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of <h1>MoU funding for sugar mill modernization and power/bagasse benefits held not taxable as 'renting'; service tax demand set aside</h1> Service tax was demanded under 'Renting of Immovable Property' on a sum received under an MoU for modernization/upgradation of a sugar mill. The Tribunal ... Levy of service tax on amount received in terms of MoU for Modernization and upgradation of Sugar Mills - Renting of Immovable Property service - reliability on Circular No.151/2/2012-ST - HELD THAT:- It is found that as per the MoU entered into between the appellant and M/s SIL, the amount of Rs. 2 crores was paid by the M/s SIL to the appellant, which is not a consideration for provision of any service much of leasing of 2 acre land but for upgradation of machinery and plant out of which M/s SIL was to drive compensatory benefits by way of sparing of more quantity of electric energy which was to be sold by M/s SIL and getting bagasse for use by M/s SIL. It is also found that in the present case, no service can be said to have been provided as the project never took-off and the appellant has initiated arbitration proceedings against M/s SIL for violation of the MOU; at the most, the arrangement between the appellants and SIL was in the nature of a joint venture and therefore, there is no component of service between the two parties. In the case of M/s Fazilka Corporative Sugar Mills Ltd. [2024 (3) TMI 1231 - CESTAT CHANDIGARH], the Department sought to demand service tax under the category of business support service which was also rejected by the Tribunal - It is also found that the arrangement between the appellant and M/s SIL was in the nature of a joint venture and therefore, there is no component of service between the parties. The demand of service tax under the category of “Renting of Immovable Property” under Section 65(105)(zzzz) on the amount received in terms of MoU for modernization and upgradation of sugar mills is not sustainable in law - Appeal allowed. Issues: Whether the demand of service tax under the category of 'Renting of Immovable Property' under Section 65(105)(zzzz) on amounts received under a MoU for modernization and upgradation of a sugar mill is sustainable.Analysis: The payment received pursuant to the MoU was for upgradation and modernization of the sugar mill and served as an advance for capital improvement rather than consideration for leasing or provision of any service. The project did not proceed and arbitration was initiated, indicating absence of any performed service. The arrangement between the parties had the character of a joint venture, negating a service-provider–service-recipient relationship. Reliance placed on Circular No.151/2/2012-ST and departmental classification as 'Renting of Immovable Property' or as 'Business Support Service' was examined against the factual matrix and the separate lease instrument fixing a nominal annual rent; the substantive transaction was the advance for modernization, not a rental service.Conclusion: The demand of service tax under Section 65(105)(zzzz) on the amount received under the MoU is not sustainable and the appeal is allowed in favour of the assessee.Ratio Decidendi: A payment characterized and paid as an advance for capital upgradation where no service was performed and the arrangement was effectively a joint venture does not constitute consideration for 'renting of immovable property' under Section 65(105)(zzzz) and therefore does not attract service tax.
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