TMI Blog2019 (7) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 5.50Crore per annum - However in the present case the agreement was in continuance only during the period October 2009 to May 2010. Hence the gross consideration needs to be taken on pro-rata basis for the period when the agreement was in force. After considering the agreement dated 14.10.2009 we do not find any reasons to differ with the determination made by Commissioner (Appeals). As per the clause 19 of the agreement, the Joint Venture is not responsible for any past or existing liability of the appellant. The temporary loan, sugar pledge loan and revised restructuring loans are the liability of the appellant and cannot be termed as liability to be met by the Joint Venture. The payments made in the loan account, by the Joint Venture can never be termed as payments made towards these liabilities of the appellant, which existed even prior to coming into existence of the Joint Venture or have arisen on account of the current operations of the appellant. Commissioner appeal has examined the documents and have allowed deductions in respect of the expenses incurred by the appellant towards the advances made by them to the sugarcane harvesting and transport contractors (c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 In view of above discussions and findings the demand of service tax is reduced to ₹ 28,63,583/- (Rs Twenty eight lakhs sixty three thousand five hundred eighty three only). The Appellants are liable to pay interest thereon. Penalty imposed under section 78 is reduced to ₹ 28,63,583/- (Rs Twenty eight lakhs sixty three thousand five hundred eighty three only). Penalty imposed under section 77 for failure to obtain service tax registration is reduced to ₹ 5000/- 9Rs Five Thousand only). The appeal of the Appellants is allowed in above terms and Order in Original No 30/ST/ADC/KOP/2012 dated 30.11.2012 stands modified to the extent as above. 2.1 Appellants entered into an agreement with M/s Sangli Sugars Pvt Ltd (Sangli) on 14.10.2009 and floated a Joint Venture under the name and style M/s Sangli Sugar and Mahakali Sakhar Udyog (JV) to run the sugar factory of the appellants on profit sharing basis for a period of three consecutive crushing seasons commencing from 2009-10 to 2011-12. JV worked during 2009-10 crushing season only and was terminated by both the parties on 20.05.2010. 2.2 As per para 5 of the deed of joint venture da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan account of Appellant held with the said bank. 2.5 JV had incurred an expense of ₹ 90,53,796/- for repair and maintenance of the plant and machinery of the said factory owned by the Appellants during the period 2009-10. As owner of the plant and machinery appellants should have undertaken the repair and maintenance. However since JV incurred this expense towards the repair and maintenance, this expense incurred should also be said to be paid by the JV to the Appellants against the lease rent due in terms of agreement dated 14.10.2009. 2.6 The services of renting of immovable property are taxable services as defined by Section 65 (105) (zzzz) read with Section 65 (90a) of the Finance Act, 1994. Appellants have provided the said services to JV for a consideration of agreed lease rent of ₹ 5,50,00,000/- against which they received an amount of ₹ 4,20,13,226/- (₹ 3,29,59,430/- + ₹ 90,53,796/-). 2.7 Since appellants had not taken any registration for providing the said service and had not paid service tax on the lease rent received by them from JV, a show cause notice dated 03.02.2012 was issued to them aski ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii. I order to pay the Interest at appropriate rate on the above service tax liability of ₹ 43,27,362/- (Rs Forty Three Lakhs Twenty Seven Thousand Three Hundred and Sixty Two Only) under the provisions of section 75 of the Finance Act, 1994. The jurisdictional Deputy/ Assistant Commissioner shall take appropriate action for computation and recovery of interest amount. iii. For not obtaining the registration for the taxable services Renting of Immovable Property Service , I impose a penalty of ₹ 5000/- (Rs. Five Thousand only) or ₹ 200/- for every day, during which such failure continue, whichever is higher, starting with the first day after the due date till the date of actual compliance under Section 77(1) (a) of the Finance Act, 1994. The jurisdictional Deputy/ Assistant Commissioner shall take appropriate action for recovery of penalty. iv. I impose a Fees of ₹ 2000/- upon them under the Section 70 of the Finance Act, 1994, for failure to furnish ST-3 return. The jurisdictional Deputy/ Assistant Commissioner shall take appropriate action for recovery of penalty. v. I impose a penalty of ₹ 43,27,62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fide belief that no rent was received from the JV . They were under bonafide belief that this amount of ₹ 93.44 lakhs was received by them in their loan account from JV before the sale of bags is not the part of taxable value. Only when they were explained the provisions of Finance Act, 1994 in respect of valuation and taxation of services under the category of Renting of Immovable Property Service They should also be allowed deduction of ₹ 10 lakh towards SSI exemption, from the total taxable value of ₹ 94.44 lakhs and tax demand should be confined to taxable value of ₹ 83.44 lakhs (₹ 93.44 lakhs ₹ 10 lakhs) 3.2 In their appeal revenue has challenged the order of Commissioner (Appeals) stating thato Claim that out of ₹ 3,29,59,340/- credited by the JV in the loan account of Appellant maintained with SDCCBL a sum of ₹ 28,75,972/- was towards repayment of advance paid to sugarcane harvesting and transport contractor, was never raised by the appellants during the course of investigation or in course of adjudication proceedings before the original adjudicating authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ag sold to be included in the rent. The clause 8 entitles JV to raise pledge loan. The clause 12 says JV shall pay repair, overhaul machinery at its own cost including for replacement of parts. The clause 19 manifestly states that JV is not liable to pay appellants past or existing loan. The clause 22 states that JV shall pay Appellant amount incurred by Appellant for keeping machine ready by overhauling. The clause 23 says that JV will pay to Appellant the amount paid as Advance for harvesting and transportation of Sugar cane. Claus 36 states that Plant Machinery Building etc., are hypothecated to Bank and Appellant will obtain necessary permission from Bank. If any stock left, the sale proceed of the same be paid as per clause 26. The SCN presumes and assumes that the loan repayment amount is rent amount though no rent is paid or received, the veracity is checked in various statutory record of different deptts. The entire demand, penalty and interest is not sustatinable as neither rent is paid or received. The amount shown by the bank in letter clearly shows that it is paid against pre 14.10.2009 against Plant, machinery, Building etc are pledge hypothec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 5,50,00,000/- for a period of three crushing seasons. The lease rent was to be paid by the JV in the loan account of Appellants maintained with SDCCBL. Apart from this JV was not required to make any payment to the Appellants as per this agreement. In terms of this agreement when enquiries were conducted with Appellant and JV, both denied payment of any lease rent by the JV to Appellants. However SDCCBL gave the details of payment made by the JV in the loan account of Appellants maintained with them during the period from Oct 2009 to May 2010. Hence in terms of this agreement the entire amount that has been received was towards the lease rent and is a consideration received towards lease rent. Hence in terms of Section 67 of the Finance Act, 1994 the entire amount should be taken as the value of taxable services provided, and subjected to service tax. 5.1 We have considered the impugned order with the submissions made in the appeal and during the course of arguments. 5.2 The issue for consideration is whether the services provided by the appellant, by way of renting the factory with plant and machinery to JV as per the agreement dated 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of the Appellant (Clause 19). x. The sale proceeds of sugar and bye products will deposited in the bank account of the Joint Venture. (Clause 23). xi. Appellants have paid certain amounts as advances for harvesting and transportation of sugar cane. These amounts along with interest will be deducted from the bills of the vendors and will be reimbursed by the Joint Venture to the Appellants. (Clause 23) xii. The period of the agreement is for three crushing seasons beginning from the crushing season 2009-10. (Clause 25) xiii. That the existing machinery and building of the Appellant is either hypothecated or mortgaged with SDCCBL. Appellant will obtain necessary permissions from SDCCBL for entering into this agreement and floating the joint venture and to ensure that no obstructions are caused to the functioning of Joint Venture by SDCCBL. (Clause 36) 5.6 From the above agreement it is quite evident that the Joint Venture has come into existence from the date of agreement i.e. 14.10.2009. The Appellant have rented out its machinery and building to the joint venture against payment of lease rent of ₹ 5.50 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called Suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise. 5.9 In term of clause 5 of the agreement dated 14.10.2009, the consideration in form of lease rent agreed between appellant and joint venture, for providing the machinery and buildings on rent was ₹ 5.50 Crore per annum. Thus in terms of Section 67(1) the value of taxable service provided by the Appellant, will be ₹ 5.50Crore per annum. However in the present case the agreement was in continuance only during the period October 2009 to May 2010. Hence the gross consideration needs to be taken on pro-rata basis for the period when the agreement was in force. 5.10 In terms of Rule 6 of the Service Tax Rules, 1994 as it existed then, the service tax was required to be paid on the amount received by the provider of the taxable service during the month for providing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be treated as payments towards the lease rent. In terms of the agreement dated 14.10.2009, the only amounts that are due to the appellant from the Joint Venture are only towards the lease rent, and any profits that is shared at the end of the year towards the operation of Joint Venture. It is admitted that no payments were received by the appellants towards profits earned by the Joint Venture. Even otherwise in terms of the agreement the profit payments will occur only after payment of the lease rent to the appellants. 5.12 In para 12 of his order Commissioner (Appeal) has in detail considered the various contentions raised by the appellants and also the revenue, for determining the amounts received by the appellants as lease rent, for determining the tax payable. The said para of the impugned order is reproduced below: 12 . As regards the value of the taxable service I find from the impugned Order dated 30.11.2012 that the Adjudicating Authority has considered the amount of Rs, 3.29 crores which was deposited by the JV in the different loan accounts of the Appellants with the Sangli DCC Bank Pvt. Ltd. and the amount of expenses of ₹ 90.53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Temporary loan 1,21,67,906/- 2 Sugar Pledge loan 79,19,626/- 3 Store hypothecation loan 28,75,972/- 4 Revised restructuring term loan 99,95,926/- Total taxable value 3,29,59,430/- In this connection the Appellants have contended that before the date of JV Agreement i.e. 14.10.2009, various loans sanctioned by. the bank to the Appellants were pending repayment arid to run their factory on joint venture basis, NOC of the bank was required to be obtained. Accordingly a tri party agreement dated 18.11.2009 between the bank, the Appellants and the JV was entered into on the terms and conditions mentioned therein in terms of which all amounts payable by the JV to the Appellants i.e an amount of ₹ 250/- per bag of sugar produced by the JV and any amount of profit earned etc. were to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74.83 Total 329.59 236.15 In respect of the amount against S.No. 3, in Col. (3) and (4) above of ₹ 28,75,972/- the Appellants have submitted that it pertains to stores material sold by them to the JV and not related to any rent amount. In support of this they submitted a copy of the journal voucher passed by the JV and counter slips depositing the amount in the said account in bank. I find from the documents produced by the Appellants that the store material was sold by the Appellants to the JV and the same being hypothecated to the Sangli DCC Bank the amount received of ₹ 28,75,972/- Was deposited with the bank. As regards amounts against S.No. 1 of above table appearing in Col. (4) they have submitted a certificate from the Chartered Accountant dated 24.1.2014 along with documents showing the sanctioning of loan as temporary loan by the bank, the abstract of ledger related to advances paid by them to the sugarcane transporters and bank deposit slips and few accounting vouchers. I find from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JV upto ₹ 5.5 crores has to be first apportioned towards the lease rent because as per the conditions of the Agreement the JV was first require to pay the lease rent upto ₹ 5.5 crores and the other amounts were payable after the payment of this amount. Therefore, the amount of ₹ 200/- per bag or the amount deducted by the bank from the loan amount of JV is to be apportioned towards the lease rent of ₹ 5.5 crores irrespective of the. fact that whether it has been deposited in the loan account of the Appellants by bank or paid otherwise. Therefore out of the amounts deposited of ₹ 329.59 lacs, except the amount of ₹ 28.75 lacs (which was in lieu of store sales) and ₹ 22.81 lacs (which was received from the JV on account of repayment of advance paid by the Appellants to sugarcane harvesting and transport contractors but the services were received by JV) the balance amount of ₹ 278.02 lacs is to be considered as payment towards lease rent of Rs. 5.5 crores. Accordingly the value of the service provided by the Appellants of renting of immovable property works out to ₹ 278.02 lacs. 12.3 . Other contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar pledge loan and revised restructuring loans are the liability of the appellant and cannot be termed as liability to be met by the Joint Venture. The payments made in the loan account, by the Joint Venture can never be termed as payments made towards these liabilities of the appellant, which existed even prior to coming into existence of the Joint Venture or have arisen on account of the current operations of the appellant. The total deposits indicated to be made by the Joint Venture in the loan account of the appellants as per SDCCBL is ₹ 329.59 lakhs. Appellants have claimed that these deposit have been made by the Joint Venture towards prepayment of various loans. The said argument of the appellant is contrary to the clause 19 of the agreement. Even if the deposits have been made directly by the Joint Venture in the loan account of the appellants, then also these amounts have to be necessarily routed through book of accounts of appellant as per the fund flow statement indicated in table below: All amounts in Rs Lakhs Clause of Agreement Paid by Joint Venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have any reason to differ with the findings of Commissioner. 5.15 In terms of clause 12 of the agreement we are also not in agreement with the appeal filed by the revenue seeking to add the expenses incurred by the Joint Venture towards repair and maintenance of the machinery/ building in the payment made by the Joint Venture to the appellants. 5.15 On the issue of limitation appellants have relied upon number of decisions of various authorities to argue that their case is not covered by the proviso to Section 73(1) of the Finance Act, 1994, as they have not suppressed anything with the intention to evade payment of taxes. However they have failed to establish the relevance of these decisions in the facts and circumstances of this case. Commissioner appeal has discussed the issue for invocation of extended period of limitation in para 13 of his order reproduced below: 13 . As regards limitation, the Appellants' contention is that there is no suppression of facts and they have' relied on the judgment of the Hon'ble Supreme Court in the case of Continental Foundation Jt. Venture versus Commr., C. Ex. Chandigarh - 2007 (216). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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