Relief to Bihar State Sugar Corporation Ltd: CESTAT quashes Service Tax Demand of 14.59 Crores [Read Order]

In a major relief to Bihar State Sugar Corporation Ltd, the Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed service tax demand of Rs. 14.59 crores.

The Appellant, M/s Bihar State Sugar Corporation Limited, had leased certain closed sugar factories to private entities. The Department issued a Show Cause Notice(SCN) bearing alleging non-payment of Service Tax on the activity of “Renting of Immovable Property” for the period from 28.03.2008 to 25.03.2011 and proposing a demand of Service Tax amounting to Rs. 14,59,61,300/-. The Appellant filed a detailed reply contesting the demand on merits as well as on the ground of limitation.

Upon adjudication, the Adjudicating Authority confirmed the demand along with applicable interest and penalties. Aggrieved thereby, the Appellant preferred an appeal before the Tribunal, which was dismissed for non-compliance with the statutory pre-deposit requirement. The Appellant thereafter approached the High Court, which directed it to avail the appellate remedy before the Tribunal upon making the requisite pre-deposit. Pursuant to compliance with the said condition, the appeal has now been taken up for hearing before the Tribunal.

The counsel for the assessee submitted that the legal position with respect of Service Tax liability on Renting of immovable property remained in a state of flux throughout the relevant period (28.03.2008 to 25.03.2011). In 2009, the Delhi High Court, in the case of Home Solution Retail India Ltd. & Ors vs. Union of India, struck down the levy of service tax on renting of immovable property as “ultra vires” the Finance Act, 1994, while deciding 26 writ petitions referred to it by the Supreme Court.

The counsel for the Department submitted that the appellant is a Public Sector Undertaking. They have leased out the factory premises to various other commercial entities. For the lease amount received as consideration, the appellants are bound to pay the Service Tax. There is no exemption available to the appellant as a Govt owned PSU from payment of Service Tax. The Agreements show that the leasehold consists of the entire factory premises including all the plant, godowns and barren land. Therefore, the appellant is not correct to state that only the land has been leased out. Further only on account of detailed verification, the contravention of non-payment of Service Tax has come to light.

The Tribunal comprising R. Muralidhar, Member (Judicial) and Rajeev Tandon, Member (Technical) observed that “It is on record that carrying a bonafide belief about non applicability of Service Tax on the services rendered by them, the appellant has not charged any Service Tax on the lessees. There is no allegation to this effect in the SCN. As also rightly pointed out by the appellant, being a PSU, they cannot be said to have any intention to evade any Service Tax payment to the Govt of India.”

Therefore, the Tribunal concluded that the Revenue has not made out any case to fasten the suppression clause on the appellant and hence, the extended period provisions could not have been invoked in the case. Consequently, the confirmed demand for the extended period was set aside.

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