Service tax not leviable on charges for water, electricity and diesel in renting of immovable property: CESTAT [Read Order]

The Hyderabad bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) partly allowed the appeal by L & T Infocity Ltd against the Commissioner of Central Excise and Service Tax (CCE and CST) (The Respondent) as Service Tax is not leviable on charges collected for water, electricity and diesel in renting of immovable property but parking charges collected are taxable.

L & T Infocity Ltd provides the service of ‘renting of immovable property’ and maintenance of common areas of the building under separate agreements and the department taking a view that the amounts collected by the appellant towards - electricity, diesel charges for DG sets, water and parking charges were liable for service tax under ‘Management, Maintenance or Repair services’, issued a show cause notice demanding service tax of Rs. 10,76,89,485/- for the charges they had collected for water, electricity and diesel as reimbursable expenditure and Rs.86,13,978/- for non-inclusion of parking charges as per section 67(3) of Service Tax Act and Rule 5(1) of Service Tax (Determination of Value) Rules, 2006.

The counsel who appeared on behalf of the appellant relied on judgments wherein it was held that they are not liable to include reimbursements on account of water, electricity and diesel charges and showed that the Adjudicating Authority had dropped the demand on electricity and water charges in their own case for the subsequent period and that the same has been accepted by the Department, as no appeal was filed against it and Commissioner (Appeals) had set aside the demand on diesel charges for the period 01.10.2014 to 14.05.2015.

The counsel had also relied on the Supreme Court judgment in the case of InterContinental Consultants & Technocrats Ltd wherein the decision by the Delhi High Court was upheld and held that only with effect from 14.05.2015, such reimbursable expenditure and costs also form part of the valuation of taxable services for charging service tax. In the order of the Delhi High Court, Rule 5(1) of the Service Tax Valuation Rules, 2006 was struck down, and later on, the High Court was upheld by the Supreme Court.

The counsel then stated that the department cannot rely on Rule 5(1) for including the cost incurred by them on a reimbursable basis in the gross value charged towards Management, Maintenance, or Repair Service

The counsel who appeared on behalf of the revenue relied on the judgment by the tribunal in the case of Modern Business Solutions vs CST, Ahmedabad (2019) wherein it was observed that the Hon’ble Supreme Court in the case of Intercontinental Consultants & Technocrats Ltd, reimbursements cannot be included in the assessable value, however, what constitutes reimbursements had to be determined in the light of Larger Bench in the case of Sri Bhagavathy Traders vs CCE, Cochin (2011).

The council also relied on the final order by the tribunal in the case of MGF Event Management vs CCE, Delhi, for the liability of service tax on parking charges.

The two-member bench consisting of Anil Choudhary (Judicial Member) and A.K Jyotishi (Technical Member) after hearing both sides held that “the amount collected towards water, electricity and diesel are in the nature of reimbursable expenses and therefore, not liable for inclusion in the taxable value towards provision of Management, Maintenance or Repair services by the Appellant”

The bench further held that “It is also not disputed that he has not collected the parking charges on a reimbursable basis. There is nothing on record to indicate anything to the contrary. Therefore, the argument that no service tax is payable is not sustainable” and the appeal was allowed partly

To Read the full text of the Order CLICK HERE

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