Service Tax On Rentals

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Chandran Baloo

Proprietor

45 Points Joined June 2010

How do we get a Bank to avail CENVAT Credit on Service Tax against Rentals collected from them. As the first lease agreement drafted was prior to the date of 1st June 2007 and the second for an additional area drafted post 1st June 2007, while both considerations were without Service Tax, as it was not implemented then. The Bank is not ready to pay the service tax on the rentals. A note on the CENVAT Credit facility that could be availed by the Bank ( as it is collecting Service Tax from its customers and paying the same), was also discussed with the management. How could we stress to a financial institute like this BANK to avail the CENVAT Credit facility. Thanks for your time in advance while look forward to a solution.

Replies (5)

Madhukar N Hiregange

Chartered Accountant

39039 Points Joined September 2008

As long as the bank pays the service tax to the landlord, they are eligible for the credit.

However the fact that the levy of st on rental is in dispute cuases a lot of problems/ confusion.

Chandran Baloo

Proprietor

45 Points Joined June 2010

Dear Mr.Madhukar N.Hiragange

The question is

WHY ARE THEY NOT AGREEING TO PAY THE SERVICE TAX ON THE RENTALS WHEN THEY CAN AVAIL CENVAT CREDIT.

The Rule 2, specifies the eligibility very clearly for such financial institutions, then, being a public sector bank, what could stop them from availing the same?

Would like views from the banking sector as well and thanks in advance.

Regards

Chandran Baloo

SANJAY THAKOR

MANAGER-FINANCE

68 Points Joined August 2009

In order to avail CENVAT credit for the bank...

Firstly bank has to render a taxable out put service from such rental premises.

Secondly, Mr. Madhukar is right. The matter is in dispute inspite of clearly mentioned in Budget - 2010 that the Service Tax on Rental is payable retrospectively from June-07.

Earlier in the same matter Delhi high court had given favourable judgement in case of one of the retail company. That the said activity is not a service hence Service tax is not applicable.

In absence of proper clarity bank may not be paying service tax. However if bank pays Service tax then they can availed the CENVAT credit.

Madhukar N Hiregange

Chartered Accountant

39039 Points Joined September 2008

There could be several reasons why banks are not interested in availing credit. They maybe hit by rule 6 (3) of the CCR, they may not wish to be involved in a refund situation.

When the matter has been stayed now [ not the old case] by the Delhi HC again they wish to pay only when there is judicial clarity.

Their advisors/ directors would have taken a postion some time back and the matter has not been revisted by them

Chandran Baloo

Proprietor

45 Points Joined June 2010

Taxable service is rendered at this branch.

Service Tax on new lease agreements are being paid.

Old agreements (as in my case and many more) are not being honoured with service tax, though they can avail CENVAT credit.

Taken for granted that the service tax is not paid by the bank and the rentals received is considered inclusive of S/T, then 1. How do I file my returns? 2. Should the lease agreement be redone ? 3. Is there any tax benefit in such case and can it be aviled retrospective.