payment of service tax on renting of immovable property by main company.

[samiuddin ansari]

Dear panel members,

My friends company 'A' engaged in manufacture of ball bearing and more 80% are of export. During the course of audit of company 'A', Audit team has observed that the said company were in lease agreement with company 'B' ( having same Board of Director's of 'A' company) inlcuding plant and machinery especially for job-work process for 'as is where is basis' with a condition to pay ₹ 15 lakhs quarterly to company 'B'. Hence, Audit team, has instructed to pay up the service tax on such amount. Since, accounting of the said 'B' company is being handled at company 'A'. The company 'A' had shown his willingness to pay up the same and accordingly they paid the same on behalf of company 'B'. My point is whether company 'A' can pay up the tax dues of company 'B' , where in fact status of the company 'B' is closed in official web site of Ministry of Company affairs. The Govt. is receiving revenue irrespective of whether from company 'A' or company 'B'. Since, the payment has already been made by company 'A' on behalf of company 'B' due to shortage of fund, again, the audit team is stressing upon to pay up the same from Company 'B' only. Please through some light with supportiveTribunal judgements or Board's circular or clarification on such issue.

[KASTURI SETHI]

'A' cannot pay Govt. dues on behalf of 'B ' irrespective of the status with Ministry of Company Affairs. As per Section 68 (1) of the Finance Act, Service Provider is to discharge the liability and not anybody else. No agreement can be executed in violation of Finance Act. The department is very much right on this ground. When law is very much clear on the issue, even case laws, if any, will not be helpful to you. Each and every case has different facts and circumstances. The department is so strong on merits that it will fight up to last. The ground of closure will not help. . There are case laws wherein main contractor has paid ST on behalf of sub-contractor. Here is not that situation. These are my views.

[samiuddin ansari]

Sir, there is no activity by company "B" as plant n machinery including premises have now been under the control of Main Company"A". The first Director who is also a 40% share holders in both the company. If department issue notices again the is to be paid by him. Company "B" has already closed his business and they do not have registration woth Service Tax and now no fresh registration for Service Tax is being issued by the Department. I think Section 11 of C.Ex.Act, 1944 as provisions applicable to service tax also, will clearly applicable, its my view that considering this provision they might have paid. Pl. give more clarity on this issue as Govt.has already received its due from Company "A" voluntarily for company "B". Now again stressing upon the same will create additional working capital burden on same owner of both the company.

[KASTURI SETHI]

Dear Querist,. Section 11 of Central Excise Act is not applicable. It was not applicable even before the implementation of GST Acts. Section 11 stands omitted. Section 87 of the Finance Act is for recovery of Service Tax dues. Pl.go through the provisions of Section 87 and then discuss on this forum for the possibility of way-out to your problem, if any.

[KASTURI SETHI]

When any Act has its own provisions, it does not borrow or take shelter from other Acts.

AI Summary

Service provider liability requires the named provider to bear service tax obligations, third party payments do not discharge statutory liability. The service provider remains the primary person liable to discharge service tax; third party payments do not substitute for statutory liability. Recovery provisions permit the department to pursue the registered provider for unpaid dues even if a related party has paid on its behalf, and administrative closure or lack of registration does not automatically negate the provider's liability.