2025 (4) TMI 1598 - AT - Service Tax

Absolute owner of both the gas/oxygen plants - levy of service tax on lease rentals received under the taxable category of Renting of immovable property service - setting up of gas/oxygen plants by utilizing the equipment supplied by both the appellants as well as ISPAT would be considered as immovable property in order to fall within the scope and ambit of Renting of Immovable property or not - scope of the phrase immovable property as per the Explanation 1 appended to Section 65 (105) (zzzz) of the Act of 1994 - HELD THAT - Various individual equipment of the plant are erected installed and commissioned within the premises of ISPAT by way of fastening to the foundation by the help of nuts/bolts and through installation of the base concrete support which can be dismantled at any time without causing much damage to the original equipment. Since those equipment were not permanently attached to the earth the same seized to be considered as immovable property and as such cannot fall under the scope of the definition provided under 65 (105) (zzzz) of the Act of 1994. An identical issue about immovability of the plant came up for consideration before the Hon ble Supreme Court in the case of Solid Correct Engineering Ors. 2010 (4) TMI 15 - SUPREME COURT . The issue arose in that case for consideration was whether erection of plant at site would be considered as immovable or movable . By referring to the provisions of Section 3(26) and 3(36) of the General Clauses Act 1897 the Hon ble Supreme Court had prescribed the test through which it can be ascertained whether the plant is immovable or movable . The ratio of the above judgement is squarely applicable to the facts of the present case. In the present case the fact that the gas/oxygen plants in question were not fixed permanently to the earth and are embedded to the earth only for the purpose of providing stability and to keep their operation vibration free is evident from the affidavits sworn in by the officers of the appellant s company certificate of the chartered engineer and shifting of the same plants in case of other buyers to another place(s) upon completion of the contract period. Further it is also an admitted fact on record that the appellants have been paying VAT on the lease rental charges since 2004-2005 before coming into force of the entry of taxable service of renting of immovable property . Since payment of VAT was accepted by the concerned statutory authorities as due discharge of the liabilities it would not be prudent on the part of another authority to claim the tax amount under different head considering the transaction as service . In Section 65(90a) ibid the phrase immovable property has not been considered to explain as to which of the properties would fall within its ambit for consideration as the service under the taxable entry of renting of immovable property . Similarly in the sub-clause (zzzz) in clause (105) of Section 65 of the Act of 1994 though the activity of renting of immovable property is finding place but the constituents of the immovable property have not been spelt out therein. However the Explanation 1 was appended to such sub-clause (zzzz) providing that various properties cataloged thereunder should be considered as immovable property - Since the sub-clause (zzzz) has not provided as to which of the properties would be contemplated as immovable such vacuum was remedied by way of providing the various category of properties for consideration as immovable in nature in the said Explanation 1. In view of the fact that the said Explanation clause has considered only a building land facilities relating thereto in our considered view no other property can be included therein for consideration as immovable property . The legislative intent is manifest that the scope of the main section for understanding the meaning of immovable property should only be confined to those prescribed properties which are itemized in the said explanation clause. In other words any other property(ies) not conforming to the prescribed properties should fall outside the scope and purview of consideration as immovable for the purpose of the Act of 1994. Therefore the type of properties mentioned in the Explanation - 1 were intended to be exhaustive and not extendable to any other properties which are not appearing therein. The phrase excisable goods has been defined in Section 2(d) of the Central Excise Act 1944 to mean goods specified in the Fourth Schedule as being subjected to a duty of excise and includes salt . An Explanation was added to the said definition clause providing that for the purposes of this clause goods includes any article material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable . Conclusion - i) The appellants are not absolute owners of the entire plant facilities as the equipment supplied by ISPAT and ownership of land and civil structures vests with ISPAT. ii) The plants erected by the appellants are not immovable property since they are not permanently fixed to the earth but only fastened to provide operational stability and can be dismantled and relocated without substantial damage. iii) The phrase immovable property as per the service tax statute is limited to buildings land and common areas/facilities and does not include plant and machinery. iv) The lease rentals received by the appellants do not attract service tax under the category of Renting of immovable property service. The impugned orders are set aside and the appeals are allowed in favour of the appellants.

Summary

The core legal questions considered by the Tribunal in this case are as follows:

(a) Whether the appellants can be regarded as the absolute owners of the gas and oxygen plants set up at ISPAT's premises, and consequently, whether the lease rentals received by them attract service tax under the category of 'Renting of immovable property' service;

(b) Whether the gas and oxygen plants, erected using equipment supplied by both the appellants and ISPAT, qualify as 'immovable property' within the meaning of the relevant service tax provisions, especially considering that the plants were dismantled and removed after the contract period;

(c) Whether the phrase 'immovable property' as defined in Explanation 1 to Section 65(105)(zzzz) of the Finance Act, 1994, is limited to the enumerated items such as buildings, land, and common areas/facilities, or whether it also includes other assets like 'plant and machinery' for the purpose of levying service tax on renting of immovable property.

Issue-wise detailed analysis:

Issue (a): Ownership of the plants and applicability of service tax on lease rentals under 'Renting of immovable property' service

The legal framework involves the Finance Act, 1994, particularly Sections 65(90a) and 65(105)(zzzz), which define 'renting of immovable property' and 'taxable service' respectively. The appellants argued that they do not have absolute ownership of the entire plant, as some equipment was supplied by ISPAT, who retained ownership of the land and certain equipment. The agreements explicitly state that the appellants have no interest in the land and only a right of access for fulfilling contractual obligations. Additionally, the appellants must dismantle and remove their plant equipment at the end of the lease term.

The Tribunal examined the agreements and found that the plant consists of equipment supplied by both parties, and the appellants only own the equipment they supplied. Thus, they cannot be considered sole owners of the entire plant. The Tribunal emphasized that mere erection and commissioning of the plant using equipment from both parties does not confer absolute ownership on the appellants, nor does it automatically attract service tax under the renting of immovable property category.

The Revenue's contention that the appellants leased out the entire plant and received lease rentals subject to service tax was rejected on this basis. The Tribunal concluded that the appellants are not absolute owners of the plant and hence cannot be saddled with service tax liability on the entire lease rentals under the said category.

Issue (b): Whether the plants qualify as immovable property for service tax purposes

The relevant legal test for determining immovability draws from Section 3(26) of the General Clauses Act, 1897, and judicial precedents, particularly the Supreme Court's ruling in Commissioner of Central Excise, Ahmedabad v. Solid & Correct Engineering Works (2010). The test involves examining the intention of the parties, the nature of attachment to the earth, and whether the plant is permanently fixed or merely fastened to ensure stability and vibration-free operation.

The appellants produced affidavits and a certificate from a Chartered Engineer confirming that the plants were second-hand, imported, and not permanently fixed to the earth. The plants were embedded only to provide stability and could be dismantled and relocated without substantial damage. The appellants also demonstrated instances of relocating similar plants to other sites, reinforcing the movable nature of the plants.

The Revenue argued that the plants were tailor-made and could not be used elsewhere without damage, thus qualifying as immovable property. However, the Tribunal found this argument unpersuasive in light of the evidence and the established legal test. Photographs and statements confirmed that the equipment was fastened by nuts and bolts to foundations that could be dismantled without damaging the equipment.

The Tribunal relied heavily on the Supreme Court's Solid & Correct Engineering judgment, which held that machines fixed only to ensure stability and vibration-free operation, without the intention of permanent attachment, are not immovable property. The Tribunal applied this ratio directly, finding the plants in the present case movable and not immovable property for service tax purposes.

Issue (c): Interpretation of the phrase 'immovable property' in the service tax statute

The statutory provisions under Section 65(90a) and Section 65(105)(zzzz) of the Finance Act, 1994, define 'renting of immovable property' and 'taxable service' respectively. Explanation 1 to Section 65(105)(zzzz) enumerates the categories of immovable property as including buildings, land appurtenant thereto, land incidental to such buildings, and common/shared areas and facilities related thereto. It excludes vacant land used for agriculture, residential buildings, and certain other categories.

The appellants contended that the phrase 'immovable property' should be limited to the categories listed in the Explanation and does not extend to plant and machinery. They argued that the word 'includes' in the Explanation should be read as 'means', thereby giving the list an exhaustive character rather than an illustrative one.

The Tribunal analyzed the statutory language and relevant precedents, including the Supreme Court's decision in South Gujarat Roofing Tiles Manufacturers Association v. State of Gujarat, which held that the word 'includes' in an Explanation clause may be interpreted restrictively as 'means' depending on the context and legislative intent. The Court emphasized that when the objects listed are already encompassed within the general term, the Explanation intends to clarify and restrict rather than expand the scope.

Applying this principle, the Tribunal held that the Explanation 1 to Section 65(105)(zzzz) was intended to exhaustively define 'immovable property' for the purposes of the service tax provisions. Since plant and machinery are not included in this list, they do not qualify as immovable property under the statute. The Tribunal rejected the Revenue's reliance on Central Excise cases concerning excisable goods and immovability, noting that the levy of excise duty and service tax operate on different legal principles and cannot be conflated.

Additional considerations:

The Tribunal noted that the appellants had been paying VAT on the lease rentals from 2004-05, well before the introduction of service tax on renting of immovable property in 2007. This was accepted by the VAT authorities as discharge of tax liability. The Tribunal found it inappropriate for the Revenue to seek service tax on the same transactions under a different head, reinforcing the appellants' position.

Regarding the Revenue's reliance on judicial precedents concerning excisable goods and immovable property, the Tribunal distinguished those cases. The Central Excise Act's concept of 'excisable goods' involves marketability and manufacture, whereas service tax is levied on the provision of services. The Tribunal held that principles applicable to excise duty cannot be blindly applied to service tax matters, especially when the statutory language and context differ.

The Tribunal also examined the factual matrix, including affidavits, engineer certificates, statements, and photographic evidence, which collectively demonstrated that the plants were not permanently affixed and could be dismantled and relocated. This factual finding was crucial in applying the legal tests.

Significant holdings:

"The manufacture of the plants in question do not constitute annexation hence cannot be termed as immovable property for the following reasons :

(i) The plants in question are not per se immovable property.

(ii) Such plants cannot be said to be 'attached to the earth' within the meaning of that expression as defined in Section 3 of the Transfer of Property Act.

(iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free.

(iv) The setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed."

This ratio from the Supreme Court was applied to hold that the plants erected by the appellants are not immovable property for service tax purposes.

The Tribunal also established the principle that the Explanation clause defining 'immovable property' in the Finance Act, 1994, is exhaustive and does not extend to plant and machinery. The phrase 'includes' in the Explanation is to be read as 'means' in the context, limiting the scope to buildings, land, and related common areas.

Final determinations:

- The appellants are not absolute owners of the entire plant facilities, as the equipment supplied by ISPAT and ownership of land and civil structures vests with ISPAT.

- The plants erected by the appellants are not immovable property, since they are not permanently fixed to the earth but only fastened to provide operational stability and can be dismantled and relocated without substantial damage.

- The phrase 'immovable property' as per the service tax statute is limited to buildings, land, and common areas/facilities and does not include plant and machinery.

- Consequently, the lease rentals received by the appellants do not attract service tax under the category of 'Renting of immovable property' service.

- The impugned orders confirming service tax demands and penalties are set aside, and the appeals are allowed in favor of the appellants.