2018 (5) TMI 1363 - AT - Service Tax

Non-refundable deposit, one time premium of Salami, which is not refundable - whether the said deposit is liable for Service Tax under the head of renting of immovable property? - Held that - there is a separate charge for the rent, which alone is taxable, the onetime premium charges is nonrefundable deposit, it is called as one time premium and not part of rent. Therefore, the same is not taxable - appeal allowed - decided in favor of appellant.

Summary

Issues involved: Taxability of non-refundable deposit in the course of leasing premises of Government local authority under the head of renting of immovable property.

Analysis:

The judgment by the Appellate Tribunal CESTAT Mumbai, delivered by Hon’ble Shri Ramesh Nair and Hon’ble Shri Raju, addressed the issue of whether a non-refundable deposit, termed as one-time premium of Salami, kept during the leasing of premises of a Government local authority, is liable for Service Tax under the category of renting of immovable property. The appellant’s counsel argued that previous decisions had established that such non-refundable deposits cannot be taxed as part of the service of renting immovable property, citing judgments like Greater Noida Indl. Devp. Authority, Mormugao Municipal Council, Municipal Corpn. Rajahmundry, and Municipal Corpn. Aurangabad. On the other hand, the Revenue, represented by the Assistant Commissioner, maintained the stance taken in the impugned order.

Upon careful consideration of both sides’ submissions and a review of the records, the Tribunal found that the Revenue sought to tax the non-refundable one-time premium deposit under the renting of immovable property service, treating it as rent. However, the Tribunal noted that there exists a separate charge for rent, which is the taxable element, while the one-time premium is a nonrefundable deposit distinct from rent. Referring to the judgment in the case of Greater Noida Indl. Development Authority, the Tribunal emphasized the distinction between premium and rent, clarifying that Service Tax is leviable only on the rent component for continuous enjoyment under a lease, not on one-time premiums paid for obtaining the lease. As the tax event under the relevant provisions pertains to renting of immovable property, the Tribunal concluded that the one-time non-refundable deposit is not subject to tax under the renting of immovable property category.

Based on the precedent set in the aforementioned judgment, the Tribunal determined that the issue was no longer res integra and ruled in favor of the appellant, setting aside the impugned order and allowing the appeal. The judgment, pronounced on 16.05.2018, established that one-time non-refundable deposits in the context of leasing premises of a Government local authority are not liable for taxation under the renting of immovable property service.