OIO No. 11/STC-AHD/ADC(MKR)/2011-12 Page 1 of 29
BRIEF FACTS OF THE CASE
M/s,Sarojben Khusalchand & Others situated at C-301, Shiromani Flats, Near Nehrunagar Char Rasta, Satellite Road, Ahmedabad (herein-after referred to as ‘the said Service Provider’) is engaged in the business of Leasing/Renting of Immovable property owned by them, which is located at 1stfloor, Balleshwar Sqaure, Opp. Iscon Mandir, S. G. Highway,
Ahmedabad, and the said activity is taxable under ‘Renting of Immovable Property Service’ as defined under Section 65 of the Finance Act 1994 (as amended) w.e.f 01.06.2007. The abovereferred property has been rented / leased by the said Service provider’s to M/sQatar Airways, who are running/managing Office since January’ 2008.
2. Potential commercial properties like malls, shopping centers, commercial complexes, etc. were identified by the Service Tax, Ahmedabad and a survey of all such identified commercial properties located in the city of Ahmedabad was carried out. During the course of the survey of Balleshwar Sqaure located Opp. Iscon Mandir, Sarkhej – GandhinagarHighway, Ahmedabad, it was found that the Shop/showroom/office located at No.1, 1stfloor of the said Balleshwar Sqaure building, has been rented to M/sQatar Airways, who are carrying out the business of Officein the said showroom/shop/office and the monthly rent of it is Rs.4,89,000/-. On further inquiry, it was found that the said premises is owned by abovementioned Service provider’s individually/jointly and the rent is paid by the rental/lessee to six joint owners.
3. Whereas, the monthly rent of the said property is Rs.4,89,000/-, and considering it from the date of applicability from 01.06.2007, the annual rent for the financial year 2007-08, crosses the exemption limit of Rs. 10 Lakhs provided under Notification No. 08/2008-ST dtd. 01.03.2008, the said Service provider were required to obtain Service Tax registration on receiving the rent of Rs. 9 Lakhs, as per the provisions of Section 69 of the Finance Act, 1994 and pay Service Tax at the applicable rate. However, during the course of survey, it was found that the said Service provider has not obtained Service Tax registration andthey have failed to pay the amount of Service Tax payable by them at the applicable rate on the grounds that the abovementioned property owned by them jointly and the rent is collected by them equally or on share of ownership basis and the rent received by them individually is below the value based exemption limit as provided under Notification No. 06/2005-ST dtd. 01.03.2005 as amended.
4. It appeared that, the service of ‘Renting of Immovable Property Service’ is an indivisible service and the fact that the immovable property is owned by more than one individual does not mean that the indivisible service is also to be treated as more than one service depending upon the
number of persons who own the immovable property. In case where the property is collectively own, the service provider is to be treated as a single person for the purpose of levy of Service Tax, since service provided is a single service and the recipient of service is also treated as single person. In case the recipient of such service divides the total consideration and makes separate payments to individual owners does not obviate the fact that the service provided is a single service. In all such cases the Service provider is treated as a single person and the turner limit of Rs. 10 Lakhs is only applicable by treating the total amount received as taxable value. Where the immovable property is collectively owned, for the purpose of service tax the association of persons is treated as a single service provider.
5. Therefore, in view of the above provisions, the Service Tax liability of the said Service provider is as under:
Financial Year / Taxable value i.e total rent collected / Service Tax payable / Edu. Cess payable / H. Edu. Cess payable / Total Service Tax Payable01.06.07 to 31.03.08 / 14,67,000/- / 1,76,040/- / 3,521/- / 1,760/- / 1,81,321/-
2008-09 (Upto Sept. 08) / 29,34,000/- / 3,52,080/- / 7,042/- / 3,521/- / 3,62,643/-
TOTAL / 44,01,000/- / 5,28,120/- / 10,563/- / 5,281/- / 5,43,964/-
From the details given in the above table, it appeared that the said Service provider has received total rent of Rs.14,67,000/- from its clients during the period from 01.06.2007 to 31.03.2008. On the said taxable value of Rs.14,67,000/-, the Service tax payable @ 12.36 % comes to Rs.1,81,321/-. Further, during the financial year 2008-09, for the period from 01.04.2008 to 30.09.2008, the amount of rent received by the Service Provider is Rs.29,34,000/-and during the said year the Service provider is not eligible for value-based exemption, so, the amount of Service Tax payable on the taxable value of Rs.29,34,000/-@ 12.36 % comes to Rs.3,62,643/-. The said Service provider is required to pay the same along with interest. Further, apart from the commercial property mentioned in this Show cause notice, if the Service provider owns any other commercial property and the same has been rented by the Service provider, the amount of rent received by them is required to be included in the taxable value
for the respective years.
6. In view of the discussion above, it appeared that M/sSarojben Khusalchand & Others, Ahmedabad, engaged in providing ‘Renting of Immovable Property Service’ without discharging their proper tax liability on the rent collected in respect of commercial property rented by them and they were not registered with Service Tax department and nor paying Service Tax on the value of the Service provided. As per the provisions of the Finance Act, 1994 and rules made thereunder, 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 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. It is further observed that the said service provider has not obtained service tax registration as required under Section 69 of the Finance Act, 1994 and they have not discharged their service tax liability and hence evaded service tax total amounting to Rs.5,43,964/-for the period from 01.06.2007 to 30.09.2008 as mentioned in para supra.
6. Thus it appeared that the said service provider has contravened the provisions of:
(i)Section 69 of the Finance Act,1994 readwith Rule 4 of the Service Tax Rules, 1994 in as much as they failed to take registration from the department as Service provider for payment of Service Tax and have thereby rendered themselves liable to penalty as provided under Section 76 of Finance Act, 1994;
(ii)Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 in asmuchas they have failed to pay the service tax amounting to Rs.5,43,964/-as mentioned in para supra for the period from 01.06.2007 to 30.09.2008 to the credit of the Government within the stipulated time limit;
(iii)Sec. 70(1) & 70(2) of the Finance Act, 1994 as amended read with Rule 7 of the Service Tax Rules, 1994 in as much as they have failed to selfassess the Service Tax on the taxable value received by them and to file ST-3 returns for the said service providing firm during the period from 01.06.2007 to 30.09.2008.
7. All these acts of contravention of the provisions of Section 68, Section 69, and Section 70 of the Finance Act, 1994 read with Rule 4, Rule 6 and Rule 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, Section 77 and Section 78 of the Finance Act, 1994 as amended time to time.
8. Accordingly, M/sSarojben Khusalchand & Others were issued a show cause notice bearing F.No. STC/502/Demand/Sarojben/Div. III/08-09 dated 22.10.2008 asking them as to why ;
(i)Services rendered by them should not be considered as taxable service under the category of Renting of Immovable property Service as defined under Section 65 of the Finance Act 1994, as amended, and the amount of taxable value of Rs.44,01,000/-received as payment / recovered by them from their customers should not be considered as taxable value and Service Tax amounting to Rs.5,43,964/-for the period from 01.06.2007 to 30.09.2008 should not be demanded from them under Section 73(1) of the Finance Act, 1994;
(ii)Interest as applicable on the amount of service tax liability of Rs.5,43,964/- should not be paid by them for the delay in making the payment, 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 the failure to make the payment of service tax payable by them;
(iv)Penalty should not be imposed upon them under Section 77 of the Finance Act, 1994 as amended for the failure to file prescribed service tax return within the stipulated time;
(v)Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 as amended for suppressing the value of taxable services provided by them before the Department with intent to evade payment of service tax amounting to Rs.5,43,964/-.
DEFENCE REPLY
9.1The service provider filed their defence reply vide their letter dated 13.01.2009 and 29.03.2011, wherein at the very out set, they denied all the allegations and averments made vide the subject notice as if they all are individually and specifically dealt with and traversed save and except what has been admitted by them herein below; that they particularly denied that they have contravened the provisions of Section 65, 68 & 70 of the said Act and thereby are liable for penal action.
9.2They further submitted that before proceeding to deal with the allegation leveled against them for imposition of penalty, it would be profitable to appraise some of the basic and vital factual details, which would enable to adjudicate the case judiciously; that the proposal for imposition of SERVICE TAX under the category of “Renting of Immovable Properties Service” proposed w.e.f. 01.06.2007, thus empowering the Government to levy and collect service tax on “Renting of immovable properties Service”.
Meaning of Renting of Immovable Property [Section 65(90a)]
Renting of immovable property has been defined as under “renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of arrangements of immovable property for use in the course or 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 an educational body, importing skill
or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;
Explanation ;- For the purposes of this clause, “for use in the course or furtherance of business or commerce includes use of immovable properly as factories, office buildings, warehouses, theatres, exhibition halls and multipleuse buildings”,
Renting of immovable property has been defined by way of an inclusive definition, it would include the following acts or transactions in relation to immovable properties ;
- renting,
- letting,
- leasing,
- licensing, or
- other similar arrangement (e.g right to use, temporary possession, sub-contracting or sub-leasing, space sharing etc.)
9.3They further submitted that taxable service has been defined in Section 65 (105)(zzzz) as under ;-
“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.”
9.4They further submitted that before deciding applicability of service tax they wants to reiterate the basic provision of service tax, who are the service provider, which defines as under ;
“person liable for paying the service tax means” –
(i)in relation to any taxable service provided or to be provided by any
person from a country other than India and received by any person in
India under Section 66A of the Act, the recipient of such service : Exempts taxable services of aggregate value not exceeding four lakhs
rupees (eight lakhs rupees) in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance Act: Provided that nothing contained in this notification shall apply to ;-
(i)taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or
(ii)such value of taxable services in respect of which service tax shall be
paid by such person and in such manner as specified under sub- section (2) of section 68 of the said Financial Act read with Service Tax
Rules, 1994”.
;that from the above it is clear that service provider is liable for service tax, service divisible or indivisible does not make difference; that above applicability of service tax read with basic exemption notification 6/2005 dated 01.03.2006 & as amended from time to time as under; that so service provider are eligible for basic exemption up to Rs 8 lacs or 10 lacs as
applicable in the respective year 2007-08 & 2008-09; that so they are eligible for the basic exemption of service tax, due to their total receipt from the renting of immovable properties below basic exemption limit; that so they have not obtained service tax registration & discharge service tax liabilities.
9.5They further submitted that the department’s contention in SCN para 3 that, “03. Whereas, it appears that, the service of ‘Renting of Immovable Property Service” is an indivisible service and the fact that the immovable property is owned by more then one individual does not mean that the indivisible service is also to be treated as more than one service depending upon the number of persons who own the immovable property. In case where the property is collectively own, the service provider is to be treated as a single person for the purpose of levy of service tax since service provided is a single service and the recipient of service is also treated as single person. In case the recipient of such service divides the total consideration and makes separate payments to individual owners does not obviate the fact that the service provided is a single person and the turner limit of Rs. 10 Lakhs is only applicable by treating the total amount received as taxable value. Where the immovable property is collectively owned, for the purpose of service tax the association of persons is treated as a single service provider”; that the above contention are untenable & unauthorized, which has been claimed on the wrong assumption of treating group of individual, who gives properties to the one person (service recipient), as an association of person are baseless.
(i)They are holding immovable properties in the individual capacity.
(ii)They have defined marked area as an ownership.
(iii)They have given above properties to the service recipient in the individual capacity.
(iv)Service recipient have entered in one contract as per their policy. It does not mean that they are entered in agreement of Association of person, but it is on the individual capacity based.
(v)They are in receipt of payment of service value in their individual name & as per provisions of I.T Act also they are treated as an individual one.
;that from the above it is clear that they are not the part & parcel of any association of person; that they have given properties in the individual capacity and their gross receipt is below exemption limit of service tax under not no.6/2005; that they are rightly eligible for basic exemption & not liable for service tax & consequently penalty also.
9.6They further submitted that a perusal of the show case notice shows that the initiation of investigation in this case was the road survey by the Superintendent of Central Excise, as this fact is made clear in the very first sentence of the show cause notice ;
- That they were providing service and thus, it is not that they have started rendering this service recently i.e. after imposition of service tax on ;
- That the receipt of rent income were always received by them from their client through cheques and all such payments were duly accounted for by depositing the cheques in their bank account, and also crediting the amount in their accounts thereby signifying the fact that there has not been any clandestine activity on their part;
- That they have filed income tax return year after year and they have always prepared balance sheet for all years and submitted the same with their income tax returns showing therein all receipt from their client; that thus, amounts received from their clients have not only been accounted for in their books but they have also been disclosed in their balance-sheets and to the Income Tax department for paying Income Tax thereon;
9.7They further submitted that the above referred facts are not in any dispute and therefore, these facts would show that the action of invoking larger period of limitation in this case unjustified and unauthorized; that if they wanted to suppress the facts about their activities or the payments received by them from the clients, they would not have accounted for all such payments in their books of accounts, and they would also not have disclosed such payments to the Income Tax authorities for paying taxes thereon; that there is no transaction of any cash payments received by them and therefore, their bonafidecannot be doubted in this case, and accordingly, it cannot be alleged against them that they had deliberately suppressed any facts from the statutory authorities; that for invoking the larger period of 5 years, it is suggested in alleging failure/omission on their part in this regard, larger period of 5 years is invoked alleging escaped assessment under Section 73 of the said Act; that the payments received by them were shown in the books of accounts and also in the balancesheet which is a public document; that it is also held by the Appellate Tribunal in the cases like Hindalco Industries reported in 2003 (161) ELT 346 and Hariss Laboratories Ltd. V /s Commissioner reported in 2005 (185) ELT421 that balance sheet being apublic document, any demand raised on the basis of information appearing in the balance-sheet after invoking extended period of limitation was illegal because the allegation of suppression of facts cannot be made when some information was appearing in a public document like the balance sheet of the assesses; that when aforesaid information about charges and recoveries made by them from their clients were disclosed in other statutory records like balance-sheet and income tax returns and thus this information was “available” to any Government Agency; that therefore invocation of larger period of 5 years is without jurisdiction in the present case.