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SERVICE TAX

RECENT CASE LAWS  

Notional interest on interest free security deposit cannot be added to the rent for levy of service tax on renting of immovable properties

Murli Realtors Pvt. Ltd. and others Vs. Commissioner of Central Excise Pune-II [2014-TIOL-1728-CESTAT-MUM]

Murli Realtors Pvt. Ltd. and others (“the Appellants”) are lessors of immovable property who have leased out their premises on long time lease ranging from 5 to 10 years in consideration of lease rentals on a monthly basis. In addition to these rentals, they are also taking interest free security deposits from the lessees which vary from six months' rent to one year's rent (“security deposits”) to secure default in payment of rentals, default in payment of utility charges, if any, and damage caused to the property other than the usual wear and tear. These deposits are returned to the lessee at the end of the lease period.

The Department contended that the interest free security deposit has suppressed the lease rentals and, therefore, notional interest at the rate of 18% of the deposit should be added to the rent agreed upon between the parties for the purpose of levy of service tax on renting of immovable property.

The Hon’ble CESTAT, Mumbai relied upon the following judgments:

· Moriroku UT India (P) Ltd. Vs. State of UP [2008 (224) ELT 365 (SC)];

· Commissioner of Income Tax Vs. J.K. Investors (Bombay) Ltd. [248 ITR 723 (Bom.)];

· Central Excise, Mumbai -III Vs. ISPL Industries Ltd. [2003 (154) ELT 3 (SC)];

· Intercontinental Consultants and Technocrafts Pvt. Ltd. Vs. Union of India &Anr. [2012-TIOL-966-HC-DEL-ST]

and held that in the absence of specific provision in law and in the absence of any evidence led by Revenue to show that the security deposit taken has suppressed the rent, the impugned demands are not sustainable. Further, the Hon’ble Tribunal do not find any reason for adopting a rate of 18% per annum as rate of interest, which is neither the bank rate of interest for deposits or loans or the market rate of interest. Adoption of such an arbitrary rate militates against the concept of valuation. In view of the foregoing, notional interest on interest free security deposit cannot be added to the rent agreed upon between the parties for the purpose of levy of service tax on renting of immovable property.

Services provided for transportation of ‘waste’ through pipeline is not taxable as transportation of ‘goods’ through pipeline

Gujarat State Fertilizers and Chemicals Ltd. Vs. Commissioner of Central Excise, Vadodara [2014-TIOL-1729-CESTAT-AHM]

Gujarat State Fertilizers and Chemicals Ltd. (“the Appellant”) has rendered services of transportation of effluent through pipeline or conduit to Heavy Water Project (“HWP”) for consideration. The Department contended that the Appellant is liable to pay Service tax on the services of transportation of effluent through pipeline or conduit to HWP under ‘Transportation of goods through pipeline or conduit’ taxable under erstwhile Section 65(105)(zzz) of the Finance Act, 1994 (“the Finance Act”).

It was held by the Hon’ble CESTAT, Ahmadabad that as per definition of 'goods' given under Section 2(7) of the Sales of Goods Act, 1930 (“the Sale of Goods Act”), the goods has to be a category of 'movable property'. Movable property in general trade parlance is considered as a property in goods which can fetch certain price.

However, effluent discharge facility is for disposal of a waste which is not being purchased by any person but is only being disposed of by utilizing the services of the Appellant. Hence, services of transportation provided by the Appellant are not for the 'goods' as defined in Section 2(7) of the Sales of Goods Act and the same cannot be considered as a service provided for transportation of goods as per Section 65(105)(zzz) of the Finance Act.

Input service distributor is not required to be a manufacturer or output service provider to avail Cenvat credit

Moser Bear India Ltd. Vs. CCE, Noida [TS-368-Tribunal-2014(DEL)]

The head office of Moser Bear India Ltd. (“the Appellant”), located at Delhi is registered as an input service distributer (“ISD”) in terms of Rule 2(m) of the Cenvat Credit Rules, 2004 (“the Credit Rules”). The head office was discharging Service tax liability under Reverse Charge for the various services received by them from foreign country. The Service tax so paid by them on the various services, were actually being utilized by the Appellant in their factory located at Noida, which was distributed by the head office to the Appellant’s factory at Noida. The Appellant was utilizing the same for discharge of their Service tax liability.

The Department contended that in as much as the Service tax was being paid by the head office which was neither engaged in the manufacture of any excisable goods nor providing any output services, were not entitled to avail the said credit and in turn not entitled to pass on the said credit to the Appellant’s factory located at Noida.

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