By TIOL News Service

MUMBAI, JUNE 14, 2013: THE appellant is engaged in rendering of Banking and financial services. The appellant had given a loan to Raje Vijay Singh Dafale Sahakari Sakhar Karkhana Limited and Tasgaon Taluka Sahakari Sakhar Karkhana Ltd. Both of them defaulted in payment of their outstanding dues. Therefore, the appellant bank took possession of their factories' plant and machinery in terms of Section 13(4)(a) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 on 14/08/2006 and 30/08/2007 for the default of the loans.

Thereafter, they leased out the factories vide lease agreements dated 20/12/2007 and 30/10/2007.

They received lease rent from the lessees which were adjusted towards the loan amounts defaulted by the sugar companies.

As per the lease agreement, the lessee was required to maintain the plant and machinery in good condition vide clause (d) of the agreement at lessee's own cost and the lessee incurred an expenditure of Rs. 4.12 crore in the case or Raje Vijay Singh Dafale Sahakari Sakhar Karkhana Limited and Rs. 5.8 crore in the case of Tasgaon Taluka Sahakari Sakhar Karkhana Ltd.

The department was of the view that the appellant-bank is liable to discharge service tax liability not only on the amounts received towards rent for the lease of the factories but also on the expenditure incurred by the lessees towards maintenance and repair on the ground that such activities are undertaken by the lessees on behalf and on account of the appellant.

Accordingly, notices were issued and demands confirmed under the category of ‘Renting of Immovable Property' along with interest thereon and also by imposing penalties.

Aggrieved by these orders of the CCE, Kolhapur, the appellant is before the CESTAT.

While seeking stay it is submitted that -

+ the appellant is cooperative bank and they are engaged in banking and financial services and are not in the business of renting of immovable property.

+ Since the loanees defaulted in repayment of the loans, under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 they took possession of the factories belonging to the loanees and leased them out to the lessees mentioned in the lease agreements for recovery of the outstanding amounts from the loanees. This action on the part of the bank cannot be construed as renting of immovable property per se but should be considered as recovery of outstanding loans and hence no Service Tax is payable.

+ as regards the expenditure incurred by the lessees on the maintenance of plant and machinery in the sugar factories leased out, the appellant is not rendering any service towards management, maintenance or repair as defined in clause (zzzg) of Section 65 of the Finance Act, 1994; that this cost has been incurred by the lessees and the service provider is the person who actually undertook the maintenance and repair services and therefore, service tax demand on the cost incurred by the lessee towards maintenance and repair of the plant and machinery is not liable to service tax towards these charges it not sustainable in law.

+ they have paid an amount of Rs. 51,47,052/- against the demand of Rs.51,74,000/- on account of lease rent received and the same should be considered as sufficient for hearing of the appeals.

The Revenue representative, in the matter of ST on ‘lease rent' collected, submitted that the manner in which the appellant got the possession of the factory is not relevant for determination of the service tax liability under the Finance Act, 1994. As regards the service tax demand on maintenance and repair charges of the plant and machinery in the factory leased out, it is informed that the order is not clear as to whether service tax liability thereon has been discharged by the concerned service provider or not.

The Bench observed -

"5. We have carefully considered the submissions made by both the sides. Section 65(105)(zzzz) of the Finance Act,1994 reads as follows:

"taxable service means, any service provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting for use in the course of or, for furtherance of business or commerce.

5.1 There is no dispute in the instant case that the property rented out is an immovable property and the renting has been for use for the furtherance of business or commerce. From the rental agreements entered into by the appellant, a copy of which is available on record, the appellant is the lesser and the factory of Tasgaon Taluka Sahakari Sakhar Karkhana Ltd. has been leased out to Ganpati jilha Krishi Audyogik Serva Serva Sahakari Society Ltd. Similarly the factory of Raje Vijay Singh Dafale Sahakari Sakhar Karkhana Limited has been rented out to Rajaram Bapu Patil SSK Ltd. In terms of the lease agreement the appellant is receiving lease rent. Therefore, the transaction undertaken by the appellant fails within the definition of ‘renting of immovable property' as defined in Section 65(105)(zzzz) above and, therefore, the appellant is prima facie, liable to pay service tax on the rent amounts received by them. As regards the maintenance and repair costs incurred by the lessee, we are of the prima facie view that the appellant is not the service provider and there is no liability on the appellant in respect of those transactions. Since the appellant has already paid the service tax amount on the lease amount received, though under protest, the same is sufficient for hearing of the appeals. Accordingly, we grant waiver from pre-deposit of the balance of dues adjudged against the appellant and stay recovery thereof during the pendency of the appeals."

In passing: Now for some CENVAT credit for furtherance of business or commerce.

(See 2013-TIOL-899-CESTAT-MUM)