2021 (7) TMI 1095 - AT - Service Tax

Classification of services - renting of immovable property service or Support Services of Business and Commerce - appellant/assessee is the first Electronic Software Technology Park promoted and funded by the Government of Kerala and is a State Government Company - amount received from KSITIL is towards Business Support Service or not - inclusion of notional interest on refundable deposits in value of taxable supply - taxability of sale of space or time for advertisement - bus service plying between the Technopark and Kariyavattom - tour operator service or not - time limitation - interest - penalties. Classification of services - assessee had acquired land and developed ETP by constructing buildings, roads, continuous power and water supply, security service, communication, housekeeping, medical attention including ambulance service etc. - renting of immovable property service or Support Services of Business and Commerce - HELD THAT - The assessee/appellant is a State Government company and has built up spaces in the buildings or modules for rent or lease to their clients for their business or commerce. The lessees are required to undertake necessary alterations or modifications and certain finishing work and interiors to facilitate occupation of premises. It is also found that supply of electricity and water is incidental to renting of premises. Further it s found that supply of electricity, water and air-conditioning are obligatory and incidental for use of the rented or leased premises. The sale of water and electricity is a transaction of sale of goods and the assessee is not charging any service tax on the sale of water, electricity, airconditioning and supply of electricity by operating DG sets. The charges are collected separately. As per the Department, assessee has rendered composite services whereas as per the assessee, they have rendered only Renting of Immovable Property Service . Further as per the clause (1) of Section 65A which states that a taxable service would be classified in the category which gives the most specific description of the service provided is applicable in the case of the assessee. The rental or lease rental of the building takes into consideration the common facilities and the maintenance of the building and the supply of electricity and water is the transaction of sale of goods and their value cannot be included in the value of the service. Further the TBIC is a different entity registered as a society and eligible for exemption from service tax under Notification No.9/2007 and similarly TSECC has been established for the purpose of facilitating software development of their clients and the transaction of these entities with the concerned units are independent of the lease/rent of premises by the assessee/appellant. The presence of these independent entities in the Technopark pursuing their own objectives does not change or alter the nature of transactions of renting of immovable property by the appellant. Further the services rendered by the assessee clearly satisfy the requirement of definition of Renting of Immovable Property Service as provided under Section 65(105)(zzzz) of the Finance Act, 1994 and taxable from 01.06.2007. Further it is seen from the circular issued by the CBEC in para 3.3, it is clarified as to what is the scope of support service of business or commerce. Thus, the services rendered by the appellant fall under the category of Renting of Immovable Property service and the applicable services tax on such rental or lease charges has been correctly paid. Whether the amount received from KSITIL is towards Business Support Service or not? - HELD THAT - KSITIL is a 100% State Government undertaking, acting as an apex body for developing infrastructure in the State of Kerala under whose supervision the assessee/appellant has been established. Since KSITIL was a newly promoted company, the budgetary allocation and release of funds by the State Government was delayed and therefore in the meantime, the assessee incurred expenses which were entirely reversed by KSITIL when the State Government released funds to KSITIL - the finding of the learned Commissioner that KSITIL is an associated enterprise is not tenable in law because KSITIL is an independent company. Appellant has not provided any service to KSITIL for consideration. In the absence of any service, the reimbursement of expenses incurred by the appellant cannot be subjected to levy of service tax - the demand of service tax of ₹ 19,08,987/- is without any basis. Whether notional interest on refundable deposits can be included in the value of taxable supply for levy of service tax? - HELD THAT - There is no finding that the notional interest on refundable deposit has resulted in undervaluation of service of renting of immovable property and further there is no evidence of nexus between the two - the notional interest on refundable deposit cannot be included in the value of taxable service for the purpose of levy of service tax and this issue is decided against the Revenue. Taxability of sale of space or time for advertisement - HELD THAT - The sale of space or time for advertisement is classifiable independently as defined under Section 65(105)(zzzzm) of the Finance Act, 1994 and not under Business Support Service as confirmed by the Commissioner. Hence the demand of service tax under wrong classification of service is not sustainable in law - this issue is also in favour of the assessee. Whether bus service plying between the Technopark and Kariyavattom is liable to service tax under tour operator service or not? - HELD THAT - The assessee has submitted declarations from respective vendors confirming remittances of service tax by them under respective registration numbers and has also cited various decisions to buttress their argument that the services fall in the definition of input service as provided in Rule 2(l) of CENVAT Credit Rules, 2004. But the learned Commissioner has not examined the documents submitted by the assessee and the various decisions relied upon by them in support of the fact that the impugned services fall in the definition of input service - the matter needs to be remanded back to the original authority for the purpose of verification of various documents, declarations and the letters issued by the vendors who have paid the service tax for various impugned services. Time Limitation - HELD THAT - It is not in dispute that levy of service tax on Renting of Immovable Property was levied from 01/06/2007 and the appellant has been paying since then despite the fact that the same having been struck down as unconstitutional and thereafter the Finance Act, 2010 was introduced validation provisions with retrospective effect but the assessee has been paying service tax on Renting of Immovable Property from the very beginning - extended period of limitation cannot be invoked in the absence of suppression of facts. Interest and penalties - HELD THAT - When the demand itself is not sustainable, the question of payment of interest does not arise and since there was no intention to evade service tax, penalties are also not imposable. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Classification of services under "Support Services of Business or Commerce."
2. Amount received from Kerala State IT Infrastructure Ltd. (KSITIL) as "Business Support Service."
3. Inclusion of notional interest on refundable deposits in the value of taxable supply.
4. Taxability of sale of space or time for advertisement.
5. Liability of bus service between Technopark and Kariyavattom under "Tour Operator Service."
6. Denial of CENVAT credit.
7. Applicability of the extended period of limitation.
8. Demand of interest and penalties.

Detailed Analysis:

Issue No. 1: Classification of Services under "Support Services of Business or Commerce"
The tribunal examined whether the services provided by the assessee fall under "Support Services of Business or Commerce" or "Renting of Immovable Property." The assessee provided built-up spaces for rent or lease, including incidental services like electricity and water supply. The tribunal found that these services are incidental to renting and amount to a sale of goods, exempt under Notification No.12/2003-ST. The tribunal referred to multiple judicial precedents, including CST(MP) Vs. Madhya Pradesh Electricity Board and ICC Realty India Pvt. Ltd. Vs. CCE, Pune-III, which held that supply of electricity amounts to the sale of goods. Therefore, the tribunal concluded that the services rendered by the assessee fall under "Renting of Immovable Property" and not "Support Services of Business or Commerce."

Issue No. 2: Amount Received from KSITIL as "Business Support Service"
The tribunal found that KSITIL is a 100% State Government-owned company, and the amounts reimbursed by KSITIL to the assessee were not for any service rendered but were merely reimbursements of expenses incurred. The tribunal held that these reimbursements could not be considered as consideration for any taxable service, thereby setting aside the demand of ?19,08,987/-.

Issue No. 3: Inclusion of Notional Interest on Refundable Deposits
The tribunal held that notional interest on refundable deposits could not be included in the value of taxable service. It found no nexus between the security deposit and the lease rental. The tribunal referred to judicial precedents like Murali Realtors Pvt. Ltd. Vs. CCE, Pune and Karnataka Industrial Areas Development Board Vs. CCT, Bangalore, which held that notional interest on security deposits should not be considered for inclusion in actual rent.

Issue No. 4: Taxability of Sale of Space or Time for Advertisement
The tribunal held that the sale of space or time for advertisement is independently classifiable under Section 65(105)(zzzm) of the Finance Act, 1994, and not under "Business Support Service." Therefore, the demand of service tax under the wrong classification was not sustainable.

Issue No. 5: Liability of Bus Service under "Tour Operator Service"
The tribunal found that the bus service was provided by M/s. Cosmos Travels, which had the necessary permits and collected and remitted the service tax. Therefore, the assessee was not liable to pay service tax under "Tour Operator Service."

Issue No. 6: Denial of CENVAT Credit
The tribunal noted that the Commissioner had denied credit on various grounds, including defects in invoices. The tribunal remanded the matter back to the original authority for verification of documents and declarations to determine the entitlement of CENVAT credit.

Issue No. 7: Applicability of Extended Period of Limitation
The tribunal found that the assessee had not concealed any information from the Department and had been paying service tax on "Renting of Immovable Property" since its imposition. The tribunal referred to various correspondences between the assessee and the Department and concluded that the extended period of limitation could not be invoked.

Issue No. 8: Demand of Interest and Penalties
The tribunal held that since the demand itself was not sustainable, the question of interest and penalties did not arise. It also noted that there was no intention to evade service tax, and therefore, penalties were not imposable.

Conclusion:
The tribunal partially allowed the appeal of the assessee, setting aside the demands of service tax under various categories and remanding the matter for verification of CENVAT credit. The Department's appeal was dismissed.