2024 (11) TMI 13 - HC - Service Tax

Validity of service tax demand Order - service tax demands on immovable property rentals - Order order of rejection suffers from a lack of reasoning as it ought to have set out the reasons cogently for the variation in estimate arrived at between the Declarant/Petitioner and the Designated Authority - 50% of the demand confirmed - Petitioner submitted that 50% of the demand confirmed has now been paid by the lessee and therefore the Petitioner was entitled to set off the aforesaid amount paid by the lessee under the declarations filed by the Petitioner under Chapter 6 of Finance Act No.2 of 2019 incorporating the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. HELD THAT - The liability to pay service tax under the provisions of Finance Act, 1994 from 2007 for renting of immovable property was on the Petitioner. However, the lessee who have leased out properties from various persons like the petitioner have challenged the levy of service tax on renting of immovable property unsuccessfully before various High Courts and have approached the Hon'ble Supreme Court. The Hon'ble Supreme Court by its Order 2011 (10) TMI 12 - SUPREME COURT has ordered payment of 50% of the property tax by the lessees although they are themselves not liable to pay service tax under the provisions of the Finance Act, 1994 read with Service Tax Rules, 1994. They have to bear the incidence of tax as service tax is an indirect tax. It is also noticed that the Impugned Order has been passed by two officer and one of the officers was not the person who heard the Petitioner. Hence, there is a violation of Principles of Natural Justice. Circular issued by the Board in Circular No.1073/06/2019.CX dated 29.10.2019 in F.No.267/78/2019/CX-8-Pt.III has been issued in the context of Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. The said Circular is not free from doubt and is fraught with confusion although it states that it is clarified that such persons are liable to file declaration under the Scheme to avail the benefit. It has given an impression as if the amount deposited by the lessee can be appropriated towards the tax liability of the declarant under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. If the challenge to levy is answered in favour of the lessee, the amounts deposited by them pursuant to the directions of the Hon'ble Supreme Court referred to supra will have to be refunded back. If on the other hand the amount deposited is allowed to be appropriated even if the petitioner is able to give a break up and due certificate from the respective lessees, mechanism for refund of the amount to be appropriated under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 has been left unanswered. There is some element of doubt. Under these circumstances, we quash the Impugned Order and remit the case back to the Respondent to pass a fresh orders on merits.

Summary

Issues:
Challenge to Impugned Order based on lack of reasoning and violation of Principles of Natural Justice.

Analysis:
The Petitioner approached the Court seeking to quash an order and obtain a Discharge Certificate. The earlier Writ Petition highlighted the lack of reasoning in the rejection order, citing the need for clear justification as per legal standards. Reference was made to a Supreme Court case emphasizing the importance of orders containing adequate reasoning. The Circular issued by the Central Board of Indirect Taxes and Customs was also discussed, particularly regarding service tax demands on immovable property rentals. The ambiguity in the Circular's language concerning lessees challenging service tax demands was noted.

The subsequent Impugned Order was challenged by the Petitioner due to a change in the presiding officer from the one who heard the Petitioner's case. The Petitioner, owning a shopping mall, had lessees challenging service tax liabilities, with some payments made by lessees towards the demand. The Petitioner sought to set off these payments under the Sabka Vishwas Scheme. The Respondents argued that the Petitioner failed to provide requested documents, leading to the Impugned Order. The Court considered the liability to pay service tax on renting immovable property, highlighting the lessees' indirect tax burden as upheld by the Supreme Court.

The Court found a violation of Principles of Natural Justice in the Impugned Order due to the involvement of an officer who did not hear the Petitioner. The Circular's ambiguity regarding the appropriation of lessees' payments under the Sabka Vishwas Scheme raised concerns about refund mechanisms if the lessees' challenge succeeded. Consequently, the Court quashed the Impugned Order and remitted the case for fresh consideration, emphasizing the need for clarity on refund procedures in case lessees' payments are allowed to be appropriated.

In conclusion, the Court's decision focused on addressing the lack of reasoning in the Impugned Order, the violation of Principles of Natural Justice, and the need for clarity on the appropriation of lessees' payments under the Sabka Vishwas Scheme. The judgment sought to ensure procedural fairness and legal clarity in resolving the dispute related to service tax liabilities on immovable property rentals.