ST - Renting includes not mere renting but any similar arrangements in respect of immovable property for use in furtherance of business or commerce: CESTAT
By TIOL News Service
MUMBAI, AUG 29, 2018: A Service Tax demand of Rs.2,56,65,366/- was confirmed against the appellant under the category of 'Renting of Immovable Property service' along with penalties and interest. The appellant had already paid an amount of Rs.1.65 crores apart from Rs.59,91,224/- which was appropriated by the adjudicating authority.
The appellant had entered into agreements with M/s Pantaloons and M/s Trent Ltd to undertake the business of selling garments etc. on revenue sharing basis. As per the terms and conditions of the agreement, the consideration received by the appellant is 4.5% of the net retail sale of the product in case the net retail sale is between 0 to 30 crores and the consideration would be 4.75% of the net retail sale of all the products if the net retail sale is in the range from 30 to 50 crores. The appellant also undertakes certain obligations regarding selection of range of products, pricing of range of products etc. and, therefore, it is their contention that the service provided is not renting of immovable property service.
In the matter of the stay application filed, the CESTAT adverted to the definition of 'Renting of Immovable Property Service' and while allowing the stay petition observed -
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8. The Board's Circular dated 13.12.2011 relied upon by the Revenue provided that each case and the terms of contract may be looked into and the decision is to be taken on case to case basis. In the present case, as the agreement is on revenue sharing basis and the applicant also undertakes certain obligation, therefore, prima facie we find that the applicant has made out a case for waiver. Therefore, the amount already deposited is sufficient for hearing of the appeal. Pre-deposit of remaining dues are waived and recovery is stayed during pendency of appeal.
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We reported this order as - 2014-TIOL-1495-CESTAT-MUM .
The appeal was heard recently.
The appellant referred to the various clauses of the agreement entered into by them with M/s Pantaloon & M/s Trent Ltd. and argued that the agreement was for provision of various services to conduct retail business from the said premises and not in the nature of 'Renting of Immovable Property'. It is also submitted that the demand is hit by limitation.
The Bench considered the submissions made by both sides and after adverting to the various clauses in the agreement(s) observed -
"7.1…On perusal of the above clauses it is quite evident that appellants have provided the space to the said companies for conducting report of business and for provisions of the said space. They are receiving certain "Fees", the said "Fees" cannot be anything other than as charges for provision of the space, hence is in nature of rent. The submission made vis-à-vis the other activities being undertaken by the appellant in terms of the said agreement do not justify to consider the amount received as anything other than rent because in view of the clause (4(b) of the agreement which specifically provides that "The company shall be exclusively in charge of the management and running of the said business from the said premises". Thus, the conduct of retail business from the said premises was so responsible of the company which had necessary expertise in doing so. This is also supported by the fact that appellants are neither having necessary expertise/experience in the field of retail sales of the said product. We hold that the entire amounts received in terms of these agreements are nothing but rent for providing space for conducting the said retail business."
Referring to the definition of 'Renting of Immovable Property', the CESTAT further observed -
"8.1 In terms of the above definition the renting includes not mere renting but any similar arrangements in respect of immovable property for use in furtherance of business or commerce. Both the agreements under consideration are in terms of above phrase covered by the said definition of renting of immovable property. Accordingly they are leviable to service tax under said entry. Appellants have advanced the argument that the agreements entered into by them were business arrangement and that they have entered into partnership/ joint venture with the said companies for conducting the business and not into rent agreement. Thus the said agreements were nothing but profit sharing agreements. The said argument do not merit acceptance because the participation of the appellant in business activity is limited to provision of the space…"
On the aspect of limitation, it was observed that the appellants had not disclosed the facts with regards to said two agreements to the department and, therefore, charges of suppression are correctly invoked.
In fine, the demand was upheld along with interest and penalties.
The appeal was dismissed.
(See 2018-TIOL-2650-CESTAT-MUM)
