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Is service tax liable to be paid if not mentioned in lease a

Omkar Shirsat (CA Final Student) (72 Points)

16 June 2014

Hii Experts... Need an opinion on a practical issue:

The assessee has occupied factory on lease. However, there is no clause mentioning that service tax shall be levied on the agreed lease rental.

In such a situation, is the assessee liable to pay service tax portion to the lessor?

Case A - Service tax charged by lessor, no mention in lease agreement, not deposited to the credit of govt.

Case B - Service tax charged by lessor, no mention in lease agreement, deposited to the credit of govt.

In case of absence of such clause, shall the lease rental be assumed to be inclusive of service tax?

Kindly guide in this regard. Also quote any legal pronouncements if you can.

Thanks! :)

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3 Replies

Venkatanarayana GM (Partner associate at Hiregange & Associates) (1279 Points)
Replied 16 June 2014

Dear Omkar,

Liability under service tax would be created as per statutory definition of service after introduction of Negative list of services and not about mentioning this clause in the lease agreement.

For example

A = Assessee

B = Landlord

In the present case if B crosses 10 lakhs in a year then he has to charge service tax to A.

if not crossed then he can claim small scale exemption presecribe as per 33/2012 ST.

Renting of immovable property tax is taxable and there is property tax paid deduction.

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Arpit parakh (CA Final Student) (56 Points)
Replied 16 June 2014

Originally posted by : Omkar Shirsat
	Hii Experts... Need an opinion on a practical issue: The assessee has occupied factory on lease. However, there is no clause mentioning that service tax shall be levied on the agreed lease rental. In such a situation, is the assessee liable to pay service tax portion to the lessor? Case A - Service tax charged by lessor, no mention in lease agreement, not deposited to the credit of govt. Case B - Service tax charged by lessor, no mention in lease agreement, deposited to the credit of govt. In case of absence of such clause, shall the lease rental be assumed to be inclusive of service tax? Kindly guide in this regard. Also quote any legal pronouncements if you can. Thanks! :)

Since the Assesse has occupied the factory on Lease. Firstly You will have to identify whether it is a operating lease or financial lease. In case of operating lease there is only transfer for use and not the transfer of right to use. Hence it will fall in the declared service u/s 66E clause f.

But if it is a finacial lease then it will become a part of Deemed Sale provision which are specifically excluded from the definition of service. Hence we will need to seprate the value of asset and the interst portion. Interest received is also subject to abatement of 90%. Please note abatement is only available in case of interest and not other charges like processing fees or documentation fees.

But if no tax is charged, in my opinion, we can assume it to be inclusive

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GIRISH NADKARNI (GM FINANCE) (52 Points)
Replied 17 June 2014

In such cases the Agreement provides that Rent is payable on mobthly basis and the date on which the payment shall be made by the service receiver is also provided in the Agreement. If the period of providing the service is more than 3 months it will be considered as continous servoice as defined in Rule 2(c) of Point of Taxation Rules 2011. The date on which payment of service has accrued will be considered as point of Taxation for thr purpose of payment of service tax and service tax shall be payable on 5th or 6th of the following month as provided in Rule 6 of service tax Rules.

Since the said service is exempted from Reverse charge mechanism Rules the liability to pay service tax shall be on the service provider, subject to threshhold exemption of Rs 10 lakhs.

G.M.Nadkarni, AICWA, ACS, MFM,Dip IFRS

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