Case Law Details
Champa Properties Limited Vs Commissioner of Service Tax (CESTAT Kolkata)
Introduction: In a significant judgment, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Kolkata has clarified the applicability of service tax on rent received for immovable property services. The case of Champa Properties Limited vs. Commissioner of Service Tax revolved around demands for service tax on rental income, and the tribunal’s decision is bound to impact similar cases.
Detailed Analysis:
1. Background of the Case: The appellant, Champa Properties Limited, challenged the confirmation of service tax demands on the rent received by them for “Renting of Immovable Property Service.”
2. Property Portfolio: The appellant owned three properties located in Kolkata:
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- 25A, Shakespeare Sarani, Kolkata-700017
- 106, Diamond Harbour Road, Kolkata-700023
- 114/1A, Cotton Street, Kolkata-700020
3. Allegations and Impugned Orders: The tax authorities alleged that the appellant received advance rent payments for these properties and did not pay service tax on the received rent. The adjudicating authority confirmed the demand for service tax along with interest and imposed penalties.
4. Appellant’s Defense: The appellant argued that they had received rent payments based on an agreement dated 03.02.2005, which covered future periods. They asserted that they had already paid service tax on this rent when providing services to tenants. Therefore, they contended that no additional service tax or interest was due.
5. Rent Payment Breakdown:
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- For 106, Diamond Harbour Road, Kolkata-700023, the appellant received rent during the financial year 2007-08, which included an amount received before June 1, 2007, when no service tax was applicable.
- The appellant also received rent for residential purposes at some of these properties, for which no service tax was payable.
6. Property Transfer: The appellant pointed out that the properties were transferred to separate entities, namely M/s Legacy Services (P) Limited, M/s Om Durga Estate (P) Limited, and M/s Legacy Properties (P) Limited, as per a High Court order dated 16.03.2009, effective from 01.04.2008. Consequently, they argued that they were no longer the property owners and not liable to pay service tax after that date.
7. CESTAT Kolkata’s Ruling: CESTAT Kolkata clarified that no service tax was payable on rent received for “Renting of Immovable Property Service” before June 1, 2007. Accordingly, the appellant was not liable for service tax on rent received for that period.
8. Service Tax Payments: The tribunal acknowledged that the appellant had already paid service tax when providing services, which further supported their claim that no additional service tax or interest was owed.
9. Residential Property Rent: For portions of the premises rented out for residential purposes, the tribunal confirmed that no service tax was applicable to the rent.
10. Property Transfer: CESTAT Kolkata recognized that the properties had been transferred to other entities as per the High Court order dated 16.03.2009. Consequently, the appellant ceased to be the owner of these properties from 01.04.2008 onwards and was not liable to pay service tax.
11. Penalty Waiver: Invoking Section 80 of the Finance Act, 1994, the tribunal waived the penalty imposed on the appellant.
Conclusion: CESTAT Kolkata’s ruling in the Champa Properties Limited case provides clarity on the applicability of service tax on rent received for immovable property services. The decision reinforces that no service tax was payable on such rent received before June 1, 2007. Additionally, the tribunal acknowledged the appellant’s prior service tax payments, supported their arguments, and waived the penalty. This judgment sets a precedent for similar cases involving service tax on property rent prior to June 2007.
FULL TEXT OF THE CESTAT KOLKATA ORDER
By way of this appeal, the appellant challenged the confirmation of demand of service tax on rent received by them under the category of “Renting of Immovable Property Service”.
2. The facts of the case are that the appellants were having three properties, namely, (a) 25A,Shakespeare Sarani, Kolkata-700017, (b) 106,Diamond Harbour Road, Kolkata-700023 & (c) 114/1A,Cotton Street, Kolkata-700020.
2.1 It was alleged that the appellant has received advance payment of rent on the property at 25A,Shakespeare Sarani, Kolkata-700017 in the month of February, 2005 for the period April, 2005 to May, 2007 and again on 28.02.2008 for the future period. The appellant also received rent from 106,Diamond Harbour Road, Kolkata-700023 for the financial year 2007-08 & 2008-09 and from 114/1A,Cotton Street, Kolkata-700020 and the appellant has not paid the service tax on the rent received.
2.2 The appellant contested the issue before the adjudicating authority by filing an defence submission and the adjudicating authority by way of the impugned order, confirmed the demand of service tax against the appellant along with interest and imposed penalty also.
2.3 Against the said order, the appellant is before us.
3. The appellants submitted that they have received rent in respect of the premises situated at 25A,Shakespeare Sarani, Kolkata-700017 in terms of an agreement dated 03.02.2005 and the same shall be for the future period and the appellant has adjusted the said payment of rent received by them for the relevant period by paying service tax thereon, which is not disputed by the authorities, but the demand of service tax has been confirmed alleging that at the time of receiving the rent, the appellant was required to pay service tax. It is the submission of the appellant that as the appellant has paid the service tax while providing services to the service recipient , therefore, no differential service tax or interest is payable by the appellant
3.1 With regard to payment of rent in respect of 106,Diamond Harbour Road, Kolkata-700023, it is the submission that they received rent during the financial year 2007-08 amounting to Rs.10,18,508/- from various tenants and the aforesaid amount consists of an amount of Rs.5,19,447/- received towards rent for the period prior to 01.06.2007, where no service tax was payable on the category of “Renting of Immovable Property Service”.
3.2 The appellant further submits that an amount of Rs.1,22,544 has been received towards rent for residential purpose, for which, no service tax is payable by them and they have received an amount of Rs.3,76,517/- towards rent for the business purposes in respect of premises situated at 114/1A,Cotton Street, Kolkata, it is their submission that the appellant has received an amount of Rs.2,64,938/-towards rent during the period 2007-08 from various tenants in respect of premises situated at the above address, they received rent an amount of Rs.1,01,988 for the period prior to 01.06.2007, for which, no service tax is payable by them and Rs.59,010/- was received towards rent for residential purpose, for which, no tax is payable. It is the submission that by the order of the Hon’ble High Court dated 16.03.2009, all the above properties have been transferred to separate entities, namely (i) M/s Legacy Services (P) Limited, (ii) M/s Om Durga Estate (P) Limited & (iii) M/s Legacy Properties (P) Limited w.e.f. 01.04.2008. Therefore, the appellant is not liable to pay service tax as the appellant is not being the owner of the said properties.
4. The ld. A. R. for the Revenue reiterated the findings of the impugned order.
5. Heard both sides and considered the submissions.
6. We find that prior to 01.06.2007, no service tax is payable under the category of “Renting of Immovable Property Service”, therefore, for rent received by the appellant for the period prior to 01.06.2007 in respect of all the three properties, the appellant is not liable to pay service tax.
7. With regard to the property situated at 25A,Shakespeare Sarani, Kolkata-700017, we find that although the appellant has received the rent in advance, but started paying service tax as and when they provided the services. Therefore, as they have paid the service tax thereon, the demand of service tax is not sustainable against the appellant, which is evident from the record placed before us.
8. Further, we find that for the premises at 106,Diamond Harbour Road, Kolkata-700023 and 114/1A,Cotton Street, Kolkata-700020, the same parts of the premises were rented out for residential used for which, no service tax is payable for the amount received towards under the category of “Renting of Immovable Property Service” for residential purposes, therefore, no service tax is payable.
9. Further, we also take note of the fact that all the properties vide the order of the Hon’ble High Court dated 16.03.2009, has gone to (i) M/s Legacy Services (P) Limited, (ii) M/s Om Durga Estate (P) Limited & (iii) M/s Legacy Properties (P) Limited w.e.f. 01.04.2008, therefore, the appellant was not the owner of the above properties with effect from 01.04.2008. Therefore, on 01.04.2008 onwards, the appellant was not liable to pay service tax.
10. Whatever property was rented out for business purposes, on which no service tax is paid by the appellant, the same is payable along with interest.
11. In view of the above observations by invoking under Section 80 of the Finance Act, 1994, we waive the penalty imposed on the appellant.
12. With these observations, the appeal is disposed off. (Pronounced in the open court on 22.09.2023)
