INPUT CREDIT

[janakiram g]

Sir /Madam
Our company ( general insurance company ) taken office premises on rent. At the time of agreement, there was no mention of ST on rent. Susequently, landlord ( service provider ) has become Assessee for ST and has obtained registration certificate in the month of Dec 2013. Landlord was asked to pay ST from the year 2010 and he has informed us that he has paid ST for earlier years. Now, landlord asking us to pay ST on rent from 2010. I need clarification on the following 1. can we pay ST for earlier years. Is it in order to pay ST for earlier years when he has obtained registration cerficate in 2013. 2. Rental Agreement is silent on ST portion on rent. In that case, do we need to pay ST. 3. In case, ST needs to be paid, what are documents needs to be obtained. How to verify that landlord has paid ST for earlier years ie from 2010. 4. If ST is required to pay for earlier years as well as for current year, can we claim ST amount as input credit. Is there any time limits for claiming input credit. I was informed that input credit on rent paid for premises needs to claimed within 6 months from date of invoice raised by service provider. Is it correct. In that case, if we pay ST pertaining to 2010, can we claim as input credit

 

[YAGAY andSUN]

Dear Janakiram,

Please have discussion with you landlord on following aspects, viz:-

1. That whether they have been audited and issued a Show Cause Notice for the material period?
2. Why they had not charged and paid the service tax on renting of immovable property?
3. When they were liable to pay the service tax since 2010, then, why did they get the registration in 2013?
4. Whether they had paid the property tax on such rented property? If yes, then, the amount paid as property tax needs to be deducted from the amount of rent charged equally monthly basis for calculation of Service Tax.

Further, in our opinion you are liable to pay the service tax to the land lord as it is a statutory dues (even if, there is no mention about the specifically mentioning of the levy of service tax in the agreement) and legal position in this regard has been settled. However, you are not required to pay the interest levied and penalty imposed by the Department, if any.

Please refer the above point no.1, that if any show cause notice has been issued to your landlord and after this event, if he is asking for payment of service tax, then, you cannot avail the CENVAT credit on input services, 'Renting of Immovable Property Services' as such amount is credited into the Consumer Welfare Fund account. You can negate to pay the service tax amount on this aspect that you are not going to avail the CENVAT credit due to his fault (as your land lord had not paid the Service Tax to the exchequer) and this would be an extra on you.

The availment of CENVAT credit within 6 months, is a condition which is going to be applicable from 1st September 2014. [ refer Notification No.21/2014-CE (N.T.)].

Please do contact us in case you need a written opinion on this matter. We charge nominal fee for disseminating our opinions. Through our written opinion you may either get rid of this potential liability or effectively negotiate with your landlord to minimize the impact of the same.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

As per Section 67 (1) of Finance Act, 1994in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. Therefore the gross amount charged by your land lord, that is the amount of rent charged from you is inclusive of service tax payable since the contract does not contain a clause regarding service tax, that is, service tax payable is extra. Therefore your land lord cannot demand the service tax paid by him from you. When service tax was demanded by the department he should have informed the department that as per the agreement the rent charged is inclusive of service tax and service tax liability is to be worked out backwards.

Regarding input service credit, if the department, while demanding service tax payable by your land lord invoked Section 78 (1) of Finance Act read with rule 9 (1) (bb) of Cenvat Credit Rules, 2004 then you cannot avail the credit of service tax paid as input service credit

[YAGAY andSUN]

Dear Janakiram,

Section 67 (1) pertains to valuation of taxable services and enumerates as mentioned below: -

67. Valuation of taxable services for charging service tax

(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall, -

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

It means that if amount is paid in money then on the gross amount of such consideration service tax would be payable or if provision of service is for a consideration which is wholly or partly in money then such amount in money plus money equivalent to such consideration and even if when such consideration is not measured in money the value of such services would be determined in prescribed manner.

Section 67 (1) no where enumerates that gross amount mean inclusive of service tax.

However, Section 67 (2) describes that (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.

But here the issue is, the agreement/Contract itself does not stipulate any such term and condition (either in expressed or implied) about the charge ability of service tax by service provider on service recipient in this matter.

You are left with the only option to discuss it with service provider and negotiate with him.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[YAGAY andSUN]

Dear Janakiram,

We are appending a relevant judgment for your kind perusal. It was held in this matter that whether it is mentioned or not in agreement/contract, the service tax is payable by the service recipient to service provider.

This is for your kind consideration.

Regards

Team YAGAY and SUN

(Manangment and Indirect Tax Consultants)

Delhi High Court

M/S Meattles Pvt. Ltd. vs Hdfc Bank Limited on 19 October, 2012

AI Summary

Service tax liability on rented premises may fall on the recipient even if the lease is silent, affecting input credit entitlement. Service tax on rented office premises may be treated as a statutory liability of the recipient where the landlord did not separately charge tax; valuation rules determine whether quoted rent is inclusive of tax and deductions for property tax affect the tax base. If the landlord is assessed for prior periods after belated registration, recovery actions can preclude the recipient from claiming CENVAT credit on renting services. Recipients should obtain the landlord's registration proof, tax payment evidence and invoices, and negotiate allocation of tax and credit entitlement before disbursing past-period tax.