Premium Amount Received cannot be considered as Rent on Immovable Property: CESTAT [Read Order]

The Mumbai bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that the premium amount received cannot be considered as rent on immovable property.

M/s Asmeeta Infratech Ltd, the appellant engaged in providing various taxable services defined under the Finance Act, 1994. During the disputed period from 2014-15 to 2017-18, the appellant had sub-leased the industrial lands allotted by Maharashtra Industrial Development Corporation ( MIDC ) to various customers. The consideration received for such sub-leasing of the property was reflected in the books of account under the accounting heading “Sale of property/rights”.

On scrutiny of the books of accounts maintained by the appellant, the Service Tax Department alleged that the sub-leased amount received by the appellant from various persons should be taxable under the category of ‘renting of immovable property’, defined as “service” under Section 65B(41) of the Finance Act, 1994. As against the claim of the Department for classification of the service under the category of ‘renting of immovable property’, the appellant had contended that the activity of construction of industrial units and sub-leasing the property should appropriately fall under the taxable entry of construction service on which they had already discharged the Service Tax labiality.

The department did not agree to the views expressed by the appellant and initiated show-cause proceedings, seeking recovery of the Service Tax under the provisions of Section 73 of the Finance Act, 1994. The show-cause notice ( SCN ) was adjudicated by the Commissioner of GST wherein the Service Tax demand of Rs.8,59,41,160/- along with interest was confirmed and penalties were imposed under Sections 77 & 78 ibid on the appellant.

The appellant submitted that for sub-leasing the industrial lands, the appellant received a premium from the person in whose favour the land was sub-leased. He submitted that receipt of premium is more like ‘Salami’ since it is not in the form of rent because the appellant receives rent on a regular basis for rental of the premises. He further submitted that since the Department has confirmed the demand on the premium amount, the same cannot be considered as the service under the category of renting immovable property.

On the other hand, AR appearing for the Revenue reiterated the findings recorded in the impugned order and further submitted that since the premium amount was received by the appellant on a periodical basis, the same should be considered as rent and since such rental amount is in context with immovable property, the provisions of taxable service under the category of renting of immovable property is squarely applicable for payment of Service Tax on the amount of premium received by the appellant. 

Under the provisions of Section 66E ibid, the service under the category of ‘renting of immovable property’ has been considered as a declared service. Thus, any amount received towards ‘rent’ for letting out the property will only be liable for payment of service tax and not otherwise. As per the contractual norms, the rent amount has been fixed, which the appellant is entitled to receive from the lessee for letting out the property, which had not been disputed by the department in the present case.

 A two-member bench of Mr S K Mohanty, Member ( Judicial ) and Mr M M Parthiban, Member ( Technical ) observed that the one-time premium received by the appellant cannot be equated with rent since the said amount is payable by the lessee for obtaining lease of the immovable property and for various infrastructural facilities provided in that property.

It was held that “Since the levy of Service Tax is on renting of immovable property, not on transfer of an interest in property from lessor to lessee, Service Tax would be chargeable only on the rent whether it is charged periodically or at a time in advance.”

The Tribunal observed that the order confirming the Service Tax demand on the premium amount is not correct and the Service Tax demand would not be sustainable. While allowing the appeal, the Tribunal set aside the impugned order.

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