Service Tax Not Leviable on Income from Mall Management Prior to 01.05.2006: CESTAT [Read Order]

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has ruled that the Prime Maxi Mall Manager's revenue, which is reported under the income from mall management heading, cannot be liable to service tax under the "business auxiliary service" heading prior to May 1, 2006.

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After being established as a business, the appellant changed its name to "Prime Maxi Mall Management (P) Ltd" on December 11, 2022. The appellant's primary source of revenue, through its subsidiary, "Ansal Plaza Mall Management Company," comes from the sale and leasing of commercial space in common areas of several malls built by third parties.

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For 2004–05 and 2005–06, the appellant reported the income as "income from mall management." The appellant claims that Ansal is a part of the appellant and not a distinct business. Through Ansal, the appellant signed a contract with M/s Ansal Properties & Industries Limited, a developer in Delhi, committing the appellant to a range of services.

The appellant argued that it ultimately only offered the service of "leasing out of space for advertisement/sales promotion to various customers." The appellant sold the space to different firms for consideration after obtaining from the developer the right to lease the space for advertising at a cost of Rs. 1,00,000 annually.

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The appellant paid service tax on this service starting in 2006 under the heading of "selling of space for advertising," which, as of May 1, 2006, was a taxable service under section 65 (105) (zzzm). The dispute concerns the period from April 1, 2004, to April 30, 2006, during which the appellant's services were taxable under section 65 (105) (zzb) as business auxiliary services and classified as "business auxiliary services" under section 65 (19).

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The appellant received a show-cause notice requesting service tax under the heading of "business auxiliary service." According to the show cause notice, the appellant was in charge of overseeing the complex, keeping it maintained in all respects, encouraging customer traffic, helping to increase sales for both buyers and tenants of different spaces, serving as a liaison between the developer and different users of the complex's spaces, developing promotion programs in a coordinated way, and helping to increase customer traffic, which in turn increased sales in the shopping arcade.

A show-cause letter was sent to the appellant, asking for service tax under the category of "business auxiliary service."   The appellant was responsible for managing the complex, keeping it in good condition, promoting customer traffic, helping to boost sales for both buyers and tenants of various spaces, acting as a liaison between the developer and various users of the complex's spaces, creating promotion programs in a coordinated manner, and assisting in boosting customer traffic, all of which contributed to an increase in sales in the shopping arcade, according to the show cause notice.

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The two member bench of Dr. Rachna Gupta ( Judicial  Member ) and P.V. Subba Rao (Technical Member) has observed that before May 1, 2006, the action of selling space for advertisements would have been classified as a business auxiliary service, therefore there would have been no need to create a distinct service called "selling of space for advertisement." Since the behavior was previously uncovered, the new service was launched on May 1, 2006. Under the service "selling of space for advertisement," the appellant paid a service tax on May 1, 2006, which the government does not contest.

The tribunal ruled that the government could not claim that the service was another service before May 1, 2006, when it officially recognized the activity as the selling of space for advertising.

To Read the full text of the Order CLICK HERE

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