2014 (10) TMI 771 - AT - Service Tax

Waiver of pre-deposit - valuation - Renting of Immovable Property service - demand is in respect of expenditure incurred on repairs and maintenance of machinery by adding to the assessable value for the purpose of Renting of Immovable Property - Held that - applicant relies upon the terms and conditions of the lease agreement with the persons who had taken over the factory on rent where it has been specifically mentioned that the responsibility of repairs and maintenance of the machinery is on the person who is taking the factory on rent. Hence the demand is not sustainable - as per the lease agreement the lessee during the tenure of the contract is responsible for the repairs and maintenance of the factory. There is no evidence on record to show that the quantum of rent has been suppressed to the extent of the expenditure incurred on repairs and maintenance of machinery. In view of this prima facie the applicant has made out a case for waiver of dues. - Stay granted.

Summary

Issues: Application for waiver of pre-deposit of service tax; Demand of differential service tax on Renting of Immovable Property service; Responsibility of repairs and maintenance in lease agreement affecting service tax liability; Validity of demand by Revenue based on undervaluation of rent due to repairs and maintenance expenditure.

Analysis:
1. The applicant filed an application seeking waiver of pre-deposit of service tax, interest, and penalties amounting to &8377;66,71,601. The demand for differential service tax was upheld due to the alleged non-payment of appropriate service tax on Renting of Immovable Property service.

2. The applicant, a Co-operative Bank, had provided a loan to a sugar factory, which failed to repay, leading to the bank taking possession of the factory. The bank then rented out the factory to other sugar factories under the SARFAESI Act, receiving rent against the loan given. The dispute arose regarding the service tax liability concerning the repairs and maintenance expenditure incurred by the sugar manufacturers renting the factory.

3. The Revenue contended that the rent was undervalued as it was influenced by the repairs and maintenance expenditure, justifying the demand for service tax. However, the applicant argued that the lease agreements clearly stated that the responsibility for repairs and maintenance rested with the lessee, not the owner, thus challenging the basis of the demand.

4. Upon reviewing the lease agreements, the Tribunal found that the lessee was indeed responsible for repairs and maintenance during the contract period. There was no evidence to support the claim that the rent was suppressed due to repairs and maintenance costs. Consequently, the Tribunal concluded that the applicant had established a prima facie case for the waiver of dues, leading to the pre-deposit of the remaining amount being waived for the appeal hearing.

5. In light of the above analysis, the Tribunal allowed the stay petition, indicating a favorable outcome for the applicant in challenging the service tax demand based on the alleged undervaluation of rent due to repairs and maintenance expenditure.