Payment of one-time premium was not chargeable to tax under Service Tax under Renting of Immovable property

The CESTAT bench of Ahmedabad ("the Tribunal") in the case of Gujarat Power Corporation Ltd. v C.C.E. & ST(Service Tax Appeal No. 10193 of 2017) dated November 18, 2022 held that payment of one-time premium under renting of immovable property services is not chargeable to Service Tax.

Facts

M/s. Gujarat Power Corporation Ltd. ("the Appellant") leased an immovable property for 30 years, for which, the Appellant was receiving an annual rental and one time premium.

The Show Cause Notice ("the SCN") was issued to the Appellant raising demand of Rs.11,80,19,611/-. The Commissioner of Central Excise ("the Adjudicating Authority") vide Order dated October 19, 2016 confirmed a demand considering the same as the one-time premium charged by the Appellant as rent in addition to annual lease rental.

It was the contention of the department that premium amount is nothing but the part of the rent and as per Section 67(3) of the Finance Act, 1994, the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. Further, the department relied upon the Explanation (c) to the Section 67 of the Service Tax which says that "gross amount charged includes payment by cheque, credit 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." Based on this, the department contenting that irrespective of the accounting name of the amount like premium, deposit, etc., the amount would be the part and parcel of the gross value of taxable service.

Issue

Whether service tax is leviable on one-time premiums or salami under the category of renting immovable property?

Held

The Tribunal in the matter held that:

• The payment of one-time premium was not chargeable to Service Tax under the renting of immovable property service.
• The issue regarding includability of the one time premium in the assessable value has been examined by the Tribunal in the case of Greater Noida Industrial Development Authority 2015 (38) STR 1062 wherein it was held that:
• A lease is a transaction, which has to be supported by consideration, the consideration may be either premium or rent to both.
• Premium and rent are different and cannot be termed together. The Premium is the price paid for obtaining the lease of an immovable property, while rent is the payment made for use and occupation of the immovable property leased.
• Since, taxing event under Section 65(105)(zzzz) read with Section 65 (90a) of the Service Tax is renting of the immovable property, therefore, Service Tax would be leviable only on the element of rent i.e. the payments made for continuous enjoyment under lease which are in the nature of the rent irrespective of whether this rent is collected periodically or in advance in lump sum.
• Therefore, charging Service Tax on the one time premium is not correct.
• The Tribunal set aside the demand raised by the assessing officer.

Relevant Provisions

Section 65. Definitions. - In this Chapter, unless the context otherwise requires

(90a) "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 but does not include -
(i) renting of immovable property by a religious body or to a religious body; or
(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre.

• Explanation 1. - For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;
• Explanation 2.- For the removal of doubts, it is hereby declared that for the purposes of this clause "renting of immovable property" includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;

Section 65. Definitions. - In this Chapter, unless the context otherwise requires, -

(105) "taxable service" means any service provided or to be provided, -

(zzzz) "to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce.]

Explanation 1. - For the purposes of this sub-clause, "immovable property" includes -

(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate,
(v) vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce; but does not include -

(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;
(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;
(c) land used for educational, sports, circus, entertainment and parking purposes; and
(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2. - For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;

67. Valuation of taxable services for charging service tax

(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
Explanation (c) "gross amount charged" includes payment by cheque, credit 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.