OIO No. 06/STC-AHD/ADC(MKR)/2011-12 Page 1 of 15
BRIEF FACTS OF THE CASE
M/s. K.B.Mall Management Company Limited, located at FP No. 22/22, TPS-18, Kankaria Road, outside Raipur Gate, Behrampura, Ahmedabad- 380022 (hereinafter referred to as “the assessee”) are engaged in providing services as “Maintenance and Repair Service”, and “Renting of Immovable Property Service” which are taxable services as defined under sub Clause (zzg)and (zzzz) respectively of Clause 105 of Section 65 of the Finance Act, 1994.The said service provider, is registered with the Service Tax Department under the categories of “Maintenance and Repair Service”, and “Renting & Immovable Property Service” holding Service Tax Registration No.AACCK4083AST001 under Section 69 of the Finance Act, 1994.
2. The said Service Provider had filed ST -3 returns for the period October- 2008 to March-2009 with the Range office on 25.04.2009. During the scrutiny of the said ST-3 returns by Range office, it was noticed that the said assessee had declared total amount of Rs.3,82,22,284/- for the period from October-2008 to March-2009 against service provided by them under the category of “Renting ofImmovable Property Service” but had not paid service tax on the taxable amount of Rs.3,82,22,284/-which resulted in non payment of Service Tax of Rs.45,96,568/- (Including cess) as under :-
Month / Amt. received against services provided / Service tax payable @ 12% & @ 10% w.e.f 24.02.2009 / Edu. Cess & H.E.Cess payable @ 2% + 1% / Total Ser. Tax Payable10/2008 / 68,23,334/- / 8,18,800/- / 24,564/- / 8,43,364/-
11/2008 / 64,31,894/- / 7,71,827/- / 23,155/- / 7,94,982/-
12/2008 / 63,69,334/- / 7,64,320/- / 22,929/- / 7,87,249/-
01/2009 / 63,69,334/- / 7,64,320/- / 22,929/- / 7,87,249/-
02/2009 / 60,29,134/- / 7,23,496/- / 21,705/- / 7,45,201/-
03/2009 / 61,99,254/- / 6,19,925/- / 18,598/- / 6,38,523/-
TOTAL / 3,82,22,284/- / 44,62,688/- / 1,33,880/- / 45,96,568/-
3. The Government had introduced a levy of service tax on “Renting of Immovable Property Service” vide Notification No. 24/2007 dated 22.05.2007 which came into effect from 01.06.2007 & tax is leviable under sub-clause (zzzz) of clause 105 of Section 65 of the Finance Act, 1994.
Section 65(105)(zzzz) of the Finance Act, 1994 defines the term taxable service for renting of property services as under:
Taxable service means any service provided or to be provided to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce.
Explanation 1- For the purposes of this sub-clause, “immovable property” includes-
(i)building and part of a building, and the land appurtenant
thereto;
(ii)land incidental to the use of such building or part of a
building;
(iii)the common or shared areas and facilities relating thereto;
and
(iv)in case of a building located in complex or an industrial estate,
all common areas and facilities relating thereto, within such
complex or estate,
but does not include –
a)vacant land solely used for agriculture, aquaculture, farming,
forestry,animal husbandry, mining purposes;
b)vacant land, whether or not having facilities clearly incidental
to the use of such vacant land;
c)land used for educational, sports, circus, entertainment and
parking purposes; and
d)building used solely for residential purposes and buildings
used for thepurpose of accommodation, includes hotels,
hostels,boarding houses,holiday accommodation, tents,
camping facilities.
Explanation 2.- For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and
partly for residential any other purposes shall be deemed to be immovable
property for use in the course or furtherance of business or commerce;
4. As per the provisions of the Finance Act, 1994 and rules made there under, the Service Provider was required to assess correct value for the service provided by them as well as to pay service tax on the amount received by them for rendering of Renting of Immovable Property Service on due time as prescribed and to follow all the procedure laid down in the Act and Rules. From the above, it appeared that the said service defined under “Renting of Immovable Property Service” under Section 65 (90a) of Chapter V of the Finance Act, 1994 and the service provided to various clients by the said service provider is taxable service as provided under Section 65(105) (zzzz) of the Finance Act, 1994.
5. In view of the above, it appeared that the said assessee was required to pay the service tax amounting to Rs.45,96,568/- on declared taxable amount of Rs.3,82,22,284/- but they failed to pay the same. Therefore, the service tax amount of Rs.45,96,568/- alongwith interest is to be demanded under the category of “Renting of Immovable Property Service” provided by them during the period from October-2008 to March-2009.
6. On scrutiny of the ST-3 returns, it also appeared that “the assessee” had made a remark as“Following the injunction granted by the Honorable Gujarat High Court and Supreme Court,the Company has not taken service tax on rent as liability”. In this regard it is to state that the department had also filed an appeal before the ApexCourt against the judgment of Delhi High Court in the matter of Home Solution Retail India Ltd. and Ors. Vs. UOI (2009-PIOI-196-HC- DEL-ST).
7. It appeared that the said assessee had failed to pay service tax on the gross amount of renting received by them during theperiod from October-2008 to March-2009 with an intent to evade payment of service tax and therefore, service tax is required to be demanded/recovered from them under Section 73(1) of the Finance Act, 1994 read with Section 68 of the Finance Act, 1994.
8. From the facts mentioned in the above paras, it also appeared that the said assessee had contravened the provision of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rule, 1994 in as much as they had failed to determine and pay the service tax as detailed in above forgoing paragraphs within stipulated time limit, Section 70 (1) of the Finance Act, 1994 read with Rule 7 of the Service Tax Rule, 1994 as amended from time to time in as much as they had failed to self - assess the Service Tax on the taxable value received by them from their clients during the said period.
9. In view of the above, it appeared that the said service provider had contravened the provisions of:
(i)Section 68 of the Finance Act, 1994 read with Rule 6 of the Service
Tax Rules, 1994 in as-much-as they have failed to discharge the
service tax liability correctly and thereby there is non payment/short
payment of service tax amounting to Rs.45,96,568/- (including cess)
as mentioned in foregoing paras for the period from October-2008 to
March-2009 and failed to credit the service tax in Government account
within the stipulated time limit;
(ii)Section 75 of the Finance Act, 1994 in as much as they have failed to
make payment of interest payable on the service tax liability of Rs.45,96,568/- (including cess)
(iii)Section 76 of the Finance Act, 1994, as amended, for failure of timely
payment of service tax as required under Section 68(2) of the said
Act;
10. Accordingly, M/s. K. B. Mall Management Company Limited, were issued a show cause notice bearing F.No. STC-58/O&A/SCN/JC/R-14/D-III/09 dated 24.09.2009 asking them as to why;
(i)The amount of service tax of Rs.45,96,568/- (includingCess +
H.Cess) should not be demanded and recovered from them under
Section 73(1) of the Finance Act, 1994 read with Section 68 of the
Finance Act, 1994, as amended;
(ii)Interest on the service tax amount as applicable should not be
charged upon them under section 75 of the Finance Act, 1994, as
amended;
(iii)Penalty should not be imposed upon them under Section 76 of the
Finance Act, 1994, as amended for contravention of Section 68 of
the Finance Act,1994 read with Rule 6 of the Service Tax Rules,
1994 ; and
(iv)Penalty under Section 77 of the Finance Act, 1994 should not be
imposed upon them for the contravention of Section 70(1) of the
Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994.
DEFENCE REPLY
11.The service provider filed their defence reply vide their letter dated 22.07.2010 and 20.03.2011, wherein they submitted that their company is inter-alia engaged in providing the property on licensing on license basis to various persons. They submitted a specimen copy of the agreement entered into with M/s. Pantaloon Retail (India) Ltd.,(but the same has not been attached with their defence reply). They further submitted that their company has been recovering the rent from the licensees of the properties. They were showing in the invoice the service tax amount in the bills raised on the various licensees, however, the licensees have not paid the said service tax to them. This establishes that they have not recovered the service tax from the licencees.
12.They further submitted that the service tax under the Renting of Immovable Property is levied under section 65(90a) of the Finance Act, 1994 and the taxable services has been defined under section 65(105) (zzzz) of the said Act as follows:-
“(90a) ‘renting of immovable property’ includes renting,letting,leasing,licensing or other similar arrangements of immovable property for use in the course of furtherance of business or commerce but does not include;-
(i)renting of immovable property by a religious body or to a religious body; or
(ii)renting of immovable property to a educational body, imparting skill or knowledge or lessons on any subject or field other than a commercial training or coaching centre.
Explanation1:-For the purposes of this clause, “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings,warehouses,theatres,exhibition halls and multiple-use buildings;
Explanation 2;- For the removal of doubts,it is hereby declared that for the purposes of this clause ‘renting of immovable property, irrespective of the transfer of possession or control of the said immovable property.
Taxable Service
“(zzzz)to any person,by any other person in relation to renting of immovable property for use in the course of furtherance of business or commerce”
Explanation 1-For the purposes of this sub-clause,“immovable property” includes-
(i)building and part of a building,and the land appurtenant thereto;
(ii)land incidental to the use of such building or part of a building;
(iii)the common or shared areas and facilities relating thereto;and
(iv)in case of a building located in a complex or an industrial estate,all common areas and facilities relating thereto,within such complex or estate,
but does not include-
a)vacant land solely used for agriculture, farming,Forestry, animal husbandry, mining purposes;
b)vacant land whether or not having facilities clearly incidental to the use of such vacant land;
c)land used for educational,sports,circus,entertainment and parking purposes;and
d)building used solely for residential purposes and buildings used for the purposes of accommodation, tents,camping facilities.
Explanation 2- For the purposes of this sub-clause,an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course of furtherance of business or commerce.
13.They further submitted that the constitutional validity of the levy of service tax and the fact that the licensing of the premises does not amount to rendering of services was challenged in the New Delhi High Court vide entry No. W.P (C) 3398/2010 has granted the stay on payment of service tax. They attached the copies of the stay orders of Hon’ble Delhi High Court. In view of this interim order and the fact that the said assessee has not recovered the amount from the licencees,they had not deposited the said amount of service tax with the authorities for the period October, 2008 to March 2009. However,they had declared in the ST-3 return that the service tax is not payable as licensing of the premises does not amount to rendering of services.
14.They further submitted that as mentioned above,the retailers Association of India had challenged the constitutional validity and the fact that providing the premises for using does not amount to rendering of services. Hon’ble Mumbai High Court and the other High Courts have granted the interim stay. Thereafter, department had approached Hon'ble Supreme Court and requested that the petitions shall be heard by one High Court. As per the direction of the Supreme Court,all the matters in the various High courts were transferred to Delhi High Courtwho heard the matter. They requested that since the matter was sub-judice, the decision on show cause notice may be kept pending till the Delhi High Court decides the petition.
15.They further submitted that the Delhi High Court has recently held that the licensing of the premises or any other similar arrangement does not amount to rendering of services; that the owner of the premises
when provides the license to use the premises,he does not render any service to the licencees; that the service tax is payable as per Section 66 only when the taxable services have been renderedas defined in section
65(105);that since,the provision of premises for use does not amount to rendering of services,no service tax is payable under section 66; that the detailed judgment in this respect is awaited; that they will make further
submission as and when the detailed judgment from Delhi High Court is available to them.
16.They further submitted that the amount shown in the show cause notice indicates the amount received by the company during the relevant period; that the company has not charged service tax to the service receiver as the company was under a bona-fide belief that no service tax is payable by the company; that the explanation 2 to section 67 during the relevant time read as follows:-
“Where the gross amount not charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable,is equal to the gross amount charged.”;that further, the Hon’ble Supreme court has in the case of Maruti Udyog 2002(141)ELD 003 (SC) has held that amount realized by the company towards the sale of goods should be considered as inclusive of duty & the assessable value should be recomputed. The Hon, tribunal also in the case of Rampur Engineering 2006 (5) STT 386 has held that in the case of service tax also, if service tax is separately recovered from the customer, the value should be considered as inclusive of service tax and the value of taxable services shall be recomputed; that in this case, the service tax has not been separately recovered and therefore the value should be considered as inclusive of duty; that in view of the same, the value of taxable service should be recomputed.
17.They further submitted that Section 80 of the service tax empowers the Commissioner of Central Excise to waive the penalty if theassessee proves that there was a reasonable cause for non payment of service tax; that the words “reasonable cause” has been define as follows:-
“Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides- Azadi Bsachao Andolan \I. Union of India 2001 (116) Texman 2491252 ITR471.
;that there was reasonable cause that the service tax is not payable by the company; that the fact that Mumbai High Court has granted the stay, itself substantiate that it is possible to hold view that tax is not payable; that therefore there is reasonable cause for non-payment of service tax.
18.They further submitted that the issue involved in the instant case relates to interpretation of the definition of the services given in the statute; that the Hon, Tribunal has consistently held that the penalty should not be imposed where the question of interpretation of any statutory provision are involved. The appellants rely upon the following judgment for the above preposition.
Sonar Wires Pvt. Ltd. Vs. CCEx.1996 (87) ELT 439 (T)
Synthetics & Chemicals Limited 1997 (89) ELT 793 (T)
Man Industries Corporation 1996 (88) ELT 178 (T)
Sports & Leisure Apparel Ltd. CCE , Noida 2005 (180) ELT 429
Aquamall Water Solutions Ltd. 2003 (153) ELT 428
Blue cross laboratories Ltd. vide order no. Al1529/C-IV/SMB/2007
In this case, the issue is whether licensing/leasing of the premises is taxable service under section 65 (105)(zzzz). Thus, the issue relates to interpretation of statutory provisions.
19.Lastly they requested to be heard in person before the case was adjudicated.
PERSONAL HEARING
20.Vide this office letter dated 18.07.2010, the service provider was requested to appear for personal hearing on 14.07.2010, but the service provider did not appear for personal hearing. Again vide this office letter dated 28.02.2011, 16.03.2011 & 25.03.2011, the service provider was requested to appear for personal hearing on 09.03.2011, 23.03.2011 or 06.04.2011. Shri Kinjal Jadav, Assistant Manager (Accounts) appeared for personal hearing on 06.04.2011 and reiterated the argument communicated vide their letter dated 23.03.2011.
DISCUSSION & FINDINGS:
21.I have gone through the case records and content of the aforesaid Show Cause Notice, written submission given by the said assessee and record of personal hearing.
22.1I find that the entire show cause notice is based on the short payment of service tax arising on account of non payment of service tax amounting to Rs.45,96,568/- on the value of Rs.3,82,22,284/- which the service provider had declared in the ST-3 returns filed by them for the period from October-2008 to March-2009. The said amount of Rs.3,82,22,284/-was received by the said service provider towards the “Renting of Immovable Property”. I find that the said service provider had not paid service tax on the said amount of rent Rs.3,82,22,284/- in view of the remark passed on the ST-3 return for the period October-2008 to March-2009, which reads as under;-
“Following the injunction granted by the Honorable Gujarat High Court and Supreme Court. The Company has not taken service tax on rent as liability”. In this regard it is to state that the department had also filed an appeal before the Apex Court against the judgment of Delhi High Court in the matter of Home Solution Retail India Ltd. and Ors. Vs. UOI (2009-PIOI-196-HC- DEL-ST).
22.2In view of the aforesaid remark in ST-3 returns and pending decisions of aforesaid cases in various courts, the present proceedings appeared to have been initiated by the department vide impugned show cause notice No.STC-58/O&A/SCN/JC/R-14/D-III/09 dated 24.09.2009.