Service tax cannot be levied under RCM for letting out of residential property by Director to the Company

The CESTAT, Delhi has ruled that service tax cannot be levied under the Reverse Charge Mechanism (RCM) for rent paid by a company to its director for residential property. This is because the tax is only applicable if the premises are used for commercial purposes. The tribunal also found that a separate demand for service tax on renting of immovable property was not sustainable due to revenue neutrality and the non-applicability of the extended limitation period.

The CESTAT, Delhi in the matter of M/s Mec Shot Blasting Equipment Ltd v Commissioner, CGST [ORDER NO. 50626 / 2022 dated July 18, 2022] has held thatthe service tax cannot be levied on the company for payment of rent to the director unless such premises are used for commercial purpose.

Facts

M/s Mec Shot Blasting Equipment Ltd ("the Appellant") hasregistered with the ServiceTax Department and deposits service tax regularly. A demand of Rs. 70,140/- was raised by the Commissioner ("the Respondent") under ReverseCharge Mechanism ("RCM") for residential premises, taken on rent by the Appellant from the Director and have been used by the Appellant as residence for its directors.

Further, there was another demand for Rs. 29,209/- for non-payment of ServiceTax, which was not paid due to over site, as there are several transactions and otherwise, they were regularly paying service tax. Thus, there is no element of suppression.

Issue:

• Whether the Appellant was liable to pay service tax under RCM of Rs. 70,140/- for residential premises, taken on rent by the Appellant from the Director and have been used by the Appellant as residence for its directors?
• Whether the Appellant is liable to pay service tax of Rs. 29,209/- on renting of immovable property service.

Held:

The CESTAT, Delhi in [ORDER NO. 50626/2022 dated July 18,2022] has held as under:

• Observed that, no service tax is chargeable, unless the premises are taken and used for commercial purpose. Thus, service tax is not chargeable.
• Held that, for other demand the situation is wholly revenue neutral and accordingly, invocation of extended period of limitation is not available to the revenue in the facts and circumstances.