Liability to pay service tax on renting of immovable property contested; ledger evidence and residential renting exemption led to demand reduction and appeal success

Liability for service tax on renting of immovable property was contested where alleged omissions in ST-3 returns contrasted with profit and loss entries. Authorities reduced an initial demand after considering ledger evidence showing residential quarters rentals and non-residential receipts; residential rentals fell within the negative-list exemption for renting of residential dwellings, removing tax liability on those amounts. A notional rental computation for a later quarter was rebutted by accounting entries demonstrating actual residential and non-residential allocation. No cogent material was found to establish deliberate suppression of facts; consequently the impugned confirmation of demands lacked substantiation and the appeal succeeded.

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Issues: Whether the appellants are liable to pay service tax and associated interest and penalties in respect of alleged suppression of rental income from renting of immovable property for Financial Years 2014-2015 to 2017-2018 (upto June 2017), or whether the demands and penalties confirmed by the authorities below should be set aside.

Analysis: The Tribunal examined the SCN, the original adjudication order and the impugned appellate order, and analysed the financial records, ST-3 returns, ledger particulars and the CERA audit findings. The authorities below had initially treated large portions of rental receipts as taxable, allowing a revaluation by the original authority which reduced the demand to Rs.91,605. The Tribunal found that substantial amounts of the differential rental income were receipts from residential quarters recovered from staff at the Sikkim project and therefore fall within the negative-list exemption for "services by way of renting of residential dwelling for use as residence" under clause (m) of Section 66D of the Finance Act, 1994 and Notification No.12/2017-Central Tax (Rate). The Tribunal further found that the department did not establish deliberate suppression: the appellants had produced detailed ledger entries and financial records accounting for the rental receipts, and the CERA auditors had access to those records when raising objections. The notional figure used for FY 2017-18 was unsupported and the alleged suppression was not substantiated by the authorities below. On these bases the Tribunal concluded that the impugned appellate order erred in upholding confirmation of the adjudged demands and penalties without proper substantiation.

Conclusion: Appeal allowed; the impugned order dated 27.06.2024 is set aside and the appellants' challenge to the service tax demand, interest and penalties is upheld in their favour.

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