Maintenance Charges Collected from Tenants Not Liable to Service Tax under “Management, Maintenance or Repair Service”: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that maintenance charges collected from tenants by the owner of a commercial mall are not liable to service tax under the category of “management, maintenance or repair service.”

Chennai Citi Centre Holdings Pvt. Ltd., the appellant, is the owner of the Chennai Citi Centre Mall in Mylapore, Chennai. The appellant leased out commercial spaces in the mall to various tenants and paid service tax on the rent received under “renting of immovable property service.”

In addition to rent, the appellant also collected monthly maintenance charges from the tenants to cover the actual cost of upkeep of the mall. The department issued a Statement of Demand dated 03 October 2013 for the period from February 2012 to June 2012 alleging that the appellant had failed to pay service tax on these maintenance charges.

The adjudicating authority confirmed a demand of Rs. 19,16,098 with interest and imposed penalties under Section 77 of the Finance Act, 1994. The Commissioner (Appeals) upheld the order. Aggrieved by this, the appellant approached the CESTAT.

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The appellant’s counsel argued that under the lease deed, tenants were responsible for bearing the cost of maintenance and that the appellant only collected reimbursement of the actual expenses incurred, without any profit element.

They further argued that the issue was already decided in the appellant’s favour in earlier appeals, which had attained finality through the Tribunal’s Final Orders dated 25 April 2018 in their own case.

The revenue’s counsel relied on the findings of the appellate authority and argued that the charges collected by the appellant amounted to consideration for “management, maintenance or repair service” and were taxable.

The two-member bench comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the issue had already been settled in favour of the appellant in the earlier Tribunal decision in the Final Order No.41325-41327/2018 dated 25-04-2018.

The tribunal explained that the lease deed clearly showed the tenants were required to bear only the actual proportionate cost of maintenance and that the appellant had not added any profit element. The tribunal pointed out that the amounts collected were like reimbursements and not consideration for taxable service.

The tribunal held that the demand for service tax, interest, and penalties could not be sustained. The impugned order was set aside and the appeal was allowed with consequential relief.

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