2017 (4) TMI 998 - AT - Service Tax

Validity of SCN - Service on partners instead of firm - Held that - the rent is received by the Partnership Firm, viz; M/s Satyanarayana Paddy Boiled Unit (SPBU). The property is owned by them and property tax is also paid in the name of the unit. The premises was given for lease for sole use as auction platform for tobacco growers to enable them to get better price for their produce. The service provider here is M/s SPBU and not the individual partner. Therefore, the show cause notice/demand raised against one partner/Managing Partner is non est in law - reliance placed in the case of Hindustan Foam Industry Vs. CCE 1989 (9) TMI 274 - CEGAT, NEW DELHI - appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of service tax on renting of immovable property by Commissioner (Appeals) upheld; Demand raised against individual partner instead of partnership firm; Legal status of partnership firm as a separate entity from partners.

Confirmation of Service Tax:
The appeal was filed against the confirmation of service tax on renting of immovable property by the Commissioner (Appeals). The property in question was leased out to a company by a partnership firm, and the Department issued a notice demanding service tax against one of the partners of the firm. The appellant argued that the demand should have been issued in the name of the firm, not an individual partner. The Department's notice was challenged based on legal precedents establishing that a partnership firm is a separate legal entity. The Tribunal observed that the rent was received by the partnership firm, the property was owned by the firm, and property tax was paid in the firm's name. Therefore, the show cause notice against an individual partner was deemed legally invalid.

Legal Status of Partnership Firm:
The Tribunal analyzed the legal status of a partnership firm as a separate entity from its partners. Referring to relevant legal provisions, the Tribunal highlighted that a partnership firm is considered a separate legal entity capable of entering into agreements and providing services. The Tribunal emphasized that in this case, the premises belonged to the partnership firm, and the service of renting the property could only be provided by the firm, not individual partners. Citing previous judgments, the Tribunal concluded that the demand raised against an individual partner for service tax on renting of immovable property was legally unfounded. The Tribunal upheld the argument that the firm and its partners should be treated as distinct entities under the law.

Conclusion:
In conclusion, the Tribunal set aside the impugned order confirming the service tax demand on renting of immovable property. The appeal was allowed in favor of the appellant, emphasizing the legal status of the partnership firm as a separate entity from its partners. The decision highlighted that the rental income was received by the firm, and TDS was deducted from the firm's income. Therefore, the demand raised against an individual partner was considered legally untenable. The judgment provided consequential reliefs to the appellant based on the legal principles established regarding the distinct legal identity of a partnership firm.