ST - Service not liable to be taxed merely because of retro effect of addition of vacant land to Expl. defining 'immovable property’: CESTAT
By TIOL News Service
MUMBAI, MAR 14, 2017: THE facts are that M/s Ganesh Benzoplast Ltd entered into an agreement with the appellant for rental of vacant land which was developed by the lessee as a tank farm and the lease was further extended w.e.f. 9th February 2004. The period in dispute is from 1st June 2007 to 10th September 2011.
On the 1 st June 2007, 'renting of immovable property' became liable to tax with the insertion of section 65 (105)(zzzz) in the Finance Act, 1994. However, the definition of the activity covered by the taxable service was limited to 'building, land incidental to use of such building, common area of shared facilities, building located in industrial estate'. In the year 2010, the explanation was extended to include 'vacant land given on lease or lease of construction of building or temporary structure'.
The demand was raised on the ground that insertion of 'vacant land' in 2010 in the meaning of 'immovable property' was to be retrospectively applied to all vacant land so leased when the service became taxable.
As the Commissioner(A) upheld the ST demand of Rs.18,92,377/- and the penalties, interest imposed, the appellant is before the CESTAT.
The Stay order was reported by us as 2013-TIOL-1926-CESTAT-MUM .
The Bench observed -
+ Since the building itself was owned by the lessee, levy of tax until 1 st June 2010 was not warranted as the tax was liable to be paid only upon renting out of building. It was only in June 2010 that tax was extended to the lease consideration earned by renting of vacant land. The retrospective effect given by such addition to the scope of levy is applicable only to the extent that the vacant land continued to be so on the date of insertion. It is the claim of the appellant that the entire building with facilities had been completed even before renting was made taxable in 2007. Consequently, they contend that what was not leviable to tax in 2007 is not liable to be subject to tax by retrospective effect of insertion in explanation.
+ There is no doubt that as on the date of imposition of levy, the appellant had not indulged in any taxable activity. Even when the amendment came into effect and even if retrospectively, effective transaction between the appellant and the lessee could not be described as that of a lease of vacant land. Consequently, the levy of tax on the rental income derived by the appellant from the lessee is beyond the scope of taxability.
The impugned order is set aside and the appeal is allowed.
In passing:
Extracts from D.O.F. No. 334/1/2010-TRU dated February 26, 2010 -
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3. ALTERATION OR EXPANSION IN THE SCOPE OF EXISTING SERVICES
3.1 In the case of following existing taxable services, the scope has been altered either to expand their scope or to remove certain difficulties that have been faced during tax implementation. These changes are as follows, -
Amendments are being made in the definition of the taxable service 'Renting of immovable property' [section 65 (105) (zzzz)] to,-
(i) provide explicitly that the activity of 'renting' itself is a taxable service.
This change is being given retrospective effect from 01.06.2007 ; and
(ii) provide that renting of vacant land, where the agreement or contract between the lessor and lessee provides for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease, shall be subjected to service tax.
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(See 2017-TIOL-801-CESTAT-MUM)
