2024 (9) TMI 1600 - AT - Service Tax

Interpretation of N/N. 30/2012-S.T. dated 20.06.2012 and N/N. 45/2012-S.T. dated 07.08.2012 - reverse charge mechanism with regard to the services provided by a director of a company to the body corporate or the said company - service tax on rent paid by a company to its directors who own the leased building - HELD THAT - As per undisputed facts of the case directors who own the immovable property has given on rent to the appellant company and the appellant company has paid the rent for the rental premises to the director. This activity is nothing to do with the relationship of the directors with the company as director. As per the entry 5A of the notification dated 07.08.2012, it is clear that only those services which are provided by the director to the company in the capacity of directors are covered under service tax liability under reverse charge mechanism on the service recipient. For example the director is paid director fees, seating fees etc. the same will be covered under reverse charge mechanism and the company is liable to pay the service tax whereas in the present case there is no such payment involved. The payment which was sought to be taxed by the Revenue is rent of immovable property which is in individual capacity and not in the capacity of the director. This issue is no longer res-integra as the same has been decided by this Tribunal in M/S CORDS CABLE INDUSTRIES LIMITED VERSUS COMMISSIONER, CENTRAL EXCISE, JAIPUR (RAJASTHAN) 2023 (4) TMI 441 - CESTAT NEW DELHI wherein it was held that 'The premises which were let out to the appellant are owned by Naveen Sawhney and D.K. Prashar in their individual capacity and it is not the case of the department that the properties were owned by them as Directors of the appellant. In such a situation, rent was collected by them in their individual capacity and merely because they also happen to be the Directors of the appellant would not mean that they had collected rent as Directors of the appellant.' From the above decision of the Principal Bench of this Tribunal, the issue and facts involved is absolutely identical to the facts of the present case. Therefore the ratio of the above decision is directly applicable to the present case. The issue is no longer res-integra - the impugned order is set aside. The appeal is allowed.

Summary

Issues:
Interpretation of Notification No.30/2012-S.T. dated 20.06.2012 and Notification No.45/2012-S.T. dated 07.08.2012 regarding reverse charge mechanism for services provided by directors of a company. Applicability of service tax on rent paid by a company to its directors who own the leased building.

Analysis:
The case involved a dispute regarding the applicability of service tax on rent paid by a company to its directors who owned the leased building, based on Notification No.30/2012-S.T. dated 20.06.2012 and Notification No.45/2012-S.T. dated 07.08.2012. The issue revolved around whether such rental payments fell under the reverse charge mechanism as per entry serial No. 5A of the notification, which specified services provided by a director of a company to the company or body corporate. The appellant contended that renting of immovable property was not covered under this entry as it did not relate to the director's capacity within the company. The appellant relied on a previous Tribunal decision to support their argument.

The respondent, on the other hand, supported the findings of the adjudicating authority, asserting that the rental service provided by the directors should be subject to service tax under the reverse charge mechanism. However, the Tribunal, upon careful consideration of the submissions and records, found that the rental payments for the leased premises were made in the directors' individual capacity, not in their capacity as directors of the company. The Tribunal referred to a previous order where a similar issue was addressed, emphasizing that services covered under the reverse charge mechanism were those provided by directors to the company in their capacity as directors, such as director fees or seating fees.

The Tribunal highlighted that the rental payments for immovable property did not fall under the scope of services covered by the notification, as they were not provided in the directors' capacity as company directors. The Commissioner (Appeals) had erred in assuming that the directors were providing the rental service as directors of the company. The Tribunal concluded that the appellant should not be liable to pay service tax under the reverse charge mechanism for the rent paid to the directors. The impugned order was set aside, and the appeal was allowed based on the precedent set by the previous Tribunal decision with identical facts and issues.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the issue was no longer res-integra based on the previous decision, and the rental payments for immovable property made to the directors in their individual capacity were not subject to service tax under the reverse charge mechanism. The impugned order was overturned, and the appeal was allowed.