2025 (2) TMI 900 - AT - Service Tax

Clubbing of vacant land into the value of services - Renting of Immovable Property Service (RIPS) - Non-payment of Service Tax - Rental Advances - Site Formation Clearance Service - Commercial of Industrial Construction Service - Extended period of limitation. Whether in the facts of the case the entire area for which separate agreements have been entered into by the appellants can be considered as land appurtenant to the warehouses or these are to be considered as standalone vacant lands which cannot be part of the services under the category of RIPS? Renting of Immovable Property Service - HELD THAT - In terms of the agreement which has been relied upon by the Adjudicating Authority it is obvious that the dominant estate in this case would be the covered shed/warehouse and the open land/yard would be appurtenant to this covered shed/warehouse. It is obvious from the wordings of the agreement especially Annexure-2 to the agreement for covered warehouses that it has got no utility without the facilities like turning radius suitable for 40 feet trailers land being not low lying and free from flooding inundation fencing all around the premises up to 4 feet height entrance and exit gates on the main road side etc. Therefore the area under covered warehouses can be accessed and optionally utilized only with these facilities when the vacant land is also used in conjunction with the closed warehouse. Interestingly the agreement is for covered warehouse approximately measuring 20, 000 Sq Meter subject to certain conditions - a conjoint reading of the terms and conditions of these two agreements would show that the vacant land for which separate agreement has been entered into is nothing but land appurtenant thereto to the covered area/shed/warehouse. They are closely interlinked and interdependent. Thus by relying on the definition of RIPS under section 65(105)(zzzz) the vacant land has to be considered as land appurtenant to the warehouses. Therefore we do not find any infirmity in the impugned order confirming the demand on this count. Demand on account of vacant land at A9 Industrial Area Kapparada Kancherapalam Visakhapatnam to M/s Avnash Automobiles Pvt Ltd - HELD THAT - The appellants have a case because if there was no building at the time of leasing out the vacant land and if it was given prior to 01.07.2010 then there would not be any demand. The fact that they have constructed a building before hand which was also let out to M/s Avnash Automobiles Pvt Ltd is also not clear. Therefore this factual aspect needs to be examined by the Adjudicating Authority subject to appellant submitting the evidence to the effect that there was neither a building on the vacant land at the time of leasing out nor the provision for excluding vacant land from the purview of taxation was applicable at the time of leasing out. The fact that there were some other building for which no lease has been granted by the appellant to M/s Avnash Automobiles is obvious as the agreement is only for vacant land and there is no mention of any other agreement whereby the closed building etc. was also given on lease. Therefore merely because a land is appurtenant to any building it will not get covered within the scope of service if building/shed has not been rented out. It is the other way round that where a building has been rented out which also has land appurtenant thereto then that land will also be included for the purpose of valuation of building. Therefore this matter also needs to be remanded back to the Original Adjudicating Authority for redetermination of Service Tax liability. Letting out of property located at S.No.51/1 B IDA Block-A Mindi Visakhapatnam to M/s Avnash Automobiles - HELD THAT - There are much force in the ground that there is no strong evidence on record to suggest that just because certain buildings were existing the entire land would be considered as land appurtenant to the building especially when the agreement is only with respect to vacant land and there is no other cogent evidence by the department to prove that the clients of the appellants were using both building and the land though showing only land in their agreement. Therefore in view of the same the demand would not sustain on this ground and it will be only a vacant land which is not includable for the purpose of charging Service Tax under RIPS. Exemption from Service Tax in respect of vacant land let out to M/s ATR Cars Pvt Ltd. - HELD THAT - The Adjudicating Authority has clearly held that the appellants have let out only the vacant land appurtenant to the building and not the building and therefore liable for exclusion from the definition of immovable property under section 65(105)(zzzz) of the Finance Act 1994. Merely because he was unable to exclude the income arising out of this property no relief was given which is not correct. The appellants are at liberty to show them the breakup of rents received from M/s ATR Cars and the Service Tax liability which has been included in the total liability needs to be excluded for the purpose of calculating the demand. Therefore this also needs to be remanded back. Non-payment of Service Tax during the period May 2009 to Feb 2010 - HELD THAT - There is no doubt about the classification or the valuation and the only dispute is as regards amount payable and paid. As per the appellant the entire Service Tax liability was discharged except for the interest liability on the delayed payment but the same was not accepted in view of the fact that appellant has not included rent received for the open land and that certain documents were also not submitted. Since the issue as regards classification and Service Tax leviability is not disputed the only dispute is whether the total amount of Service Tax is paid with interest or there is some short recovery - Since it would require recalculation of amount as well as verification of certain documents etc. and therefore to this extent the impugned order is set aside and the matter is required to be remanded back to the Original Adjudicating Authority for recalculating the total demand of Service Tax along with interest after allowing abatement for tax and interest already paid. Rental advances - HELD THAT - The demand has been confirmed on the ground that the said amounts cannot be treated as security deposit inasmuch as the said amounts were actually rental advances which were adjusted on the monthly pro rata basis as agreed upon in the agreement between the appellant and the tenant. The Adjudicating Authority has also considered that there is a possibility that in respect of some of these pro rata payments the Service Tax would have been paid at the time of payment of rent. However the said submission of the appellant could not be verified as no supporting documents were available. Therefore the entire demand has been upheld. The amount cannot be considered as security deposit inasmuch as it has been applied continuously for discharging of rent which is an admitted position and therefore Service Tax would be leviable on the said amount. However as the appellants are submitting that some of these amounts have already suffered Service Tax this needs to be verified. Accordingly this issue is also required to be remanded back for working out the net Service Tax payable. Site Formation Clearance Service - HELD THAT - The services of muck cleaning and disposal is rightly classifiable under the category of SFCS. The appellants have not refuted the amount of Service Tax demanded by the department which they have paid under Works Contract Service (WCS) and also certain portion under SFCS. Therefore as far as the classification is concerned there is no dispute that it is in the nature of SFCS. However there is dispute as regards some of the amounts already paid under the category of WCS as well as under the category of SFCS. These amounts need to be adjusted against the total amount demanded from the appellant under this category. Therefore this issue is also required to be remanded back to the Original Adjudicating Authority for recalculation. Commercial of Industrial Construction Service - HELD THAT - The Adjudicating Authority has not considered the abatement claimed by the appellant for calculating the total Service Tax liability while paying certain Tax liability under this category. The appellants could not put forth any evidence to claim having fulfilled the conditions for availing the benefit under Notification No.01/2006-ST dt.01.03.2006 and therefore the same was denied by the Adjudicating Authority. Here it is again felt that proper opportunities were not given to the appellant to adduce evidence in support of their claim for abatement in terms of Notification No.01/2006-ST. Therefore this issue is also remanded back to the Original Adjudicating Authority for recalculation of Service Tax liability. Time limitation - suppression of facts or not - HELD THAT - The appellants have not canvassed any concrete reasons as to why the extended period should not be invoked in the factual matrix of this appeal. In fact they have although been claiming that the demand itself is not maintainable on merit. They have also taken a plea from time to time that certain amount of service tax has already been paid by them though not as per the demand made by the department. Therefore having regards to submissions from both sides and the facts of the case we find no infirmity in the order of the adjudicating authority holding that extended period is invocable in this case. Conclusion - i) The vacant land leased by the appellant was appurtenant to the warehouses and subject to service tax under RIPS. ii) For SFCS and CICS recalculation of tax liability is required considering abatements and the nature of contracts. iii) The rental advances are part of the taxable value and required verification of payments to avoid double taxation. iv) The invocation of the extended period for demand upheld due to the appellant s failure to register and pay service tax timely. Appeal allowed partly by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment include:

• Whether the vacant land leased by the appellant can be considered as "land appurtenant" to the warehouses under the definition of 'Renting of Immovable Property Service' (RIPS) and thus subject to service tax.
• The appropriate classification and taxability of services provided under 'Site Formation & Clearance Service' (SFCS) and 'Commercial or Industrial Construction Service' (CICS).
• The treatment of rental advances and their inclusion in the taxable value for service tax purposes.
• The applicability of service tax on non-payment during a specific period and whether interest and penalties are justified.
• The invocation of the extended period for demand and associated penalties.

2. ISSUE-WISE DETAILED ANALYSIS

(A) Renting of Immovable Property Service (RIPS):

• Legal Framework: The definition of 'Renting of Immovable Property' under Section 65(105)(zzzz) includes land appurtenant to a building.
• Court's Interpretation: The Tribunal analyzed whether the vacant land leased by the appellant was appurtenant to the warehouses. It was determined that the vacant land was indeed appurtenant due to its utility and necessity for the functioning of the warehouses.
• Key Evidence: The Tribunal relied on agreements, site plans, and the physical layout of the property to conclude that the vacant land was integral to the warehouse operations.
• Application of Law: The Tribunal applied the definition of RIPS to conclude that the vacant land should be included in the taxable value.
• Competing Arguments: The appellant argued that the land was standalone and not appurtenant, while the department contended it was essential to the warehouse operations.
• Conclusion: The Tribunal upheld the demand for service tax on the vacant land as part of RIPS.

(B) Site Formation & Clearance Service (SFCS):

• Legal Framework: Defined under Section 65(105)(zzza), SFCS includes activities like muck clearing and disposal.
• Court's Interpretation: The Tribunal agreed with the classification of the appellant's activities as SFCS.
• Key Evidence: The Tribunal noted the services provided involved muck clearing and disposal, consistent with SFCS.
• Application of Law: The Tribunal found the classification appropriate and required recalculation of tax liability considering payments already made.
• Conclusion: The matter was remanded for recalculation of service tax liability.

(C) Commercial or Industrial Construction Service (CICS):

• Legal Framework: CICS includes construction services provided for commercial purposes.
• Court's Interpretation: The Tribunal found the services provided under an agreement with M/s Schlumberger Asia Services Ltd to fall under CICS.
• Key Evidence: The agreement and the nature of services provided were considered.
• Application of Law: The Tribunal noted the need for recalculation, considering abatements and the nature of the contract.
• Conclusion: The matter was remanded for further examination of the contract's nature and tax liability.

(D) Rental Advances:

• Legal Framework: Rental advances adjusted against monthly rents are subject to service tax.
• Court's Interpretation: The Tribunal found that rental advances were not security deposits and should be included in the taxable value.
• Key Evidence: The agreements detailing the adjustment of advances against rent were considered.
• Application of Law: The Tribunal required verification of payments already made to avoid double taxation.
• Conclusion: The issue was remanded for verification and recalculation.

(E) Non-payment of Service Tax:

• Legal Framework: Service tax is payable on the provision of services, and interest is due on delayed payments.
• Court's Interpretation: The Tribunal noted a need for recalculation of the total amount due, considering payments made.
• Conclusion: The matter was remanded for recalculation and verification of payments.

3. SIGNIFICANT HOLDINGS

• The Tribunal held that the vacant land leased by the appellant was appurtenant to the warehouses and subject to service tax under RIPS.
• For SFCS and CICS, the Tribunal required recalculation of tax liability, considering abatements and the nature of contracts.
• The Tribunal found rental advances to be part of the taxable value and required verification of payments to avoid double taxation.
• The invocation of the extended period for demand was upheld due to the appellant's failure to register and pay service tax timely.
• The Tribunal remanded several issues for further examination and recalculation by the Original Adjudicating Authority.