2018 (11) TMI 1388 - AT - Service Tax

Valuation - renting of immovable property service - inclusion of reimbursement charges of ₹ 6,44,88,765/- from their client (tenants) towards electricity charges in addition to the rent amount in assessable value - Held that - As against renting of immovable property the only rent collected by the appellant from their tenants is the consideration towards the rent. The electricity is consumed by the service recipient, therefore, they are liable to pay the same actual unless the same is included in the rent - In the facts of the present case, the electricity expenses is supposed to be borne by the tenants (service recipient), therefore, merely facilitating the payment of electricity charges by the appellant and subsequently taking the reimbursement of the same will not form part and parcel of gross value of service of renting of immovable property. The electricity charges reimbursed to the service provider by the service recipient not includible in gross value of renting of immovable property service. The decision in the case of M/S ICC REALITY (INDIA) PVT LTD OTHERS VERSUS COMMISSIONER OF CENTRAL EXCISE 2013 (12) TMI 854 - CESTAT MUMBAI relied upon where it was held that Electricity charges collected from the tenants cannot be formed part of the assessable value for the purpose of service tax as provider of renting of immovable properties. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Inclusion of electricity charges in the gross value of renting of immovable property service.
2. Applicability of service tax on reimbursed electricity charges.
3. Interpretation of lease agreements regarding electricity charges.
4. Legal precedents on the treatment of reimbursed expenses.

Detailed Analysis:

1. Inclusion of Electricity Charges in the Gross Value of Renting of Immovable Property Service:
The primary issue was whether the actual electricity charges paid by the appellant and subsequently reimbursed by tenants should be included in the gross value of renting of immovable property service. The appellant argued that these charges, as per the lease agreement, were to be borne by the tenants and were not part of the service consideration. The tribunal agreed, stating, "the electricity is consumed by the service recipient, therefore, they are liable to pay the same actual unless the same is included in the rent." It was concluded that facilitating the payment and subsequent reimbursement of electricity charges does not form part of the gross value of the renting service.

2. Applicability of Service Tax on Reimbursed Electricity Charges:
The tribunal referenced multiple decisions, including ICC Realty (India) Pvt. Ltd Vs CCE., Pune, and M/s. Hotel Lake View Ashok Vs. CGST CE and CC, Bhopal, which consistently held that electricity charges reimbursed to the service provider are not includible in the taxable value for service tax purposes. The tribunal reiterated, "the electricity charges collected from the tenants cannot be formed part of the assessable value for the purpose of Service Tax as provider of renting of immovable properties."

3. Interpretation of Lease Agreements Regarding Electricity Charges:
The tribunal examined the lease agreements and found that tenants were responsible for paying electricity charges directly to the electricity board or reimbursing the appellant. This interpretation was supported by the precedent set in ICC Realty (India) Pvt. Ltd Vs CCE., Pune, where it was noted, "the tenants have to pay electricity charges directly to the MSEB and the appellants are also providing electricity through generator set in case there is a power failure and the appellants are charging for the same."

4. Legal Precedents on the Treatment of Reimbursed Expenses:
The tribunal heavily relied on previous judgments to support its decision. In M/s. Hotel Lake View Ashok Vs. CGST CE and CC, Bhopal, it was held that "the appellant is purely working as an agent in collecting the charges with regard to supply of water and electricity and deposited the same with authorities concerned." Similarly, in M/s. S B Developers Ltd Vs CST., New Delhi, it was concluded that "there can be no levy of service tax on the electricity charges which are reimbursed to appellant by the tenants."

Conclusion:
The tribunal concluded that the electricity charges reimbursed by the service recipient to the service provider are not includible in the gross value of renting of immovable property service. This decision was based on consistent legal precedents and the interpretation of lease agreements, which indicated that such charges are to be borne by the tenants and do not constitute consideration for the renting service. Consequently, the tribunal set aside the impugned order and allowed the appeal, stating, "the demand is not sustainable." The appeal was pronounced in the open court on 26.11.2018.

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