2025 (11) TMI 946 - AT - Service Tax

Service tax held payable on lease premium, rent and commercial parking; penalty and late fees upheld under Section 77

CESTAT (Allahabad) upheld the impugned order, dismissing the appeal. Service tax was held leviable on lease premium/rent and on commercial parking ... Recovery of service tax with interest and penalty - levy of service tax - lease rent amount - vehicle parking charges and rent received from educational institutions - recovery of interest and penalty. Levy of service tax on lease rent amount - HELD THAT:- There are no merits in the said submission because the Larger Bench of the Tribunal in the case of Rajasthan State Industrial Development & Investment Corporation Ltd. & Others V/s Commissioner of Central Excise & Service Tax [2025 (2) TMI 211 - CESTAT NEW DELHI - LB] while commenting on the Tribunal judgment referred by the Appellant in case of Greater Noida has observed 'The value of “premium” or “salami” is exigible to service tax under “renting of immovable property” for the period prior to 01.07.2012 under section 65(105)(zzzz) of the Finance Act and from 01.07.2012 under section 66B of the Finance Act.' - there are no merits in the submissions made by the Appellant/Counsel for the Appellant in this regard. Demand in respect of the parking chargers - HELD THAT:- The impugned order do not records any adverse findings but has remanded the matter to re-quantify. Even otherwise it is now settled that commercial activities by the Statutory Authorities are subject to Service Tax. The Hon’ble Supreme Court in the case of Krishi Upaj Mandi Samiti [2022 (2) TMI 1113 - SUPREME COURT] has observed that 'Rule 45 provides how the money received by the Market Committees shall be invested and/or deposited. It provides that all money received by the Market Committee shall be credited to the fund called the Market Committee Fund. It further provides that all money paid into the Market Committee Fund shall be credited once a week in full into Government Treasury or sub-treasury, or a bank duly approved for this purpose by the Director and all balance from the fund shall be kept in such treasury or sub-treasury or bank and it shall not be withdrawn except in accordance with the Rules. Therefore, it does not provide that on deposit of the money received by the Market Committees into the Government Treasury/sub-treasury or a bank duly approved, it ceases to be the Market Committee Fund. It will continue to be the Market Committee Fund. Even it is the case on behalf of the appellants that the fees collected, which will be deposited in the Market Committee Fund will be utilized by the Market Committee for expanding/benefit of the Market Committee etc.' In respect of the rent on community centre and rent on commercial services the Appellant do not dispute the demand. They have submitted before the Original Authority and the Adjudicating Authority that they have discharged the Service Tax liability. However, in this regard they failed to provide documents evidencing payment of the tax. For this purpose demand has been confirmed against the Appellant. In case the Appellant have deposited the tax and produced the relevant documents evidencing payment of tax the demand is liable to be reduced to that extent. Levy of Penalty under Section 77 - HELD THAT:- Penalty has been upheld by the impugned order. In this regard there are no merits as the Appellant has indeed not provided the information that was called from them and as many as five correspondences were made. The Order-In-Original specifically reiterates that they have filed their ST-3 Returns in delayed manner and had agreed to pay late fees of Rs.4,000/- in terms of Section 70 of the Finance Act read with Rule 7C of the Service Tax Rules, 1994. Accordingly, the penalty under Section 77(i)(c) and the late fees upheld. There are no merits in the appeal filed by the Appellant and the impugned order is upheld - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether lump-sum amounts received on lease of immovable property (described as 'premium' or 'salami') are exigible to service tax under the charging provisions for 'renting of immovable property'. 2. Whether receipts from vehicle parking charges and park entry fees are taxable as services during the relevant periods and whether any exemptions as a 'governmental authority' apply. 3. Whether rent received from educational institutions is exempt from service tax for the periods in question. 4. Whether show-cause notices for the relevant periods were within limitation under the applicable statutory time-limits. 5. Whether interest under Section 75 and penalties under Sections 76 and 77(1)(c) (and late fees under Section 70 read with Rule 7C) are sustainable given the facts, nature of the assessee, and compliance/culpability. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of lump-sum 'premium' / salami received on lease: legal framework Legal framework: Definition of 'taxable service' and declared services (renting of immovable property) under Chapter V of the Finance Act; Explanation/clauses (including post-2010/2012 amendments) expanding scope to cover vacant land and premium; Section 65/65B/66B/66D/66E as relevant; Transfer of Property Act section 105 definition of 'lease'. Precedent treatment: Earlier decisions (Tribunal decisions like Greater Noida) held premium (salami) not exigible pre-amendment by characterizing premium as distinct 'capital receipt'; High Court and subsequent Larger Bench/Division Bench and Tribunal authority later examined and distinguished these views, with Larger Bench concluding that 'premium' falls within 'renting' and is exigible (including post-1.7.2012 and, in some holdings, prior periods). Interpretation and reasoning: The Tribunal finds that the nature of amounts must be ascertained - premium/one-time receipt, lump-sum lease rent, and conversion charges differ in nature: (i) premium received as consideration for obtaining lease/right (a price paid) may be capital in character but, after statutory amendments and in light of definition of 'renting' (which includes leasing/licensing and consideration), premium is includible in the value of 'renting of immovable property'; (ii) conversion charges (transfer of title to freehold) are not a renting service and are not includable because they effect transfer of title and lack element of service; (iii) lump-sum lease rent paid for use and occupation is revenue in nature and taxable as RIP. Ratio vs. Obiter: Ratio - where statutory definition and amendments cover leasing and the legislative intent/clarificatory notes indicate inclusion of vacant land and premium, premium charged in consideration of lease constitutes value of renting and is exigible. Obiter - factual distinctions as to particular receipts being capital or revenue may vary case-by-case. Conclusions: The Tribunal rejects the submission that lump-sum lease receipts described as premium are wholly not chargeable; only conversion charges (transfer of title) are excluded. The adjudicating authority must examine nature of each receipt and re-quantify demand accordingly; existing precedents are distinguished on temporal and amendment grounds, and the Larger Bench view that premium is exigible is relied upon to uphold taxability for the relevant periods. Issue 2 - Taxability of vehicle parking charges and park entry fees; applicability of 'governmental authority' exemption Legal framework: Mega exemption Notification No. 25/2012-ST and subsequent amendments; definition of 'governmental authority' in notification entries; Supreme Court and High Court guidance on sovereign/statutory functions and 2006 Board Circular; negative list changes effective 1.7.2012 and inclusion of 'access to amusement facilities' as taxable from 1.6.2015. Precedent treatment: Supreme Court guidance (Krishi Upaj Mandi Samiti) clarifies that statutory/mandatory duties performed and fee deposited into government treasury may not be taxable, but discretionary/commercial activities undertaken for consideration and not deposited as statutory fee are taxable; Tribunal and High Court authorities (Greater Noida, others) similarly apply strict construction of exemptions and require assessee to prove fulfilment of exemption conditions. Interpretation and reasoning: The Tribunal notes (i) the exemption is narrowly construed; (ii) the character of the activity - whether statutory/mandatory and fee deposited into Government Treasury - is determinative; (iii) activities that are commercial/discretionary (e.g., letting of property, parking for consideration) fall within taxable services once not covered by the exemption; (iv) temporal rules: parking exemption withdrawn w.e.f. 1.4.2013 (Notification No. 3/2013), and access/admission to amusement facilities became taxable from 1.6.2015, requiring examination of period-wise liability. Ratio vs. Obiter: Ratio - commercial/discretionary activities by statutory bodies are taxable unless the specific conditions of exemption are satisfied; strict construction of exemption notifications is mandated. Obiter - factual directions to re-quantify park entry fee liability where adjudicating authority had accepted taxability only from 1.6.2015 require re-assessment. Conclusions: The Tribunal upholds taxability of vehicle parking charges and park entry fees for the relevant periods subject to re-quantification; the appellant must produce evidence to substantiate claim of governmental authority and statutory nature of the activity - burden is on the assessee and failure to furnish evidence requires remand for de novo consideration. Issue 3 - Rent received from educational institutions: exemption timing and applicability Legal framework: Notification No. 25/2012-ST and amendment by Notification No. 06/2014-ST (11.07.2014) which withdrew exemption for renting of immovable property to educational institutions from specified date; Section 66B/negative list context. Precedent treatment: Tribunal and High Court decisions interpret amendments prospectively and examine effective dates; the impugned order cites amendment withdrawing exemption w.e.f. 11.07.2014. Interpretation and reasoning: The Tribunal finds that the exemption for renting to educational institutions was withdrawn w.e.f. 11.07.2014; therefore rents received from educational institutions during the periods in the show-cause (April 2015-November 2016) are chargeable to service tax. Ratio vs. Obiter: Ratio - withdrawal of exemption by specific notification renders such receipts taxable from the effective date; Obiter - none significant beyond factual application. Conclusions: Rent from educational institutions for the periods in dispute is taxable; adjudicating authority must quantify demand accordingly. Issue 4 - Limitation: validity of show-cause notices Legal framework: Section 73 (limitation) as amended by Finance Act, 2015 effective 14.05.2016 setting thirty-month period for service providers to be served with show-cause notice in certain cases; filing dates of ST-3 returns and dates of issuance of notices. Interpretation and reasoning: The Tribunal examines filing dates of ST-3 returns (Apr-Sep 2015 filed 09.12.2015; Oct 2015-Mar 2016 filed 10.05.2016) and concludes that the show-cause notice was issued within the prescribed period as per amended Section 73; the appellant's time-bar contention is not tenable. Ratio vs. Obiter: Ratio - the show-cause notice was within limitation under Section 73 as applicable; Obiter - none. Conclusions: Limitation objection rejected; demands for the specified periods are maintainable. Issue 5 - Interest, penalty and late fees: sustainability and quantum Legal framework: Sections 75 (interest), 76 (penalty for failure to pay), 77(1)(c) (penalty for failure to produce information/appear), Section 70 read with Rule 7C (late fees); precedents on culpability, bonafide belief and maximum vs. reduced penalty. Precedent treatment: Authorities recognize that penalty under Section 76 can be moderated where assessee is governmental body with bonafide belief; Section 77 demands particulars for imposition; late fees sustained where returns were late and not contested. Interpretation and reasoning: (i) Interest under Section 75 is prima facie payable on amount demanded - Tribunal does not find interest relief warranted. (ii) Penalty under Section 76 is sustainable because service tax was neither self-assessed nor paid; however, considering the appellant is a government body and there was a bonafide belief that lease rent may not have been taxable, imposition of maximum 10% penalty is unjustified - penalty to be re-adjudicated and capped at not more than 2% of the total demand. (iii) Penalty under Section 77(1)(c) for failure to appear/produce information is set aside where adjudicating authority did not specify documents not provided; however elsewhere Tribunal notes multiple correspondence and supports penalty under Section 77(i)(c) in outcome - the impugned order upholds Section 77 in result. (iv) Late fee under Section 70/Rule 7C (Rs.4,000) is accepted where returns were filed late and not contested. Ratio vs. Obiter: Ratio - interest is chargeable; penalty under Section 76 sustainable but quantum can be mitigated for bona fide belief (government body); Section 77 penalty requires specific basis and cannot be imposed without identification of default; late fees valid where returns late. Obiter - direction to re-adjudicate penalty quantum and to verify actual tax payments (TR-6) for potential mitigation. Conclusions: Interest and late fees sustained. Penalty under Section 76 sustainable but remitted to adjudicating authority for re-quantification not exceeding 2% of demand. Penalty under Section 77(1)(c) examined and set aside where not justified on record; the adjudicating authority must specify omitted particulars if penalty to be reimposed. Adjudicating authority to re-quantify demands where taxpayer produces TR-6/challans or evidence of earlier payment or demonstrates cum-tax pricing. OVERALL DISPOSITION / DIRECTIONS TO ADJUDICATING AUTHORITY 1. Remand for de novo adjudication on quantification of demands: separate consideration of premium vs. lease rent vs. conversion/transfer receipts; exclude conversion amounts from RIP tax where they effect transfer of title. 2. Examine and accept cum-tax benefit where amounts received were inclusive of service tax and no intent to evade is demonstrated; verify TR-6/challan evidence of prior payment and reduce demand accordingly. 3. Re-adjudicate penalty under Section 76 with cap at 2% given bona fide belief and status of the assessee; rescind Section 77(1)(c) penalty unless specific omissions are identified and proved; confirm late fees if returns were late and unchallenged. 4. Assess parking and park entry fee liabilities period-wise in light of notification amendments and requirement that exemption conditions be strictly proved by the claimant.