Renting of immovable property and limitation: bona fide dispute over taxability defeated extended-period demand and normal-period recovery.

Lease of closed factory premises, taken as an entirety with land and structures, was treated as taxable renting of immovable property; the claim of exemption merely because the lessor was a State undertaking was rejected, so the levy was upheld on merits. On limitation, the extended period could not be invoked because the taxability of renting of immovable property was under active judicial challenge and the non-payment was found to reflect bona fide belief rather than suppression or wilful intent to evade. Before Section 73(2A) of the Finance Act, 1994, a notice that fails on the extended period cannot be used to sustain the normal-period demand on the same facts.

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Issues: (i) whether lease of the closed sugar factory premises amounted to taxable renting of immovable property so as to attract service tax; (ii) whether the extended period of limitation could be invoked on the facts of the case; and (iii) whether, once the extended period was held not invokable, the demand for the normal period could still survive.

Issue (i): whether lease of the closed sugar factory premises amounted to taxable renting of immovable property so as to attract service tax.

Analysis: The factory premises were leased as an entirety, including land and structures, and the plea that only land was leased was rejected. The claim of exemption on the footing that the appellant was a State Government undertaking was also rejected, as no exemption from service tax was available merely because the lessor was a PSU.

Conclusion: The levy was upheld on merits and the demand was not set aside on this ground.

Issue (ii): whether the extended period of limitation could be invoked on the facts of the case.

Analysis: The relevant period fell within the stage when the taxability of renting of immovable property was under active judicial challenge and uncertainty. In that background, the appellant's non-payment was treated as arising from bona fide belief rather than suppression, fraud, collusion, or wilful intent to evade tax. The ingredients for invoking the extended period were therefore not established.

Conclusion: The extended period of limitation could not be invoked, and the demand for the extended period was set aside.

Issue (iii): whether, once the extended period was held not invokable, the demand for the normal period could still survive.

Analysis: The Tribunal applied the principle that, prior to the insertion of Section 73(2A), once the notice founded on the extended period failed for want of suppression or intent to evade, the normal-period demand could not be separately sustained on the same notice. The retrospective uncertainty surrounding the levy and the timing of the show-cause notice also supported this result.

Conclusion: The normal-period demand also did not survive.

Final Conclusion: The entire confirmed service tax demand was set aside on limitation grounds, and the appeal succeeded with consequential relief as per law.

Ratio Decidendi: Where the notice invoking the extended period is not sustainable for want of suppression or intent to evade, and the case arises before the curative provision in Section 73(2A) of the Finance Act, 1994, the same notice cannot be used to sustain the normal-period demand.

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