2017 (1) TMI 304 - AT - Service Tax

Renting of Immovable Property Service - demand of tax, interest and penalty - section 80 - Bonafide belief - The appellant has claimed that tax liability does not arise on the ground that since the appellant was indebted, their entire factory got attached and in order to pay the bank loan amount, they rented out factory to another sugar factory and they being under bonafide belief that such renting would not amount to services rendered under the category of Renting of Immovable Property , did not discharge the Service Tax liability. Held that - the appellant has discharged the entire Service Tax liability on being pointed out by the authorities; they are also liable to pay interest; the interest was paid by the appellant on direction of the Tribunal. We find that this is a fit case for invoking the provision of Section 80 of the Finance Act, 1994 to set aside the penalty imposed on the appellant under Section 80 of the Finance Act, 1994 - tax and interest upheld - penalty set aside - appeal allowed - decided partly in favor of assessee.

Summary

Issues:
Service Tax liability on renting out factory under 'Manpower Recruitment or Supply Agency's Services'; Applicability of Section 80 of the Finance Act, 1994 to set aside penalties.

Analysis:

Service Tax Liability on Renting Out Factory:
The appeal was filed against an Order-in-Original confirming demand for the financial years 2009-10 and 2010-11 under "Renting of Immovable Property Services." The appellant had rented out their factory to another concern, receiving an advance amount payable to the bank. The adjudicating authority concluded that Service Tax liability arose as the activity fell under 'Manpower Recruitment or Supply Agency's Services.' The appellant argued that renting out the factory to pay off a bank loan did not amount to services under 'Renting of Immovable Property.' Despite the appellant's belated discharge of Service Tax liability upon authorities' direction, interest was paid as well. The Tribunal found the appellant liable for Service Tax and interest, but invoked Section 80 of the Finance Act, 1994 to set aside the penalties imposed.

Applicability of Section 80 of the Finance Act, 1994:
The Tribunal upheld the Service Tax liability and interest but set aside the penalties imposed by invoking Section 80 of the Finance Act, 1994. This section allows for the setting aside of penalties under certain circumstances, which was deemed appropriate in this case due to the appellant's belated but compliant action upon authorities' direction. The appeal was disposed of with the aforementioned decisions, providing relief to the appellant regarding the penalties imposed while affirming the Service Tax liability and interest obligations.

This judgment clarifies the application of Service Tax liability in cases of renting out immovable property and emphasizes the significance of compliance with tax obligations even in situations where the liability may not be immediately apparent to the taxpayer. The invocation of Section 80 of the Finance Act, 1994 demonstrates the Tribunal's discretion to set aside penalties under specific conditions, balancing enforcement with fairness in tax matters.