2025 (5) TMI 71 - AT - Service Tax

Demand to pay service Tax under the category of renting of immovable property service - meaning of Section 65(105)(zzzz) of the Finance Act 1994 - refund claim of Service Tax - term Scope of Work - HELD THAT - On going through the agreement placed on record by the appellant it is an admitted fact that the appellant is receiving a lease rent of Rs.32, 00, 000/- per month from the lessee. Section 65(105)(zzzz) of the Finance Act, 1994 mandates that any service provided or to be provided to any person by any other person in relation to renting of immovable property for use in the course of furtherance of business or commerce comes under this category. Admittedly the appellant does qualify under the above definition of renting of immovable property service. Similarly as per clause 90(a) of Section 65 of the Act renting of immovable property includes renting letting leasing licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. Admittedly the appellant does qualify under the above categories of renting of immovable property service for leasing out their plant along with immovable property to the lessee against a consideration of Rs.32, 00, 000/- per month. Thus we find that the appellant is liable to pay Service Tax under the category of renting of immovable property service. From the agreement it is evident that the appellant is liable to pay Service Tax under the category of renting of immovable property service. Thus we hold that the authorities below have rightly rejected the refund claim of the appellant. Consequently we uphold the impugned order. In these terms we do not see any merit in the appeal and accordingly the same is dismissed.

Summary

The core legal questions considered in this appeal are:

1. Whether the appellant is liable to pay Service Tax under the category of 'renting of immovable property service' in respect of the lease rent received from the lessee for the Thermal Power Station and associated immovable property.

2. Whether the appellant's refund claim of Service Tax paid on the lease rent is sustainable, given the nature and terms of the agreement between the appellant and the lessee.

3. The applicability and interpretation of Section 65(105)(zzzz) of the Finance Act, 1994, in the context of the agreement and the services rendered.

4. The relevance and applicability of judicial precedents cited by the appellant, specifically the decisions in C. Cheriathan v. P. Narayanan and Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai, in determining the taxability of the transaction.

Issue-wise Detailed Analysis

Issue 1: Liability to pay Service Tax under 'renting of immovable property service'

Relevant legal framework and precedents: Section 65(105)(zzzz) of the Finance Act, 1994 defines 'renting of immovable property' service as any service provided in relation to renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. Clause 90(a) of Section 65 further clarifies that such renting includes leasing arrangements for immovable property.

Court's interpretation and reasoning: The Court examined the agreement dated 14.10.2005, under which the appellant leased out a Thermal Power Station of 2x10 MW capacity, including land, building, plant, and machinery, for a fixed monthly rent of Rs. 32,00,000/- for twenty years. The agreement mandated the lessee to operate and maintain the station, guarantee power supply, and comply with various operational and maintenance obligations.

Despite the complex operational obligations, the Court noted that the appellant was receiving a fixed lease rent for the use of immovable property, which squarely falls within the definition of 'renting of immovable property' service under the Finance Act. The Court emphasized that the Revenue's concern is with the receipt of lease rent, which is taxable under the said category.

Key evidence and findings: The agreement's clauses detailing the scope of work, guaranteed power supply, tariff arrangements, fuel supply, operation and maintenance, and default/termination provisions were analyzed. The fixed monthly rent payable irrespective of the plant's operational status was particularly significant. The appellant admitted receipt of lease rent as per the contract.

Application of law to facts: The Court applied the statutory definition of 'renting of immovable property' service and held that the lease rent received by the appellant for the Thermal Power Station and associated immovable property is taxable under this category.

Treatment of competing arguments: The appellant argued that the agreement's primary purpose was to ensure power supply to the appellant's coal mines and that the mere existence of a fixed lease rent clause does not convert the transaction into renting of immovable property service. The appellant relied on judicial precedents to argue that the contract should be viewed as a whole and that Service Tax should not be levied.

The Court rejected these contentions, distinguishing the cited precedents on their facts and emphasizing that the present case concerns the taxability of lease rent received, which is clearly covered by the statutory definition.

Conclusions: The appellant is liable to pay Service Tax under the category of 'renting of immovable property' service on the lease rent received from the lessee.

Issue 2: Sustainability of the refund claim of Service Tax paid

Relevant legal framework and precedents: The appellant had paid Service Tax amounting to Rs. 2,44,40,939/- on the lease rent during June 2007 to January 2013 and subsequently filed a refund claim on the ground that no Service Tax was payable as the transaction did not constitute renting of immovable property service.

Court's interpretation and reasoning: The adjudicating authority and Commissioner (Appeals) rejected the refund claim, holding the appellant liable for Service Tax. The Tribunal concurred with this view, noting that the appellant's refund claim was based on an incorrect presumption about the nature of the transaction.

Key evidence and findings: The appellant's admission of receipt of lease rent under the agreement and the detailed terms of the contract supported the conclusion that the transaction falls under the taxable category. The Tribunal noted that the appellant did not dispute receipt of rent but sought refund on the basis of the nature of service rendered.

Application of law to facts: Given the statutory provisions and the admitted facts, the refund claim was not sustainable as the Service Tax was correctly paid on the taxable service of renting immovable property.

Treatment of competing arguments: The appellant's reliance on judicial precedents to argue against taxability was considered but found inapplicable due to factual distinctions. The Tribunal emphasized that the cited cases related to different legal issues (e.g., mortgage under the Transfer of Property Act) and not to the taxability of lease rent under Service Tax law.

Conclusions: The refund claim was rightly rejected, and the Service Tax paid on lease rent is not refundable.

Issue 3: Applicability and interpretation of judicial precedents relied upon by the appellant

Relevant legal framework and precedents: The appellant cited the Supreme Court decision in C. Cheriathan v. P. Narayanan, which dealt with the interpretation of agreements under the Transfer of Property Act, and Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai, which emphasized viewing contracts as a whole for tax demands.

Court's interpretation and reasoning: The Tribunal found that the Cheriathan case was not applicable as it concerned mortgage law and not Service Tax liability on lease rent. The Ishikawajima-Harima decision was acknowledged but distinguished on the basis that the appellant had admitted receipt of lease rent and there was no failure or refund of rent involved, which would warrant a holistic contract interpretation.

Key evidence and findings: The Tribunal analyzed the nature of the agreement and the admitted facts, concluding that the appellant's reliance on these precedents was misplaced.

Application of law to facts: The precedents did not support the appellant's contention that the transaction was not taxable under the renting of immovable property service category.

Treatment of competing arguments: The appellant's argument that the contract should be seen as a whole to deny Service Tax was considered but rejected due to the admitted lease rent receipt and statutory provisions.

Conclusions: The precedents relied upon by the appellant do not apply to the facts of the present case and do not absolve the appellant from Service Tax liability.

Significant Holdings

"Section 65(105)(zzzz) of the Finance Act,1994 mandates that any service provided or to be provided to any person, by any other person, in relation to renting of immovable property, for use in the course of furtherance of business or commerce, comes under this category."

"Admittedly, the appellant does qualify under the above definition of 'renting of immovable property' service."

"The appellant is liable to pay Service Tax under the category of 'renting of immovable property' service on the lease rent received from the lessee."

"The decision in C. Cheriathan v. P. Narayanan is not applicable to the facts of this case as it dealt with mortgage under the Transfer of Property Act and not Service Tax on lease rent."

"The agreement is to be seen as a whole for demanding Service Tax, but in this case, the appellant admitted receipt of lease rent and there is no failure or refund involved, thus the Service Tax liability stands."

"The authorities below have rightly rejected the refund claim of the appellant. Consequently, we uphold the impugned order."

"In these terms, we do not see any merit in the appeal and accordingly, the same is dismissed."