2018 (10) TMI 557 - AT - Service Tax

Renting of immovable property service - default in payment of rent- Department has adjusted the advance received as security deposit by the appellant towards the demand raised for the period 2007-08 - case of appellant is that this is not warranted as this amounts to higher burden of interest - penalty - Held that - The intention of the security deposit is to adjust the same when there is default in payment of rent. Such default has happened only from October, 2009 to March, 2010. In that case, the Department cannot demand service tax on the advance received by the appellant for the period 2007-08. This would make the appellant pay a higher amount of interest - appellant argues that they have discharged the service tax liability along with interest by calculating the adjustment of advance received by them to the rent dues for the period October, 2009 to March, 2010 - matter is remanded for requantification. Penalties - Held that - The issue whether renting of immovable property is liable to service tax was under litigation - The matter is still pending before the Hon ble Supreme Court - penalty imposed under Section 78(1) of the Act cannot sustain and requires to be set aside. Appeal allowed in part and part matter on remand.

Summary

Issues:
Quantification of service tax demand based on advance rent received and penalties imposed under Section 77 and 78 (1) of the Finance Act, 1994.

Analysis:

Quantification of Service Tax Demand:
The appellants were providing services under Renting of Immovable Property and were investigated for not discharging appropriate service tax. The Original Authority confirmed a demand of &8377; 8,26,047/- for the period from 15.08.2007 to 31.08.2010 along with interest and penalties. In appeal, the Commissioner (Appeals) upheld the demand but waived the penalty up to March 2010. The appellant argued that the advance rent received in 2007-08 was a security deposit and was adjusted towards rent dues for the period of default from October 2009 to March 2010. The Tribunal found that the Department had incorrectly adjusted the advance towards the demand raised for the period 2007-08, leading to a higher interest burden on the appellant. The matter was remanded to the adjudicating authority for re-quantification by adjusting the advance towards the arrears of rent for the specific period.

Penalties Imposed:
The Ld. Counsel argued that the issue of whether Renting of Immovable Property Services is subject to service tax was under litigation during the relevant period. The Commissioner (Appeals) had waived the penalty up to March 2010. The Tribunal noted that the issue was still under litigation and pending before the Hon’ble Supreme Court. Considering the interpretational nature of the issue and the pending litigations, the Tribunal set aside the penalty imposed under Section 78(1) of the Act. The Tribunal referred to previous litigations and the pending status of the matter before the Supreme Court to support its decision to annul the penalty.

In conclusion, the Tribunal remanded the matter back to the adjudicating authority for re-quantification of the service tax demand based on the correct adjustment of advance rent received. The penalty imposed under Section 78(1) of the Act was set aside due to the interpretational nature of the issue and pending litigations. The appeal was partly allowed and partly remanded with consequential reliefs, if any.