Case Law Details
L & T Infocity Ltd Vs Commissioner of Central Excise & Service Tax (CESTAT Hyderabad)
CESTAT Hyderabad held that parking charges collected for providing parking space is liable for inclusion in the value of Management, Maintenance or Repair services and accordingly, service tax is payable on the same.
Facts- The Appellants are provides the service of ‘renting of immovable property’ and maintenance of common areas of the building under separate agreements.
Taking a view that the amounts collected by the Appellant towards – electricity, diesel charges for DG sets, water and parking charges would be liable for service tax under the category of ‘Management, Maintenance or Repair Service’, SCN dated 15.10.2012 was issued for the period 2007-08 to 2011-12, demanding service tax of Rs. 10,76,89,485/- towards (i) electricity charges, (ii) diesel charges and (iii) water charges received by the Appellants from their tenants/occupants as reimbursable expenditure and (iv) Rs.86,13,978/- towards non-inclusion of parking charges in the value of taxable services.
The issue involved in the Appeals is whether the service tax is payable on reimbursable expenses, amounts collected towards provision of water, electricity, diesel and parking charges under the category of ‘Management, Maintenance or Repair services’.
Conclusion- Held that the amount collected towards water, electricity and diesel are in the nature of reimbursable expenses and therefore, not liable for inclusion in the taxable value towards provision of Management, Maintenance or Repair services by the Appellant.
Held that the parking charges are liable for inclusion in the value of Management, Maintenance or Repair services, being provided by the Appellants. Relying on this service, the parking charges were considered as liable to service tax under the category of Management, Maintenance or Repair service. It is also not disputed that he has not collected the parking charges on reimbursable basis. There is nothing on record to indicate anything to the contrary. Therefore, the argument that no service tax is payable is not sustainable. The Appellants were required to provide parking space and it’s clearly part of maintenance service. Hence the amount collected also needs to be included in the gross value.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
The Appellants are providing the service of ‘renting of immovable property’ and maintenance of common areas of the building under separate Agreements. They are registered with the Department and complying regularly. Taking a view that the amounts collected by the Appellant towards – electricity, diesel charges for DG sets, water and parking charges would be liable for service tax under the category of ‘Management, Maintenance or Repair Service’, SCN dated 15.10.2012 was issued for the period 2007-08 to 2011-12, demanding service tax of Rs. 10,76,89,485/- towards (i) electricity charges, (ii) diesel charges and (iii) water charges received by the Appellants from their tenants/occupants as reimbursable expenditure and (iv) Rs.86,13,978/- towards non-inclusion of parking charges in the value of taxable services. Another SCN dated 04.11.2013 was also issued on the similar grounds for the period 2012 to 2013. Both these SCNs were adjudicated on contest by the concerned Adjudicating Authorities vide OIO dated 24.09.2013 & OIO dated 20.03.2015, respectively.
2. Since the issue is common in both the Appeals (SCNs), even though the Adjudicating Authorities have taken different stand, in so far as confirming the demands, the Appeals filed by the Appellant/Assessee against both the impugned orders are taken up for Hearing together. The issue involved in both the Appeals is whether the service tax is payable on reimbursable expenses , amounts collected towards provision of water, electricity, diesel and parking charges under the category of ‘Management, Maintenance or Repair services’, in the given facts of the case or otherwise. The stand of the Revenue in both the Appeals has been that the Appellants were found to have not included the charges incurred on water, electricity, diesel and parking in the taxable value of services provided under the head – Management, Maintenance or Repair service. The Department observed that the Appellants were rendering services of management, maintenance of immovable properties to the occupants by entering into Agreements with them and they are paying service tax on maintenance charges, but they are not including water, electricity and diesel charges being reimbursed by the occupants in the value of the taxable service. It was also observed that the Appellants are collecting parking charges but not including these charges in the value of taxable services. The Department verified sample Agreements to come to the conclusion that the Appellants are collecting reimbursable expenditure incurred towards water, electricity, diesel and also parking charges.
3. In order to understand the exact scope of this reimbursement charges being collected by the Appellant, the relevant paras of SCN are reproduced below.
“i) Section 5: Reimbursement of Electricity charges:
LTIL shall provide independent energy meters for lighting, UPS and AHU Power loads for each module. LTIL shall provide a separate common meter for the chillers, the consumption of which will be apportioned to various modules based on the AHU meter consumption of each module. The electricity consumption for common area lighting, elevators, pumps, etc., shall be apportioned pro rata to the space occupied by the Occupant. LTIL will submit invoices to the Occupant by the 25th of each month and Occupant shall reimburse the amounts paid by the LTIL towards electricity charges on or before 10th of succeeding month.
ii) Section 6: Reimbursement of Water and Diesel consumption charges:
6.1. In the event LTIL arranges for additional water supply due to any scarcity in the water supply by Municipality/HMWSSB or fall in the ground water level at the demised premises, such charges shall be apportioned pro rata to the space occupied by the Occupant. LTIL will submit invoices to the Occupant by the 25th of each month and Occupant shall reimburse the amounts paid by the LTIL towards water consumption charges on or before 10th of succeeding month.
6.2. In the event of providing power through Diesel generator system due to power cuts/power failures, the Occupant shall pay Diesel charges which shall be charged in proportion to the additional raw power if consumed. LTIL will submit invoices to the Occupant by the 25th of each month and Occupant shall reimburse the amounts paid by the LTIL towards Diesel consumption charges on or before 10th of succeeding month.
iii) Section 3: Maintenance charges & Parking
3.2. Parking Charges:
(a) Occupant shall pay parking charges as follows.
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- At the rate of Rs.2000/- per slot per month for a covered 4 wheeler parking
- At the rate of Rs.400/- per slot per month for an uncovered 4 wheeler parking
- At the rate of Rs.100/- per slot per month for a covered 2 wheeler parking
- At the rate of Rs.50/- per slot per month for an uncovered 2 wheeler parking
(b) LTIL shall allot parking slots to the Occupant in proportion to the space occupied by such occupant in the building.
(c) Occupant shall pay to LTIL an upfront parking deposit amounting to the parking charges for each slot for three months.
None of the above charges collected by them is included in the value of the taxable services in respect of services rendered in respect of Management or maintenance service.”
4. Therefore, relying on the provisions under Sec 67(3) which provides for inclusion of any amount received towards taxable service and also in terms of Rule 5(1) of Service Tax (Determination of Value) Rules, 2006, which provides for that where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax for the said service. Since the Appellants have received various amounts towards electricity, water and diesel from their tenants/occupants as reimbursable expenditure and also certain amount as parking charges, but they failed to include in the value of taxable services and therefore, they have failed to pay service tax.
5. Essentially the Department is relying on Rule 5(1) of Service Tax Valuation Rules, 2006 to bring certain reimbursable expenses within the ambit of gross value. The Adjudicating Authority while considering various aspects in relation to this SCN, inter alia, came to the conclusion that the impugned reimbursable expenses collected from tenants at actual, are akin to the CMC charges collected, at actual from the customers and all these charges are necessary for maintenance of building. Without maintenance no tenant would come forward to occupy the premises. Since the reimbursable nature of these charges has been clearly spelt out in the Agreements, they are liable to pay service tax on these amounts. He has relied on the provisions of Rule 5(1) of Service Tax Valuation Rules, 2006, as also on the judgment of the Tribunal in the case of Pioneer Services vs CST, Chennai [2012 (27) STR 285 (TriChennai)] wherein, it was held that CMC charges which are charged separately from the customer on actual basis would be liable for inclusion in the assessable value of the taxable services provided by the Custom House Agent in terms of Rule 5 of Service Tax Valuation Rules, 2006.
6. In so far as the SCN dated 04.11.2013 is concerned, covering the identical issues but for the period 2012-2013, the Adjudicating Authority, after going through the submissions made by the Appellants held that when any person who is acting as pure agent and satisfying the conditions mentioned i.e., from (i) to (viii) of Rule 5(2), the consideration received on such account shall be excludible from the taxable value. He found that in the facts of the case, on examination of electricity bill and statement of electricity consumption and proportionate distribution of charges, he came to the conclusion that Appellants have acted as ‘pure agent’ as defined under Rule 5(2) and hence, consideration received on this account was liable for exclusion from the value of taxable Similarly, in the case of water charges, he came to the same conclusion that it shall not form part of the taxable value. In fact, such charges collected by the Appellants in the course of provision of service are totally independent of the Maintenance or Repair service. He observed that in respect of electricity consumed for common use at lifts and lights in common areas, the assessee is already paying service tax and those charges were not part of the present proceedings.
7. In so far as the amount collected towards diesel charges is concerned, the Adjudicating Authority felt that these could not be considered as reimbursable expenses under the category of ‘pure agent’ as they are not transferring such amount to any other person or agency on actual basis. Therefore, this activity does not get covered under exemption clause of Rule 5(2) of Service Tax Valuation Rules, 2006 and held that this amount is liable for service tax under the category of Management, Maintenance or Repair service. On the liability of service tax on the amount collected towards parking charges, he held that these were akin to maintenance charges and they necessarily become part of the maintenance of building and therefore, they are liable to pay service tax on parking charges.
8. Learned Advocate for the Appellant has mainly relied on certain judgments wherein it has been held that they are not liable to include reimbursements on account of water, electricity and diesel charges. The learned Advocate also points out that the Adjudicating Authority has already dropped the demand on electricity and water charges in their own case for the subsequent period, and that the same appears to have been accepted by the Department, as no Appeal has been filed against the same. They have also submitted that Commissioner (Appeals) has set aside the demand on diesel charges also for the period 01.10.2014 to 14.05.2015.
9. They have mainly relied, apart from various Tribunal judgments, on Hon’ble Supreme Court judgment in the case of Inter Continental Consultants & Technocrats Ltd [2012-TIOL-966-HC-DEL-ST], wherein upholding the decision of the Hon’ble Delhi High Court, inter alia, the Hon’ble Supreme Court held that only with effect from 14.05.2015, such reimbursable expenditure and costs also form part of valuation of taxable services for charging service tax. In the Order of Hon’ble Delhi High Court, Rule 5(1) of the Service Tax Valuation Rules, 2006 was struck down, and later on Hon’ble High Court was upheld by Hon’ble Supreme Court. Therefore, the Department cannot place reliance on Rule 5(1) for including the cost incurred by them on reimbursable basis in the gross value charged towards Management, Maintenance or Repair Service. He has also relied on this Tribunal’s Final Order dated 08.07.2022 in the case of VITP Pvt Ltd vs CCT, Hyderabad-IV, wherein the Tribunal considered, inter alia, issue relating to service tax demanded on amount received towards reimbursement of expenditure in respect of water, electricity and diesel charges under the category of Management, Maintenance or Repair service. After going through their submissions as also the judgment of Hon’ble Supreme Court in the case of Intercontinental Consultants & Technocrats Ltd (supra), came to the conclusion that the expenses are mere reimbursement based on total cost incurred by the Appellant, and there is no profit element involved and the Department has not been able to contradict these facts, therefore, having regard to the judgment of the Hon’ble Supreme Court, the Tribunal held that the Appellant cannot be saddled with the liability on such expenses and therefore, demand cannot be sustained.
10. On the other hand, the Department has relied on certain judgments of the Tribunal, especially, Modern Business Solutions vs CST, Ahmedabad [2019 (24) GSTL 353 (Tri-Ahm)] where the Tribunal has, inter alia, observed that while in terms of decision of Hon’ble Supreme Court in the case of Intercontinental Consultants & Technocrats Ltd (supra), reimbursements cannot be included in the assessable value, however, what constitutes reimbursements has to be determined in the light of Larger Bench in the case of Sri Bhagavathy Traders vs CCE, Cochin [2011 (24) STR 290 (Tri-LB)]. Therefore, the Department appears to dispute that in the instant case it is not in the nature of reimbursement relying on this judgment as well as Tribunal’s judgment in the case of Saurashtra Kutch Stock Exchange Ltd vs CCE & ST, Rajkot [2019 (26) GSTL 50 (Tri-Ahm)] and Tribunal’s Final Order dated 19.07.2018 in the case of Sri Gayathri Medical Agencies vs CC & CE, Guntur.
11. Learned AR further urges, in so far as the liability of service tax on parking charges is concerned, they have relied on the Principal Bench of Tribunal’s Final Order dated 03.02.2020 in the case of MGF Event Management vs CCE, Delhi (Final Order No. 50154/2020 dated 03.02.2020).
12. Perusal of both the SCNs and OIOs clearly brings out the fact that the Appellants were recovering certain amount towards electricity, water and diesel on reimbursement basis, though in respect of parking charges no such grounds have been raised. Therefore, in so far as the amount collected in the nature of reimbursement is concerned, with respect to electricity, water and diesel consumption, they are not in dispute. The Original Authority in this case has relied heavily on Rule 5(1) to include these charges in the gross value of taxable services. Even in respect of parking charges, he has relied on Rule 5(1) despite it not being in the nature of reimbursement expenses. The Adjudicating Authority has already considered the reimbursement charges collected in respect of electricity and water as not includible in the assessable value. Whereas, he found the amount collected towards diesel consumption and parking charges as includible in the value and therefore, confirmed the demand to that extent. He has mainly relied on the clarification issued by CBEC vide Letter F.No.B1/4/2006-TRU dated 19.04.2006, wherein, the CBEC has explained the nature of reimbursable expenditure. However, in cases where the service provider acts as a pure agent or not, in a given situation, is to be decided in terms of Explanation (i) of Rule 5(2) and if that criteria is not met, the service provider cannot be treated as pure agent. Therefore, while holding that the amount collected towards electricity and water which were collected on actual basis only and hence, can be called as reimbursable expenses, the same cannot be termed as reimbursable expenses, in so far as it is related to the amount collected towards diesel charges as the activity is not getting covered under the exemption clause of Rule 5(2), holding that such charges are in the nature of incidental charges, therefore, liable for inclusion.
13. Heard both sides.
14. Having regard to the Order passed by this Tribunal in the case of VITP Pvt Ltd (supra), wherein the reliance has also been placed on Hon’ble Supreme Court’s judgment in the case of Intercontinental Consultants & Technocrats Ltd (supra), as also factual matrix brought out in the SCNs as well as in the OIOs, the amount collected towards water, electricity and diesel are in the nature of reimbursable expenses and therefore, not liable for inclusion in the taxable value towards provision of Management, Maintenance or Repair services by the Appellant. There is nothing in the SCNs or impugned orders, which states that they have been collecting anything over and above the amount incurred towards payment of electricity bill and water bill or diesel consumption or that there was any profit involved therein. When they were only collecting actual charges, those will be nothing else, but only collection of amount on reimbursement basis. The fact that the reimbursable expenses, have been specifically brought under the coverage of gross value w.e.f. 14.05.2015, further supports the Appellant’s argument that the amounts collected on reimbursable basis were not liable for inclusion before that. In fact they have stated that in their own case itself for the subsequent period, Commissioner (Appeals) has also set aside the demand for the period 01.10.2014 to 14.05.2015 on “diesel charges”.
15. Therefore, demand on these three charges viz., electricity, water and diesel cannot sustain for the reasons discussed, supra. Learned DR has relied on the judgment of MGF Event Management (supra) in support of his contention that the parking charges are liable for inclusion in the value of Management, Maintenance or Repair services, being provided by the Appellants. Relying on this service, the parking charges were considered as liable to service tax under the category of Management, Maintenance or Repair service. It is also not disputed that he has not collected the parking charges on reimbursable basis. There is nothing on record to indicate anything to the contrary. Therefore, the argument that no service tax is payable is not sustainable. The Appellants were required to provide parking space and it’s clearly part of maintenance service. Hence the amount collected also needs to be included in the gross value. The case cited is clearly distinguishable on the facts of the case, hence will not help the Appellants and therefore, no need to interfere with the OIO to this extent. Accordingly, the following order is passed.
16. The OIO is set aside to the extent of water, electricity and diesel charges and the Appeal is partially allowed. So far the demand of tax on parking charges is concerned, the same is confirmed. In the facts, all the penalties are set aside. Appellant shall be entitled to consequential benefits.
17. Appeal allowed in part.
(Pronounced in the Open Court on 27.09.2023)
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