2025 (7) TMI 1005 - AT - Service Tax

Liability of appellant to pay service tax - Renting of Immovable Property Service (RIPS) - Extended period of limitation - HELD THAT - The Appellant is a provider of bouquet of services for consideration. The business model is no less than any other business entity. The very fact that they could choose to register and remit Service Tax in respect of some of the chosen services itself prima facie indicates that they are aware of their position as a business entity in the market and that they are not rendering any sovereign function. Sovereignty cannot be taken so lightly to choose between the services and hence their claims about rendering services akin to sovereign functions is clearly misleading misconceived and we reject this claim at the threshold. It is found that it is a pure Commercial Agreement; the only difference is in terming of the rental as fees/charges. Usually a Commercial Agreement would charge rent for the same service but the Appellant for unknown reasons has termed it as user charges and license fee that too a profit. This being a commercial venture though payment is mandatory the rental per month however is not fixed but the same depends on the profit earned which may vary in case of renting of a residential property or even a commercial property simpliciter. It is the settled position of law that an understanding between two independent entities or juridical persons cannot circumvent the very levy of any tax or duty and hence any device to circumvent deliberately the levy of tax cannot bind a statutory Authority. Viewed thus there are no justification for not paying Service Tax by the appellant on the R.I.P.S. the demand therefore stands justified. Invocation of extended period of limitation - HELD THAT - It is not the case of the appellant that it was unaware of the Service tax liability insofar as RIPS is concerned; we say so because admittedly they had registered themselves with the Service Tax Department when they are rendering various other services on which they are duly discharging their Service Tax liability without any hesitation. Only when it came to RIPS did they refrain from registering themselves and remit Service Tax and they also took a stand that they were rendering sovereign functions which is unacceptable for the reason that they cannot be choosy. Hence the Revenue was justified in invoking the larger period of limitation. There are no merit in the case of the appellant - appeal dismissed.

Summary

ISSUES:

• Whether the appellant is liable to pay Service Tax under the 'Renting of Immovable Property Service' (RIPS) as defined under the Finance Act, 1994, for leasing space to license holders at railway stationsRs.
• Whether the amounts collected as 'license fees' and 'user charges' constitute consideration for renting immovable property or are payments for a different commercial arrangementRs.
• Whether the appellant's activity of providing space and managing catering services constitutes a sovereign function exempt from Service Tax under RIPSRs.
• Whether the leasing of vacant land or space within railway stations to license holders is taxable under RIPS prior to 01.07.2010Rs.
• Whether the Revenue was justified in invoking the extended period of limitation for recovery of Service Tax on the appellantRs.

RULINGS / HOLDINGS:

• The appellant is liable to pay Service Tax under 'Renting of Immovable Property Service' for the space provided to license holders, as the arrangement constitutes a commercial lease despite being termed as 'user charges' and 'license fees'.
• The amounts collected as license fees based on a percentage of turnover and user charges are effectively consideration for renting space and cannot be recharacterized to avoid tax liability; "an understanding between two independent entities or juridical persons cannot circumvent the very levy of any tax or duty."
• The appellant's activities are not sovereign functions but commercial in nature, as evidenced by their registration under multiple taxable service categories and their status as a 'Miniratna' Public Corporation; the claim of exemption on sovereign function grounds is rejected as "misleading" and "misconceived."
• Leasing of vacant land was not taxable under RIPS prior to 01.07.2010; however, the space leased by the appellant is not vacant land but a small piece of space inside railway stations, thus taxable.
• The Revenue was justified in invoking the extended period of limitation as the appellant was aware of their Service Tax obligations for other services and deliberately refrained from registering and paying Service Tax under RIPS, negating any claim of suppression or bona fide belief.

RATIONALE:

• The Court applied the Finance Act, 1994 provisions relating to Service Tax on Renting of Immovable Property Service (RIPS), interpreting the scope of 'renting' and 'immovable property' in the context of commercial agreements between the appellant and license holders.
• The Court relied on the Memorandum of Understanding (MOU) and license agreements showing a commercial relationship where space is leased for operating food stalls/plazas, with fees linked to turnover and usage, confirming the commercial nature rather than a sovereign function.
• Precedent decisions distinguishing sovereign functions from commercial activities were examined and rejected for the appellant's case due to their status as a registered business entity providing multiple taxable services and operating under commercial agreements.
• The Court emphasized that the appellant's arrangement cannot be shielded from tax liability by calling payments 'license fees' or 'user charges' instead of rent, noting settled law that tax liability cannot be circumvented by contractual terminology.
• The Court noted that the appellant's leasing of space within railway stations is not leasing of vacant land exempt prior to 01.07.2010, but rather leasing of defined commercial space, thus taxable under RIPS.
• Regarding limitation, the Court held that the appellant's knowledge and registration for other taxable services negated any claim of ignorance or suppression, justifying the Revenue's invocation of extended limitation period under the Finance Act.