2019 (11) TMI 1604 - AT - Service Tax

Levy of service tax - rent amount received by the appellant from the employees for letting out of the quarters - to be classified as rent on immovable property for use in the course or furtherance of business or commerce or not - scope of SCN - HELD THAT - The demand of service tax was proposed on the ground that the rent as recovered by the appellant is nothing but rent on immovable property for use in the course or furtherance of business or commerce. Moreover, in the adjudication order also, the Ld. AC has not refuted the submission of the assessee that the quarters have been used for residential/dwelling purpose. Therefore, the nature of usage of quarter by the employees for residential/dwelling purpose cannot be doubted in absence of any proof to the contrary. Moreover, it is a settled legal position that the department cannot travel beyond the scope of allegations levelled in the SCN. Taxability - HELD THAT - The issue is no longer res-integra inasmuch the Tribunal in the case of SR. ACCOUNTS OFFICER M/S. M.P. POWER GENERATING CO. PVT. LTD. VERSUS CCE, BHOPAL 2017 (4) TMI 952 - CESTAT NEW DELHI , as relied by the appellant, has already held that the rent amount received for letting out the properties to the employees for accommodation purpose is not liable to service tax since the same is clearly excluded from the definition of taxable service as was applicable during the period in dispute - The above decision has been rendered considering the law as was applicable during the period prior to introduction of Negative List service taxation regime i.e. prior to July 2012. From July 2012 onwards, in the Negative List regime, Section 66D of the Finance Act, 1994 as amended, covered entry (m) to state that services by way of renting of residential dwelling for use as residence has been kept outside the purview of levy of service tax. During the entire period in dispute, the rent amount received for letting of the immovable property for residential dwelling purpose has been excluded for service tax levy. Since the fact relating to use of the immovable property is not in dispute, the appellant is not liable to pay the demanded service tax. The decision in the case of COMMISSIONER OF C. EX., BANGALORE-III VERSUS TATA AUTO COMP SYSTEMS LTD. 2011 (4) TMI 1397 - KARNATAKA HIGH COURT as relied by the Ld. Departmental Representative has no relevance to the instant case inasmuch as in the said case, the issue was whether or not CENVAT credit is available to the company on transportation services availed by its employees. The Tribunal in the said case held that the said transportation services were used in relation to or furtherance of business and thus credit is legally available in view of the inclusive nature of definition of input service . The impugned demand of service tax, interest and penalty cannot legally sustain and hence, the same is set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Levy of service tax on rent amount received by the appellant from employees for letting out quarters within the factory.

Analysis:
The appellant, engaged in manufacturing jute products, appealed against the demand of service tax on rent received from employees for letting out quarters within the factory. The Show Cause Notice proposed the demand, which was confirmed by the Assistant Commissioner and upheld by the Commissioner (Appeals). The appellant argued that previous Tribunal decisions supported their position that no service tax was payable on such rent. They also presented subsequent orders where similar demands were dropped. The Departmental Representative contended that renting quarters to employees is in the course of business activities, citing a relevant case. The Tribunal considered whether service tax was leviable on the rent amount received by the appellant from employees for letting out quarters.

Upon review of the Show Cause Notice and adjudication order, it was found that the quarters were indeed used for residential purposes, and the nature of usage could not be doubted without proof to the contrary. The Tribunal referred to a previous decision where it was held that rent received for letting out properties for accommodation purposes to employees is not liable to service tax. This decision was based on the law applicable before the introduction of the Negative List service taxation regime. The Tribunal noted that renting residential dwellings for use as residence was excluded from service tax levy during the period in dispute. As the appellant was not liable to pay the demanded service tax due to the exclusion for residential dwelling purposes, the impugned demand, interest, and penalty were set aside. The decision cited by the Departmental Representative regarding transportation services for employees was deemed irrelevant to the case at hand.

In conclusion, the Tribunal allowed the appeal, setting aside the demand for service tax, interest, and penalty, as the rent amount received for letting out immovable property for residential dwelling purposes was excluded from service tax levy during the relevant period. The decision was pronounced in open court on 14.11.2019.