CESTAT sets aside Service Tax Demand on Reimbursement of Water, Electricity, and Diesel Charges from Tenant to Landlord [Read Order]

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Hyderabad has set asides service tax demand on reimbursement of water, electricity, and diesel charges from tenant to landlord.

The appellant, M/s. VITP Private Limited is engaged in the business of developing IT Parks and other industrial and commercial places which are subsequently given for rent to a wide spectrum of industries. During the assessment proceedings, the Assessing Officer confirmed the service tax demanded on the amount received towards the reimbursement of expenditure in respect of water, electricity, and diesel charges under the category of ‘Management, Maintenance or Repair Services.

The counsel for the appellant submitted that the Diesel is used to run the diesel generator sets and depending on the usage of the electricity by each tenant as per the installed sub-meter, the cost of diesel is apportioned between the tenants on actuals. Thus, what is being sold to the tenants is electricity. The maintenance charges in respect of DG sets, the Service Tax is already discharged. The counsel further submitted that the appellant is merely collecting electricity and water charges on actuals as a landlord from the tenants based on the floor ratio and making payments to service providers, such amounts cannot form part of the value of service.  

The Tribunal observed that the expenses are mere reimbursement based on the total cost incurred by the Appellant. The total floor area of the customers is not in dispute, which shows that there is no profit element involved in the above reimbursements.

The Coram of Mr. P. K. Choudhary, Member (Judicial) and Mr. P. V. Subba Rao, Member (Technical) by relying on the decision of Supreme Court decision in has held that “we find that the Appellant cannot be saddled with the liability on such reimbursements on account of water, electricity and diesel charges and thus the demand of service tax on this ground cannot be sustained either and is thereby quashed”.

Mr. S. Tirumalai and Mr. A. Rangadham appeared on behalf of the appellant and respondent respectively.

To Read the full text of the Order CLICK HERE

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