Renting of Immovable Property and Supply of Tangible Goods cannot be classified under Infrastructural Support Service: CESTAT quashes order demanding Duty

Renting - Immovable Property - Supply - Tangible Goods - Infrastructural Support Service - CESTAT - demanding duty - taxscan

Renting of immovable property and supply of Tangible goods cannot be classified under infrastructural support service, the Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) quashed the order demanding duty.

Welspun Syntex Ltd, the appellant engaged in the manufacture of yarn falling under Chapter heading 54 of the Central Excise Tariff Act, 1985 and has its registered office cum factory in Gujarat. The appellant has another factory in Palghar, Maharashtra. During the period under dispute, the appellant entered into a conducting agreement dated 25.08.2004 read with supplemental agreements dated 25.10.2004, 05.08.2005, and 25.08.2007 (“Conducting Agreement”) with International Syntha Fabs Pvt Ltd (“ISFPL”) inter alia permitting ISFPL to use the land and plant, machinery and equipment (“PME”) at Palghar Factory on rental basis.

The consideration received towards renting of land and PME by the appellant from ISFPL, during the period under dispute and the department considered this as liable to Service Tax under the head of Business Support Service provided by the appellant to ISFPL.

The Commissioner vide Order-In-Original held that the activity of renting PME is classifiable under taxable Business Support Service and confirmed the demand of service tax with effect and imposed equal penalty under Section 76 and penalty under Sections 77 and 78 was also imposed.

It was a settled position in law that when a new category of service has been inserted for taxing an activity, the said activity cannot be said to be taxable before the said insertion under any other category of services. The activity of leasing the plant was taxable under the taxable service „renting of immovable property‟  w.e.f. 01.06.2007 and leasing/ renting of machinery and equipment was taxable under the taxable „supply of tangible goods‟ services w.e.f. 16.05.2008.

The CESTAT bench observed that the appellant provided the entire plant machinery and equipment to ISFPL and the appellant was not involved in day-to-day infrastructural support to M/s International Syntha Fabs Pvt Ltd (“ISFPL”), therefore, the activity of the appellant cannot be classified under the infrastructural support service.

The CESTAT bench consists of Mr Ramesh Nair, member (judicial) and Mr Raju, member (technical)  held that the renting of immovable property and supply of tangible goods cannot be classified under infrastructural support service. While allowing the appeal the CESTAT set aside the impugned order is set aside.  

 Shri. Mihir Mehta & Shri. Suyog Bhave, Advocates appeared for the Appellant and Shri Rajesh K Agarwal, Authorised Representative appeared for the Respondent. 

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