Service tax cenvat sub lease

Queries 2866 views 2 replies

Prateek

Top Management

213 Points Joined August 2009

Compnay X has rented a property to Company A. (X charges monthly rent to A and also charges Service Tax on the rent.) Say monthly rent is 100,000 + ST 12000.

Company A has given the entire property to Company B on rent (sub lease) and charges rent from Comapny B. Say Rent is 110,000 + ST 13200.

Q1) Can compnay A claim CENVAT of rent that it has paid to X. (thus only pay 1200 to govt fom the 13200 ST received from B as it has already paid 12000 to X)

Q2) What happens when the rent paid to X and rent reveived from B are the same. (can A take CENVAT of entire ST paid to X and thus not have to pay the ST collected from B)

Q3) Would the answer change if only party of the property is rented to B ?

Replies (2)

Pratul

FINANCE MANAGER

105 Points Joined July 2009

Renting of Immovable Property includes renting, letting, leasing, licensing, other similar arrangemnets of immovable Property. Thus by defn, sub-letting is also covered. Thus the SErvice Tax paid by A to X can be treated as Input Service and the ST recd by B, on sublet can be treated as Output Service and setoff is possible.

For Ur 2nd question: yes, in that case A will not have to pay Service TAx, but The return that is being filed, must show that CENVAT has been utilised for the payment of such OUput Sevice.

For ur 3rd Question, the relevance shifts to as to what you proposed to do with the other half. Kindly refer the text of "Renting of Immovable Property Service" for better understanding of the same.

Pratul

FINANCE MANAGER

105 Points Joined July 2009

1 more thing i wud like to add is that for ST to be applicable on sub-letting of property to B by A, it must be for "furtherance of business or commerce", i.e. the property must be used by B for his business purposes AND A must have such business of letting out of such property for it to be treated as his Businee Income as well..