2015 (12) TMI 415 - AT - Service Tax

Demand of service tax - Renting of Immovable Property service and Leasing of Vehicles - held that - There is no evidence that the property which appellant leased was further (sub) leased by it to its group companies/ employees. The appellant had repeatedly stated that the properties leased by it were used by it for providing services to its group companies and for such services they charged their group companies on which it paid service tax. In these circumstances, it does not come out at all that the appellant leased or sub-leased any immovable properties to its group companies/employees. In the Show Cause Notice or in the impugned order, no evidence that the appellant gave any premises on rent/lease has been mentioned. The appellant has shown that it took the premises on lease and therefore was a recipient of renting of immovable property service and not a provider thereof. The onus to establish that the appellant provided renting of immovable property service is on Revenue and as is evident from the paragraphs 38.4 and 38.7 quoted above, such onus has not been discharged by Revenue. Therefore, the question of levying service tax under Renting of Immovable Properties service does not arise. For levying of service tax under reverse charge mechanism, Revenue has to first identify the taxable service received from abroad for which payment was made in foreign currency, which, as seen from the paragraphs of the impugned order quoted above, has not been done at all. This is clearly fatal. It can be nobody s case that any amount spent in foreign exchange is liable to service tax under reverse charge mechanism; such expenses have to be shown to be related to import of taxable service. Even so, the appellant has on its part stated that the expenditure relating to purchase of foreign exchange, school fees for American Embassy School, training and development on foreign locations, travel arrangement for foreign expatriates and employee benefits are not liable to service tax for the reasons given in their submissions and recorded earlier in para 3 and only foreign exchange expenses relating to tele-communication service and management consultant service were liable to service tax which it has paid along with interest. - Decided in favour of assessee.

Summary

Issues Involved: Service tax demands on lease rentals for immovable properties and vehicles, and foreign exchange payments under the reverse charge mechanism.

1. Service Tax on Lease Rentals for Immovable Properties:

The appellant, an Indian branch office of a foreign company, contended that the lease payments for office premises were recovered from group companies as reimbursements and not as income, thus not liable for service tax. The adjudicating authority, however, confirmed the demand, stating that the appellant failed to provide relevant lease agreements and did not establish that the properties were used solely for providing services to group companies. The Tribunal found that the adjudicating authority did not counter the appellant's claims adequately and failed to provide evidence that the appellant sub-leased the properties. Consequently, the Tribunal held that the appellant was a recipient of renting of immovable property service, not a provider, and thus not liable for service tax under this head.

2. Service Tax on Leasing of Vehicles:

The appellant argued that it leased vehicles for its officials and recovered amounts over entitlements from them, classifying these as salaries and allowances. The adjudicating authority rejected this claim due to a lack of detailed evidence but did not counter the appellant's contention that it paid service tax on reimbursements from group companies. The Tribunal noted that the onus was on the Revenue to prove that the appellant leased vehicles to others, which was not established. Hence, the Tribunal found the demand for service tax on leasing of vehicles unsustainable.

3. Foreign Exchange Payments under Reverse Charge Mechanism:

The appellant contended that not all foreign exchange payments were for taxable services. It provided a detailed table categorizing payments into taxable and non-taxable services, paying service tax on the former. The adjudicating authority confirmed the demand without identifying specific taxable services received from abroad. The Tribunal found this approach flawed, emphasizing that service tax under reverse charge mechanism requires identification of taxable services. The Tribunal set aside this component of the demand and remitted the case back to the adjudicating authority to clearly identify taxable services and quantify the service tax accordingly.

Conclusion:

The Tribunal set aside the service tax demands related to "Renting of Immovable Property" and "Leasing of Vehicles." It also remitted the case concerning foreign exchange payments back to the adjudicating authority for a detailed examination of taxable services under the reverse charge mechanism. Penalties were to be readjusted accordingly.