Service Tax | Co-Op Society Paying Rent Arrears To Local Municipality For Gas Transportation Pipeline Not Liable Under Reverse Charge : CESTAT Ahmedabad
The Ahmedabad Bench, Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the demand of service tax by treating payment of Rs. 60 lakhs to Vallabh Vidhyanagar Municipal Corporation as rent arrears and not consideration for tolerating/refraining from an act. The Bench comprising, Dr. Ajaya Krishna Vishvesha (Judicial Member) and Mr. Satendra Vikram Singh...
The Ahmedabad Bench, Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the demand of service tax by treating payment of Rs. 60 lakhs to Vallabh Vidhyanagar Municipal Corporation as rent arrears and not consideration for tolerating/refraining from an act.
The Bench comprising, Dr. Ajaya Krishna Vishvesha (Judicial Member) and Mr. Satendra Vikram Singh (Technical Member) examined whether Rs. 60 lakhs paid to Municipal Administration of Vallabh Vidhyanagar i.e. Vallabh Vidhyanagar Nagar Palika was 'Consideration' towards tolerating an act or outstanding dues towards Rent. They clarified that once the recipient Nagar Palika had treated the amount as 'Rent' on which they also paid service tax, service tax could not be paid on the said amount again on reverse charge basis under the category of Declared Service.
Appellant, a Co-operative Society in Anand, Gujarat, that distributed natural gas and operated CNG station lay down underground pipeline for transportation of gas for which Vallabh Vidhyanagar Nagar Palika (VVNA) demanded rent. This led to a dispute between Appellant and VVNA, which came to be settled through a mutual agreement. It paid Rs. 60 lakhs to under settlement agreement in equal instalments on which the Nagar Palika paid service tax under the category of 'Renting of Immovable Property Service'.
The Service Tax Department treated this payment as 'Tolerating an Act' instead of 'Renting of Immovable Property Service' provided by VVNA which was taxable as Declared Service under Section 66E( e) of the Finance Act, 1994.
A Show Cause Notice was issued on the premise that during July 2012 to June 2017 there was non-payment of service tax under Reverse Charge Mechanism towards rent, legal services. A demand of Rs.8,90,000 for renting services together with Interest, Penalty, Swachh Bharat Cess and Krishi Kalyan Cess and Rs.73,840 for legal services was demanded from the Appellant.
It was submitted by the Service Tax Department that outstanding dues between VVNA and Appellant till 2015-16 were about Rs. 98 lakhs against which only Rs.60 Lakhs was paid which means that the balance amount of approximately Rs.39 Lakhs had been written off. This amounted to agreeing to tolerate an act or agreeing to refrain from act attracting service tax liability under Section 66E of the Finance Act, 1994 under Reverse Charge Mechanism, the Department argued.
On the aspect of Declared Service viz. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act, the CESTAT clarified that same amount could not suffer service tax twice since even if the settlement amount was not 'Rent', then too it would qualify as 'Damages'. It was pointed out that elements like “agreeing to an obligation to refrain from an act or to do an act” was thus absent in the present case.
Thus, CESTAT set aside the service tax demand for extended period as well as penalty under Sections 77 and 77(2) of the Finance Act, 1944.
Case Detail: Charotar Gas Sahkari Mandali Limited vs. Commissioner of CGST & Central Tax-Vadodara
Case No.: Service Tax Appeal No. 12621 of 2019- DB
For Appellant: Mr. A. X. S., Jiwan (Consultant)
For Respondent: Mr. NeilPrakash G Makwana