2017 (7) TMI 724 - AT - Service Tax

Renting of immovable property service - case of the department is that the appellant is liable to pay service tax on the rent of leased out premises of the factory under renting of immovable property service and the appellant is not entitled for the exemption N/N. 06/2005-ST dt. 1.3.2005 - Held that - In the present case, the premises which was rented out the appellant is provider of service only to that premises. In that premises no capital goods was received and used on which the credit was taken. Therefore the condition (iii) of para 2 of the notification does not get violated. The availment of cenvat credit in respect of input, input service or capital goods by the appellant only in relation to the manufacturing activity will not debar them from availing the exemption notification No. 06/2005-ST for their service of renting of immoveable property. The excisable activity in the manufacturing unit and the service related to renting of immoveable property are two distinct activities and therefore the availment of cenvat credit in relation to manufacturing activity cannot be applied to their service of renting of immoveable property. The appellant is not liable to pay any service tax - appeal allowed - decided in favor of appellant.

Issues:
1. Liability to pay service tax on rent of leased out premises under renting of immovable property service.
2. Entitlement for exemption under Notification No. 06/2005-ST.
3. Violation of conditions (iii) & (iv) of paragraph 2 of the Notification.

Analysis:
The case involved the appellant engaged in manufacturing excisable goods who rented out open space of the factory premises during 2007-08 & 2008-09. The department claimed the appellant was liable to pay service tax on the rent of leased premises under renting of immovable property service and was not entitled to exemption under Notification No. 06/2005-ST due to alleged violations of conditions (iii) & (iv) of the Notification.

The appellant argued that the renting of open space had no connection with the manufacturing unit and even though they availed cenvat credit on inputs and capital goods, it was for use in or in relation to the manufacture of their final product. The rent received was within the exemption limit specified in the Notification, thus exempted under Notification No. 06/2005-ST.

The Tribunal considered the issue of whether renting of immovable property by the appellant, who availed cenvat credit on inputs and capital goods for manufacturing, was eligible for exemption under Notification No. 06/2005-ST. It was noted that the appellant had independent manufacturing activity and rented out part of the factory premises, with the rent received below the threshold limit. The Tribunal analyzed the conditions (iii) & (iv) of the Notification and found that the appellant did not violate them.

Regarding condition (iii), it was observed that no capital goods were received or used in the rented premises by the appellant, so the condition was not violated. As for condition (iv), since no input or input service was received or cenvat credit availed for renting of immovable property, this condition was also met. The Tribunal concluded that the appellant's cenvat credit in relation to manufacturing activity did not affect their service of renting immovable property, as they were distinct activities.

Therefore, the Tribunal held that there was no violation of any condition under Notification No. 06/2005-ST for the renting of immovable property service, and the appellant was not liable to pay any service tax. The impugned order was set aside, and the appeal was allowed.

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