2024 (9) TMI 700 - AT - Service Tax

Levy of service tax - reverse charge mechansim - rental amount paid to the directors of the company on account of renting of immovable property - levy of penalty u/s 78 of FA - misinterpretation of provisions of Entry 5A of Notification No.30/2012-ST dated 20.06.2012, as amended, by Notification No.45/2012-ST dated 07.08.2012 - whether the service tax can be levied under the RCM on the appellants, when the service of renting of immovable property provided by the directors was in their individual capacity and not as the director of the company? HELD THAT - In the present case, the payment made by the company to the directors is in the nature of office rent as shown in the audited Profit Loss Account. This clearly relates to the fact that the service provided by the director is not as directors as renting of the building on rent does not fall under the director s service. It is a matter of chance that the renting service provided by a person happens to be a director. If the liability towards the services rendered by a person in his individual capacity is fastened on the company where he is a director, it would lead to extending the unwarranted liability on the company. The intention of the government is not that any activity/service which is performed by the director, the company would be liable to pay the tax. This Tribunal in the case of Cords Cable Industries Ltd. 2023 (4) TMI 441 - CESTAT NEW DELHI considered the issue of payment of service tax under RCM and observed that the directors in that case were providing service of renting of immovable property not as directors of the appellant company but in their individual capacity as owners of the premises and as the directors of the appellant and in such a situation, the appellant could not have been asked to pay the service tax on RCM - there are no good reason to differ from the view taken by the Co-ordinate Bench in M/s.Cords Cable Industries Ltd. Following the said decision, it is held that the appellant company cannot be saddled with the liability of service tax under RCM when the service of renting of immovable property has been provided not in the capacity of the directors of the company but in their personal capacity. Imposition of penalty under Section 78 of the Act - HELD THAT - The amount of cenvat credit taken by the appellant on the exempted services was in contravention of the provisions of the Finance Act and the Rules made thereunder with intent to evade payment of duty. The Authorities below are correct in observing that the amount of cenvat credit was reversed only after the audit has taken place - instead of directing the imposition of mandatory penalty of 100%, the Adjudicating Authority had granted liberty to the appellant by directing that the imposition of penalty shall be limited only to 25%, subject to the condition that such reduced penalty is also paid within 30 days of the date of receipt of the order. Hence no interference is called for in imposition of penalty. Accordingly, there are no error in the imposition of penalty. The appellant is also required to pay the balance amount of interest from the sum of Rs.51,088/- as they had deposited only Rs.12,469/-. It is a settled law that the levy of interest is automatic and hence, the appellant is liable to pay the same under Section 75 of the Act. The impugned order is partly set aside - The appeal is accordingly allowed partially.

Summary

Issues:
Levy of service tax on rent of immovable property paid to directors, reversal of cenvat credit amount on exempted services in Jammu & Kashmir, interpretation of Reverse Charge Mechanism (RCM), imposition of penalty under Section 78 of the Finance Act, 1994.

Analysis:
The appellant, a coaching institute, challenged the order confirming service tax on rent paid to directors and reversal of cenvat credit related to exempted services in Jammu & Kashmir. The appellant argued that the service tax liability should fall on directors, not the company, as the renting service was provided in their individual capacity, not as directors. The Circular No.201/13/2013-GST clarified that services provided by directors in their personal capacity, like renting of immovable property, are not taxable under RCM. The Tribunal referred to a previous case where it was held that directors providing renting services in their individual capacity do not make the company liable for service tax under RCM.

Regarding the penalty under Section 78, the appellant contested it, stating that the cenvat credit amount was reversed before the show cause notice was issued, indicating no intent to evade payment. However, the Authorities upheld the penalty, noting that the credit was reversed only after an audit. The Tribunal agreed with the Authorities, stating that the penalty was correctly imposed. The appellant was also directed to pay the balance interest amount as per Section 75 of the Act.

In conclusion, the Tribunal partially set aside the impugned order, allowing the appeal partially. The decision was pronounced on 12th September, 2024.