“Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I.”
The Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that service tax attracts when there is value addition and the presence of an element of service and upheld the demand for service tax on Rental service against Tamil Nadu Housing Board.
The assessee-appellant challenged the Orders-in-Original passed by the Commissioner of Central Excise, Chennai-I. The appellant is a body duly constituted by an Act of the Tamil Nadu Legislative Assembly and is engaged in the construction of houses/apartments and allotting dwelling units to eligible persons.
They are also engaged in renting commercial complexes and community centres throughout the State of Tamil Nadu for commercial purposes and the appellant is also registered with the Service Tax Department for the provision of services under the category of “renting of immovable property”.
It was evident that the assessee had not registered with the Department for the services under the respective categories and had also not paid any Service Tax on such services rendered by them to various clients. A show cause notice was issued to the appellant proposing service tax demand on various services.
The appellant requested for dropping of the proceedings. During adjudication, the adjudicating authority appeared to have considered the reply filed by the assessee, who confirmed all the demands proposed in both the Show Cause Notices.
It was noted that the appellant had received rental income, which was also reflected in their P&L Account and therefore, the fact of rental receipt stands proved.
In-Home Solutions Retails (India) Ltd. v. Union of India [2011 (24) S.T.R. 129 (Del.)], it was held that “When premises are taken for commercial purpose, it is basically to subserve the cause of facilitating commerce, business and promoting the same. Therefore, there can be no trace of doubt that an element of value addition is involved and once there is a value addition, there is an element of service”.
“Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I.” the CESTAT observed.
A two-member bench comprising of Mr P Dinesha, Member (Judicial)and Mr Vasa Seshagiri Rao, Member (Technical) held that the appellant cannot escape the Service Tax liability under the head of rental income and dismissed the appeal on this ground.
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