Service Tax Not Payable on Security Services, Car Hiring & Employee Accommodation: CESTAT Grants Partial Relief to Mill [Read Order]

In a recent ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata held that service tax is not payable on security services, hiring of cars and rent recovered from employees towards accommodation equivalent to House Rent Allowance, while confirming tax liability on legal services and goods transport agency services.

Tamralipta Co-operative Spinning Mills Ltd., the appellant, is engaged in the manufacture of cotton yarn and was registered under service tax, regularly filing ST-3returns.

During audit of the appellant’s records, the department found that the appellant had not paid service tax on certain transactions including security services, hiring of cars, legal services, rent collected from employees for accommodation, and outward transportation services.

Two show cause notices were issued covering the period from 2013–14 to 2016–17. The adjudicating authority confirmed the service tax demand along with interest and imposed penalties. The Commissioner (Appeals) upheld the same, after which the appellant approached the Tribunal.

The appellant’s counsel argued that in respect of security services and hiring of cars, the liability to pay service tax was on the service provider and not on the appellant, as the appellant was only the recipient of such services.

They also argued that the rent collected from employees was only equivalent to House Rent Allowance and should be treated as free accommodation, and not liable to service tax. The appellant did not press the issue relating to legal services and also conceded liability on goods transport agency services.

The revenue counsel argued that the demands confirmed by the adjudicating authority and upheld by the Commissioner (Appeals) were correct and should be sustained.

The single member bench comprising Ashok Jindal (Judicial Member) observed that for security services and hiring of cars, the service provider is liable to pay service tax and not the appellant who is the recipient of the services. The tribunal explained that the appellant cannot be made liable for service tax under these categories.

The tribunal further observed that the appellant had already accepted liability in respect of legal services and goods transport agency services and the demand under those heads is liable to be confirmed.

On the issue of rent collected from employees, the Tribunal observed that since the rent collected was equivalent to the House Rent Allowance paid, it is to be treated as free accommodation provided by the appellant, and service tax is not payable on such amount.

The tribunal also pointed out that in the facts and circumstances of the case, imposition of penalties is not justified. The tribunal held that no service tax is payable on security services, hiring of cars and rent collected from employees, while service tax is payable on legal services and goods transport agency services along with interest. Penalties were set aside.

The appeals were disposed of with these directions.

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