aside. Issue 5 - Electricity charges collected on actual meter readings: pure agent / excludible recovery Legal framework: Principle that amounts collected as pure agent/reimbursable charges are not part of the taxable value; Intercontinental and Tribunal decisions on reimbursements. Precedent treatment: Reliance on Tribunal decision (TICEL Bio Park) and Intercontinental line of authority excluding reimbursable charges from taxable value. Interpretation and reasoning: Facts showed main meter in appellant's name, sub-meters to tenants, amounts collected purely on actual consumption and deposited with electricity licensee; no allegation of overcharge. On these facts, amounts operate as pure reimbursements and are excludible from taxable value. Ratio vs. Obiter: Ratio - electricity charges collected and passed on on actuals as pure agent are not includible in taxable value. Conclusion: Demand on electricity charges set aside. Issue 6 - Administrative income (project administration cost) not received; tax incidence Legal framework: Tax incidence arises on receipt/consideration for taxable service; evidence of actual receipt necessary to trigger liability. Precedent treatment: Adjudicating authority had noted absence of sundry debtor entry and only journal entry existed. Interpretation and reasoning: No evidence of actual receipt of Rs.15,00,000; project not completed; parties in dispute; ledger/schedules did not reflect sundry debtor. Where no receipt has occurred, incidence of tax does not arise. Ratio vs. Obiter: Ratio - absence of receipt/realization means no service tax liability crystallized. Conclusion: Demand on administrative income set aside. Issue 7 - Advances and pre-01.07.2010 construction receipts; computation of taxable advances for FY 2011-12; cheque/flat cancellations; sale of investment property Legal framework: Notification excluding advances received prior to 01.07.2010 (Notification No.36/2010), Board circulars clarifying non-levy for construction services prior to 01.07.2010, and accounting/netting principles for computing taxable advances. Precedent treatment: Reliance on Board circulars and chartered accountant certificates tendered to show misclassification/mismatch and items not forming advances for taxable purpose. Interpretation and reasoning: Documentary/CA certificate showed (a) certain advances related to periods prior to 01.07.2010 and hence excluded; (b) cheque/flat cancellation amounts were not consideration for any service and should not be included; (c) sale of investment property was a sale transaction (no service element) and wrongly included as advances; and (d) net taxable advances for FY 2011-12 must be computed by taking difference between closing balance as on 31.03.2012 and opening balance as on 01.04.2011 - matter remanded to adjudicating authority for computation on this basis. Ratio vs. Obiter: Ratio - advances/receipts prior to 01.07.2010 not taxable; cancellation receipts and sale of investment property not includible; netting principle for taxable advances (opening vs closing) adopted for remand. Conclusion: Demands set aside in respect of specified pre-July-2010 advances, cancellation amounts, sale proceeds; remand ordered to compute net taxable advances for FY 2011-12 per CA certificate and netting principle; any tax already paid to be adjusted accordingly. Issue 8 - Interest on 'builder's special service' where demand not contested Legal framework: Interest liability flows from admitted/confirmed demand; entitlement to waiver considered on merits. Precedent treatment: Appellant did not contest the principal demand but sought waiver of interest. Interpretation and reasoning: No merit in waiver plea; interest payable as applicable; however, any excess interest payments admitted earlier may be adjusted against this liability. Ratio vs. Obiter: Ratio - interest on admitted/confirmed builder's special service demand cannot be waived absent compelling cause; appropriate adjustments may be made against excess interest previously paid. Conclusion: Interest demand on builder's special service upheld; adjustment permitted against earlier excess interest payment. Issue 9 - Alleged inadmissible CENVAT credit Legal framework: CENVAT credit rules; entitlement requires compliance and reasoned disallowance by adjudicating authority. Precedent treatment: Appellant argued credits were correctly availed; impugned order disallowed without stated reasons (as per appellant's plea). Interpretation and reasoning: The adjudication record shows submission and challenge, but the appellate order does not expressly adjudicate the CENVAT reversal in detail or provide a definitive finding addressing admissibility with reasons. Ratio vs. Obiter: Obiter - appellate remarks do not contain an explicit reasoned determination on the CENVAT reversal; matter requires specific adjudication if dispute persists. Conclusion: No conclusive finding recorded in the appellate order on the disputed reversal of CENVAT credit; issue remains subject to adjudicating authority's further consideration if pressed.