2021 (5) TMI 836 - AT - Service Tax

Refund of excess service tax paid - Demand of differential rate of tax on Preferred Location Service - CENVAT Credit - input services - Renting of Immovable Property Service - HELD THAT - The issue of Preferential Location Charges and natural bundling thereof with main service under Section 65(3) of the Finance Act, 1994 has been decided in the case of M/S SJP INFRACON LIMITED VERSUS THE COMMISSIONER OF CENTRAL EXCISE SERVICE TAX, NOIDA 2018 (12) TMI 253 - CESTAT ALLAHABAD where it was held that In the present case construction of residential complex service is the service which gives essential character to the package of the service and, therefore, the charges are essentially required to be bundled with the single service namely construction of residential complex service - thus, the Preferential Location Charges were correctly subjected to Service Tax at same rate as that of Construction of Residential Complex Service by the Appellant and the differential demand of Service Tax alongwith interest and penalty therefore must be quashed and set aside. The Appellant also becomes entitled to consequential relief in form of refund as claimed for by them on this count, in terms of Section 11B of the Central Excise Act, 1944. Renting of immovable property service - HELD THAT - The SCN itself suggests that the demand is raised since the service availed is essentially a business entity and the property is to be used for accommodation of Directors/Senior Management personnel. This in itself is not sufficient to hold that the nature of service was that of Renting of immovable property for commercial use. The Appellant has adduced evidence in form of Electricity bills and Certificate from Co-Op Housing Society, which shows that only one Director was permanently residing at the leased accommodation premises and the property had not commercial use. There is no dispute as such that the leased premises was used only as residential dwelling of the Director - the demand on this count also must be quashed and set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Preferential Location Service
2. Renting of Immovable Property Service

Detailed Analysis:

1. Preferential Location Service:

The Appellants, M/s. Alembic Ltd. and M/s. Shreno Ltd., were engaged in real estate projects and had recovered charges for preferential location services (e.g., garden view, road side location) in the course of providing construction of residential complex services. They discharged service tax at the same rate applicable to construction of residential complex services. However, revenue authorities insisted on payment of tax at the full rate, leading to a demand for differential tax. The Appellants paid this tax with interest during an audit and sought a refund, which was denied by the revenue authorities.

The Tribunal noted that the issue was no longer res integra and had been decided in favor of the Appellants in several cases, including SJP Infracon Ltd. v. CST, Noida, Logix Infrastructure Ltd., Friends Land Developers, and Radhekrishna Technobuild P. Ltd. These cases established that preferential location charges should be taxed at the same rate as the construction of residential complex services, as they are naturally bundled services under Section 66F(3) of the Finance Act, 1994. The Tribunal emphasized that preferential location services are not provided on a standalone basis but are part and parcel of the construction of residential complex services.

The Tribunal also referred to the Hon’ble Gujarat High Court's judgment in Torrent Power Ltd., which discussed the principles for considering a service naturally bundled with the main service and taxed at the same rate. The Tribunal concluded that the differential demand of service tax along with interest and penalty must be quashed and set aside. Consequently, the Appellants were entitled to a refund as claimed, in terms of Section 11B of the Central Excise Act, 1944.

2. Renting of Immovable Property Service:

In the case of M/s. Shreno Ltd., they had let out a residential property to M/s. Alembic Pharmaceuticals Ltd. for use by their Directors/Senior Management personnel for accommodation purposes. The revenue authorities raised a demand for service tax on this transaction as renting of immovable property service. The Appellant paid the tax and interest during an audit and sought a refund, which was denied.

The Tribunal found that the demand was based on the assumption that the service availed was essentially for a business entity and the property was used for accommodation of Directors/Senior Management personnel. However, the Appellant provided evidence, including electricity bills and a certificate from the Co-Op Housing Society, showing that only one Director was permanently residing at the leased premises and the property was not used for commercial purposes. The Tribunal concluded that the leased premises were used solely as a residential dwelling, and therefore, the demand of service tax on this count must be quashed and set aside.

The Tribunal ruled that the Appellants were entitled to a refund of the tax and interest already paid, in accordance with Section 11B of the Central Excise Act, 1944.

Conclusion:

The appeals were allowed, and the Appellants were granted consequential relief, including refunds, as per the provisions of the Central Excise Act, 1944. The judgment was pronounced in the open court on 25.05.2021.