2014 (4) TMI 994 - AT - Service Tax

Claim of service tax from the recipient of services - Levy of Penalty u/s 76, 77 and 78 - Commissioner partly allowed the appeal and deleted the penalty imposed under Sections 76, 77 and 78 while upholding demand of service tax and interest, confirmed by the primary authority - Held that - Receipt of a taxable service, in the factual setting of this case, does not give rise to a liability to remit service tax. Inherence of the liability to tax is on the provider of the service; not the recipient. The appellant s plea that it was only the recipient of the taxable service, is therefore a plea that goes to the jurisdictional of the proceedings. The rejection of this contention by the Appellate authority is therefore fatal to the Appellate order which therefore invites invalidation on this singular ground. While the appellant company was remiss in not pleading the exact nature of the transaction and in furnishing evidence that it was neither the landlord nor the provider of the taxable service but was only the recipient, the fact remains that in the present case as in many such cases, adjudicating authorities are seen to be avoiding the fundamental adjudicatory discipline, namely in requisitioning the relevant transactional documents to identify the nature of the transaction. Such negligence is compounded, in the facts and circumstances of the case, by the fact that as per the letter dated 17.11.2009 (preceding the show cause notice) addressed by the Assistant Commissioner,Service Tax, Faridabad to the assessee s company, it is clearly stated that one of the Directors was receiving rent. Order not sustainable - Matter remanded back - Decided in favour of assessee.

Summary

Issues:
1. Liability to service tax on renting of immovable property.
2. Rejection of additional ground raised in appeal.
3. Nature of transaction and liability determination.
4. Requirement of transactional documents for adjudication.

Analysis:

Issue 1: Liability to service tax on renting of immovable property
The appeal was against the order of the Commissioner (Appeals) confirming a service tax demand on the appellant for renting immovable property. The primary authority upheld the demand but deleted penalties. The appellant denied liability based on a constitutional argument and claimed to be the recipient, not the provider, of the service. The judgment highlighted that liability to tax is on the service provider, not the recipient. The Appellate authority's rejection of the appellant's plea as a recipient was considered a fatal error, leading to the invalidation of the order.

Issue 2: Rejection of additional ground raised in appeal
The appellant raised a new ground in the appeal, contending that rent was charged by individual directors, not the company. The Appellate authority rejected this ground citing procedural rules. However, the judgment emphasized that this was a pleading affecting jurisdiction, not mere evidence, and should have been entertained for substantiation. The rejection was deemed improper, and the plea should have been considered by the authority.

Issue 3: Nature of transaction and liability determination
The judgment highlighted the importance of analyzing transactional documents to identify the nature of the transaction accurately. It noted discrepancies in rental agreements, indicating the appellant as a lessee, not a provider of the service. The failure to clarify the transaction's nature and the lack of evidence regarding the appellant's role as a recipient or provider led to confusion in liability determination.

Issue 4: Requirement of transactional documents for adjudication
The judgment criticized the adjudicating authorities for neglecting to requisition relevant transactional documents to understand the transaction's nature properly. It pointed out that negligence in analyzing such documents led to erroneous liability determinations. The judgment stressed the significance of examining transactional documents to establish the roles of parties involved in the transaction accurately.

In conclusion, the judgment set aside the previous orders and remanded the matter to the primary authority for fresh consideration. The appellant was instructed to submit original transactional documents for reevaluation. The judgment highlighted the necessity of a thorough analysis of transactional documents for accurate liability determination in cases involving service tax on renting of immovable property.