2019 (7) TMI 9 - AT - Service Tax

Valuation - Renting of Immovable Property Service - renting the factory with plant and machinery to JV - Section 67 of Finance Act 1994 - demand of interest and penalty as well - extended period of limitation - HELD THAT - The Joint Venture has come into existence from the date of agreement i.e. 14.10.2009. The Appellant have rented out its machinery and building to the joint venture against payment of lease rent of ₹ 5.50 Crore per annum during the period of continuance of this agreement. The appellants are not entitled to receive any other amount except those specified in the agreement from the joint venture. Joint Venture is not responsible for any past or existing liabilities of the Appellant. In term of clause 5 of the agreement dated 14.10.2009, the consideration in form of lease rent agreed between appellant and joint venture, for providing the machinery and buildings on rent was ₹ 5.50 Crore per annum. Thus in terms of Section 67(1) the value of taxable service provided by the Appellant, will be ₹ 5.50Crore per annum - However in the present case the agreement was in continuance only during the period October 2009 to May 2010. Hence the gross consideration needs to be taken on pro-rata basis for the period when the agreement was in force. After considering the agreement dated 14.10.2009 we do not find any reasons to differ with the determination made by Commissioner (Appeals). As per the clause 19 of the agreement, the Joint Venture is not responsible for any past or existing liability of the appellant. The temporary loan, sugar pledge loan and revised restructuring loans are the liability of the appellant and cannot be termed as liability to be met by the Joint Venture. The payments made in the loan account, by the Joint Venture can never be termed as payments made towards these liabilities of the appellant, which existed even prior to coming into existence of the Joint Venture or have arisen on account of the current operations of the appellant. Commissioner appeal has examined the documents and have allowed deductions in respect of the expenses incurred by the appellant towards the advances made by them to the sugarcane harvesting and transport contractors (clause 23); and payments received towards the sale of sugar to the joint venture - We do not have any reason to differ with the findings of Commissioner. In terms of clause 12 of the agreement we are also not in agreement with the appeal filed by the revenue seeking to add the expenses incurred by the Joint Venture towards repair and maintenance of the machinery/ building in the payment made by the Joint Venture to the appellants. Time Limitation - HELD THAT - There is no reason to differ with the findings of the Commissioner (Appeal) as appellant had never disclosed the facts about receiving the lease rent and renting of the building/ machineries to Joint venture to the department. Also they had not failed to take registration and file the relevant ST-3 returns as required under law - extended period cannot be invoked. Demand of interest - HELD THAT - Since the demand of service tax is upheld, the demand of interest under Section 75 is natural corollary - demand of interest upheld. Penalty u/s 70, 77 and 78 - HELD THAT - Since service tax has been demanded invoking extended period of limitation under Section 73 of Finance Act, 1994, penalty under Section 78 will follow - Since appellant have failed to take registration and pay the service tax, penalties under section 77(1)(a) of Finance Act, 1994 to are justified and sustained. Also for delay in filing the ST-3 returns the fees imposed by the adjudicating authority in terms of Section 70 ibid too is justified. Appeal disposed off.

Issues Involved:
1. Taxability under the category of "Renting of Immovable Property".
2. Determination of the value of taxable services.
3. Application of extended period of limitation.
4. Imposition of interest and penalties.

Issue-wise Detailed Analysis:

1. Taxability under the category of "Renting of Immovable Property":
The appellants entered into a joint venture agreement with M/s Sangli Sugars Pvt Ltd to run their sugar factory on a profit-sharing basis. The agreement allowed the joint venture to use the appellants' machinery and buildings for a lease rent of ?5,50,00,000 per annum. The services of renting of immovable property are taxable under Section 65(105)(zzzz) read with Section 65(90a) of the Finance Act, 1994. The appellants did not take any registration or pay service tax on the lease rent received. The tribunal confirmed that the services provided by the appellants fall under the taxable category of "Renting of Immovable Property".

2. Determination of the value of taxable services:
The appellants argued that the amount deposited by the joint venture in their loan account should not be considered as lease rent. The Commissioner (Appeals) allowed deductions for certain amounts but held that ?278.02 lakhs was the taxable value of the service provided. The tribunal agreed with the Commissioner (Appeals) that the lease rent of ?5.50 crore per annum should be considered as the value of taxable service, prorated for the period the agreement was in force. The expenses incurred by the joint venture towards repair and maintenance were not to be added to the taxable value, as per the agreement.

3. Application of extended period of limitation:
The appellants argued that the demand was hit by limitation as there was no suppression of facts. However, the tribunal upheld the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994, as the appellants had not taken service tax registration or filed any returns, thereby not disclosing any information to the department.

4. Imposition of interest and penalties:
The tribunal upheld the demand for interest under Section 75 of the Finance Act, 1994, as a natural corollary to the confirmed demand of service tax. Penalties under Sections 77(1)(a) and 78 were also upheld, as the appellants failed to take registration, pay service tax, and file ST-3 returns. The tribunal relied on decisions of the Hon’ble Apex Court in cases like Rajasthan Spinning and Weaving Mills and Dharmendra Textile Processors to justify the imposition of penalties.

Conclusion:
The tribunal dismissed both the appeals filed by the appellants and the revenue, as well as the miscellaneous application filed by the revenue. The order pronounced in the open court on 28.06.2019 confirmed the tax liability, interest, and penalties as determined by the Commissioner (Appeals).

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