Ruchi Infrastructure Ltd. Vs CCE, Indore (CESTAT Delhi)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, New Delhi, Principal Bench, considered two appeals involving the common issue of liability to Service Tax under the category of “renting of immovable property”. The appeals concerned premises owned by Ruchi Infrastructure Ltd. and an agreement entered into with M/s. Madhya Pradesh Warehousing Logistic Corporation, a Madhya Pradesh State Government undertaking created by a State Act, 1962.
The appellant owned various premises capable of being used for warehousing facilities. The appellant and the Warehousing Corporation entered into an agreement described as a Joint Venture agreement in partnership for specified purposes. Under the arrangement, the appellant provided its premises for storing goods brought by depositors, while the Warehousing Corporation undertook warehousing and related activities. The Revenue took the view that the consideration received by the appellant from the Warehousing Corporation was liable to Service Tax because the appellant’s premises were effectively rented to the Warehousing Corporation for use in business or commerce.
The Original Authority held that the appellant was liable to pay Service Tax and also imposed penalties under Sections 76 and 77 of the Finance Act, 1994 and, in one appeal, under Section 78.
Before the Tribunal, the appellant submitted that the agreement was a Joint Venture, as expressly described in the agreement itself. According to the appellant, a Joint Venture involved sharing of income and responsibilities and therefore there could not be a conventional service provider-service recipient relationship between the parties. The appellant referred to the agreement’s clauses concerning sharing of the income described as “storage fee” received from depositors and the responsibilities allocated between the parties. It was argued that these features demonstrated that the arrangement was not a transaction involving renting of immovable property.
The appellant also submitted that Tax Deducted at Source by the Warehousing Corporation on the consideration paid under the Income Tax Act could not determine Service Tax liability. It was further contended that the Warehousing Corporation was not engaged in business or commerce because it was a corporation created under a State Act and, on that basis also, the premises used by it could not give rise to Service Tax liability.
The Revenue opposed these submissions. The Departmental Representative contended that the manner in which consideration was received could not determine taxability. According to the Revenue, the substance of the arrangement showed that premises owned by the appellant were rented to the Warehousing Corporation for use as a warehouse. The Revenue also relied upon the deduction of TDS by the Warehousing Corporation as an indication of the nature of the consideration.
The Tribunal focused on the nature and overall scope of the agreement. It noted that the agreement itself described the arrangement as a Joint Venture agreement of partnership between the godown owner and the State Warehousing Corporation. It also recorded that responsibilities had been specifically identified for each party.
The Tribunal found that this was not a case involving merely the handing over of property and receipt of consideration for that property. The parties continued to share responsibilities in terms of the agreement. On a careful perusal of the agreement, the Tribunal held that it was not a rent agreement. Although certain clauses were found to be clearly in contradiction, the Tribunal considered the overall arrangement and found that both parties intended to operate under a joint partnership arrangement.
The Tribunal further noted that consideration was to accrue to both parties from the common total income and that the Warehousing Corporation undertook activities over and above the storage fee, which was shareable between the parties. Considering the overall scope of the agreement, the Tribunal concluded that the arrangement was more in the nature of a Joint Venture Agreement than a simple rent agreement for use of immovable property.
In reaching this conclusion, the Tribunal referred to the Supreme Court decision in Gujarat State Fertilizers and Chemicals Ltd. & Anr., 2016-TIOL-198-SC-ST, and the Tribunal’s decision in Mormugao Port Trust, 2017 (48) STR 69 (Tribunal-Mumbai), both concerning arrangements involving Joint Venture structures.
The Tribunal accordingly held that the impugned orders were not sustainable and set them aside. The appeals were allowed.
Cases Discussed
- Gujarat State Fertilizers and Chemicals Ltd. & Anr. — Supreme Court, 2016-TIOL-198-SC-ST
- Mormugao Port Trust — Tribunal-Mumbai, 2017 (48) STR 69
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT, DELHI
These are two appeals on common dispute of appellant’s liability to pay service tax under the category of “renting of immovable property” . The brief facts of the case are that the appellant owned various premises, which can be used for warehousing facility. M/s.Madhya Pradesh Warehousing Logistic Corporation, M.P. State Government Undertaking created by a state Act, 1962 entered into an agreement with the appellant. In essence the agreement is called Joint Venture agreement in partnership between the MPWLC and the appellant for certain intended purposes. The appellants provided their premises for storing the goods brought by the depositors, which is warehoused and maintained by warehousing corporation. The Revenue entertained a view that the amount of consideration received by the appellant from warehousing corporation is liable to be taxed as the premises of the appellant were rented out to the warehousing corporation to be used for business or commerce. On such view, proceedings were initiated against the appellant, which resulted in the impugned orders. The Original Authority held that the appellants are liable to pay service tax. Apart from confirming the tax liability, he also imposed penalties under Sections 76 and 77 and in respect of one appeal under Section 78 also.
2. Ld. Counsels appearing for the appellant submitted on the following grounds:-
(a) The agreement between appellant and the State Warehousing Corporation is a creation of Joint Venture, as mentioned in the agreement itself. Such Joint Venture pre-supposes sharing of incomes and responsibilities and there can be no service provider and service recipient relationship between the parties of the Joint Venture.
(b) Referring to specific clauses of the agreement with reference to sharing of income called “storage fee” received from the depositors of goods and various responsibilities fixed on the appellants in terms of such agreement, submission is made to contest the finding that there is a renting of immovable property in the said arrangement.
(c) The TDS done by Warehousing Corporation on the consideration paid to the appellant under Income Tax Act cannot be made a basis for provisions of service tax.
(d) The Warehousing Corporation is not engaged in the activities of the business or commerce as they are a corporation created by a state Act and on that ground also, there is no service tax liability on the premises used by the Warehousing Corporation.
3\. Ld. AR strongly opposed the contention of the appellant. He submitted that the manner of receipt of consideration cannot determine the tax liability of the appellant. It is clear that premises owned by the appellant are rented out to the Warehousing Corporation for further use as a warehouse for the goods deposited. It is the essence of the agreement, which should be considered not to the terms therein. Further, TDS deduction by the Warehousing Corporation on the consideration paid is a clear indication of nature of the consideration as recognized by the Income Tax.
4. We have heard both the sides and perused the appeal records.
5. The main thrust of submission by the appellant is on the nature of the agreement. Admittedly, the agreement itself states the intend of the Joint Venture agreement of partnership between the godown owner (appellant) and the State Warehousing Corporation. Further, there were identified responsibility for each parties. This is not the case about the handing over of the property and receipt of consideration of such property. They continued to share the responsibilities in terms of the agreement. On careful perusal of the agreement, we are of the considered view that it is not the rent agreement. Both parties intended to be joint partnership agreement though certain clauses mentioned therein are clearly in contradiction. However, consideration to be accrued to both the parties specifically to be identified out of common total income, Warehousing Corporation undertakes certain activities over and above the storage fee (which is shareable). Considering the overall scope of the terms of the agreement, we find that the same is more in the nature of the Joint Venture Agreement than a simple rent agreement for usage of immovable property. In this connection, we also refer to the decision of the Hon’ble Supreme Court in the case of Gujarat State Fertilizers and Chemicals Ltd. & Anr. – 2016 –TIOL-198-SC-ST and the decision of the Tribunal in Mormugao Port Trust – 2017 (48) STR 69 (Tribunal-Mumbai). The issues dealt with in this case are also with reference to Joint Venture arrangement claimed by the appellant. In view of the above discussion and analysis, we find the impugned orders are not sustainable and accordingly are set aside. The appeals are allowed.
[Order dictated & pronounced in open court]
