2018 (5) TMI 324 - AT - Service Tax

Valuation - Renting of immovable property service - inclusion of amount towards Repair and Maintenance services - Held that - the appellants in collecting the impugned amounts are only getting themselves reimbursed for the expenses incurred by them for maintenance and repair and upkeep of the mall, that too on a proportionate and equitable basis, without any profit element for themselves - reliance placed in the case of Union of India And Anr. Versus M/s. Intercontinental Consultants And Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT OF INDIA , where it was held that only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax - amount need not be included - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of service tax on maintenance and repair charges collected by the appellants from tenants/lessees.
2. Interpretation of lease agreements and applicability of the UOI Vs Intercontinental Technocrafts Pvt. Ltd. case.
3. Whether the maintenance charges collected by the appellants were for reimbursement of expenses without any profit element.

Analysis:

Issue 1: Liability of service tax on maintenance and repair charges
The appellants, owners of a shopping mall, rented out commercial space to tenants through lease deeds and collected monthly charges for maintenance and repair from the tenants. The department contended that the appellants were liable to pay service tax on these charges. Show cause notices were issued, and the adjudicating authorities confirmed the tax liability. The appellants challenged these orders before the tribunal.

Issue 2: Interpretation of lease agreements and case law application
During the hearing, the appellant's counsel argued that the maintenance charges collected were reimbursements for expenses incurred in maintaining the common areas of the mall, without any profit element. The counsel referred to the terms of the lease agreement to support this argument. The appellant relied on the UOI Vs Intercontinental Technocrafts Pvt. Ltd. case to emphasize that the amounts collected were only in the nature of reimbursable expenses.

Issue 3: Reimbursement of expenses without profit element
The appellant's counsel highlighted the lease agreement clause which specified that the lessee shall pay only the actual proportionate cost of maintenance charges without any profit element for the lessor. The tribunal found merit in the appellant's assertions, noting that the maintenance charges were collected on a proportionate and equitable basis for expenses incurred in maintenance and repair of the mall. The tribunal concluded that the appellants were not making any profit from these charges, aligning with the principles upheld in the Intercontinental Consultants Technocrafts Pvt. Ltd. case. Consequently, the tribunal set aside the impugned orders, allowing the appeals in favor of the appellant.

This detailed analysis of the judgment addresses the issues of service tax liability on maintenance charges, interpretation of lease agreements, and the reimbursement of expenses without a profit element, providing a comprehensive understanding of the tribunal's decision.