No Service Tax On 'Upfront Fee' Received By DMRC From Customers Under Concession Agreement: CESTAT

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that no service tax on 'upfront fee' received by DMRC (Delhi Metro Rail Corporation) from customers under concession agreement. Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) was addressing the issue of whether the “upfront fee” received by the Delhi Metro Rail Corporation Ltd. from various customers under the Concession Agreements entered prior to 1.7.2010 is exigible to service tax on or after 1.7.2010 under “Renting of Immovable Property Services”. The assessee/appellant is a company promoted by Government of India and Government of NCT of Delhi for implementation and operation of Delhi Mass Rapid Transit System Project in the National Capital Region. At the time of executing the Concession Agreements, the assessee had collected "upfront fee" as a price for obtaining the respective Concession Agreements. A Show cause notice was issued to the assessee raising the demand of service tax on the portion of “upfront fee” received at the time of entering into the various concession agreements prior to 01.07.2010 for leasing of vacant land. The Commissioner upheld the demand of service tax under the category of “Renting of Immovable Property Service” on a portion of the amount received as “upfront fee” under the provisions of Finance Act,1994. Regarding the penalty under Section 78 the assessee submitted that the assessee being a Public Sector Undertaking was under a bonafide belief that service tax is not exigible to the “upfront fee” or “onetime payment” received by it under the agreements for grant of such concessions to various developers. The Tribunal agreed with the assessee that the definition of “Renting of Immovable Property” under Section 65(90a) of the Act only includes “leasing” and not an “agreement to lease” and since a “premium” is received by the assessee for entering into agreement to lease, this amount would not be exigible to service tax. The bench referred to the case of Greater Noida Industrial Development Authority Vs. Commissioner of Central Excise and Service Tax (2016) 87 VST 461 where the Tribunal held that “it is a fit case where by invoking Section 80 of the Act, penalties under Section 76,77 and 78 have to be waived if the assessee proves that there was reasonable cause for the said failure and the appellant being an organization functioning under the Government of Uttar Pradesh and the obvious reason for non-payment of service tax, is their bonafide belief that the activity rendered by them would not attract service tax.” The bench further agreed with the assessee that the assessee being a Public Sector Undertaking could be under a bonafide belief that no service tax is leviable on the “upfront fee”. In view of the above, the Tribunal allowed the appeal. Case Title: M/s. Delhi Metro Rail Corporation Ltd. v. Commissioner of Central Excise, & Service Tax Case Number: SERVICE TAX APPEAL NO. 55198 of 2014 Counsel for Appellant/ Assessee: Vishwajeet Tyagi and Sanjay Kumar Counsel for Respondent/ Department: Aejaz Ahmad Click Here To Read/Download The Order

No Service Tax On 'Upfront Fee' Received By DMRC From Customers Under Concession Agreement: CESTAT

Mehak Dhiman

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