2023 (4) TMI 441 - AT - Service Tax

Reverse Charge mechanism (RCM) - Renting services provided by the Directors in the capacity of Individual - Levy of service tax alongwith interest and penalty - rent paid to the landlord/owner of the premises and they happened to be at the relevant time Director of the appellant - HELD THAT - The premises which were let out to the appellant are owned by Naveen Sawhney and D.K. Prashar in their individual capacity and it is not the case of the department that the properties were owned by them as Directors of the appellant. In such a situation rent was collected by them in their individual capacity and merely because they also happen to be the Directors of the appellant would not mean that they had collected rent as Directors of the appellant. The Commissioner (Appeals) assumed that Naveen Sawhney and D.K. Prashar are providing service of renting of immovable property as Directors of the appellant whereas they are providing the said service in their individual capacity as owners of the premises and not as Directors of the appellant - The appellant in such a situation could not have been asked to pay service tax on a reverse charge mechanism. What needs to be further noticed is that service tax had been deposited on the rent received by Naveen Sawhney and D.K. Prashar from the appellant. The order dated 07.05.2018 passed by the Commissioner (Appeals) cannot be sustained and is set aside - Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are whether the appellant is liable to pay service tax under the reverse charge mechanism for renting of immovable property services provided by the Directors of the company who are also landlords, and whether the extended period of limitation can be invoked in this case.

Issue 1: Liability of the appellant under reverse charge mechanism for renting of immovable property services provided by Directors:
The appellant, engaged in manufacturing instrumentation/power cable, paid rent to Directors who were also landlords for premises used as Registered Office/Corporate Office. The show cause notice alleged that service tax was payable under reverse charges basis as per notifications, as the Directors provided the service of renting immovable property to the company. The Deputy Commissioner confirmed the demand, but the Commissioner (Appeals) upheld the demand with interest only, setting aside the penalty. The appellant argued that the Directors provided the service as landlords, not as Directors, and service tax was included in invoices and deposited. The Tribunal noted that the Directors owned the premises individually, not as Directors of the company, and rent was collected in their personal capacity. The relevant notifications and rules specified the liability for service tax under reverse charge mechanism, which was on the recipient of the service. The Commissioner's finding that the service was covered under reverse charge mechanism was based on an incorrect assumption that the Directors provided the service as Directors of the company, whereas they did so as individual landlords. Therefore, the order upholding the demand was set aside, and the appeal was allowed.

Issue 2: Invocation of extended period of limitation:
The show cause notice invoked the extended period of limitation alleging non-payment of service tax on renting of immovable property services. The appellant contended that the extended period of limitation should not have been invoked. The Tribunal did not delve into this issue specifically in the judgment, as the decision on the liability under reverse charge mechanism rendered the question of the extended period of limitation moot.

Separate Judgement:
No separate judgment was delivered by the judges in this case.