Revenue Sharing Arrangements Not Taxable As Service U/S 65(90a) Of Finance Act: CESTAT

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that revenue-sharing arrangements are not taxable as a service under Section 65(90a) of the Finance Act. The Bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) stated that the agreement was purely related to the transaction of business whereby the assessee was actually performing the activity of operation of catering and was not providing any service of renting of immovable property. The Tribunal observed that neither the activity performed can be stretched to rendering “services‟ nor the amount received for performing the activity can be stretched to “consideration‟ in the technical sense to be covered under the provisions of Section 65(90a) of the Act. In this case, the Indian Railway Catering and Tourism Corporation Limited (IRCTC)/ appellant was authorized to award licenses for various catering stalls, Food Plaza, and buildings belonging to Indian Railways. It was found that the IRCTC has leased out the Food Plaza, Fast Food units to other catering contractors. However, IRCTC did not pay service tax on these fees under the category of “Renting of Immovable Property Service.” The show cause notice alleged that, under the MoU and policy, properties owned by Indian Railways were handed over to IRCTC so that IRCTC could further license them to private contractors. The Adjudicating Authority confirmed the demand for service tax. The assessee contended that the agreement is not for the renting of immovable property. The agreement was in the nature of revenue sharing arrangement on principal-to-principal basis and not for provision of any service by one party to another. Further, it was contended by the assessee that the consideration for the permission to operate and manage the Food Plaza cannot be considered as taxable under the category of renting of a property under Section 65 (105) (zzzz). The Department contended that the assessee failed to disclose that the assessee was licensing or renting railway properties to private parties and collecting fees which showed their deliberate intention not to pay the service tax and defraud the government exchequer. The Tribunal stated that the essential character of the agreement is discerned, which is operation and management of Food Plazas and the space provided at the railway stations was merely ancillary and incidental to the implementation of the primary activity. The object is not to give any free land to the licensee for selling the items like a normal restaurant as neither the title of the agreement nor its contents reflects that the main intention of the parties was to rent out the property/land/building. The Court noted that the Department had already issued two earlier show cause notices to IRCTC for earlier periods, which meant that the entire transaction was within their knowledge. The Tribunal stated that the transaction is purely on business terms, on a revenue-sharing basis; hence, the demand for service tax is not sustainable. In view of the above, the Tribunal allowed the appeal. Counsel for Appellant/ Assessee: Sanjeev Sachdeva Counsel for Respondent/ Department: V.K. Jain Case Title: M/s. Indian Railway Catering & Tourism Corporation Ltd., Versus Commissioner of Service Tax, Delhi-I Case Number: Service Tax Appeal No. 52667 OF 2015 Click Here To Read/Download The Order

Revenue Sharing Arrangements Not Taxable As Service U/S 65(90a) Of Finance Act: CESTAT

Mehak Dhiman

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