Settlement Amount Paid Towards Outstanding Rent Not Taxable as ‘Declared Service’: CESTAT Set asides Service Tax Demand Under RCM [Read Order]
The tribunal noted that once service tax on a settled amount has been discharged by the service provider under a specific category, the revenue cannot demand tax on the same amount again under the reverse charge mechanism (RCM).
![Settlement Amount Paid Towards Outstanding Rent Not Taxable as ‘Declared Service’: CESTAT Set asides Service Tax Demand Under RCM [Read Order]](https://images.taxscan.in/h-upload/2025/12/30/2115852-settlement-amount-paid-towards-outstanding-rent-taxable-declared-service-cestat-set-service-tax-demand-under-rcm-taxscan.webp "Settlement Amount Paid Towards Outstanding Rent Not Taxable as ‘Declared Service’: CESTAT Set asides Service Tax Demand Under RCM [Read Order]")
The Ahmedabad Bench of the Customs, Excise andService Tax Appellate Tribunal (CESTAT) ruled that a settlement amount paid by a company to a local municipality for outstanding rent did not constitute a "Declared Service". Charotar Gas Sahkari Mandli Ltd (appellant), an authorized distributor of PNG and CNG, had a long-standing dispute with the Vallabh Vidhyanagar Nagarpalika...
The Ahmedabad Bench of the Customs, Excise andService Tax Appellate Tribunal (CESTAT) ruled that a settlement amount paid by a company to a local municipality for outstanding rent did not constitute a "Declared Service".
Charotar Gas Sahkari Mandli Ltd (appellant), an authorized distributor of PNG and CNG, had a long-standing dispute with the Vallabh Vidhyanagar Nagarpalika (VVNA) regarding rent for laying underground pipelines. The total outstanding rent and penalty accumulated to approximately ₹98.89 lakhs.
The parties entered into a settlement deed on April 28, 2016, through which the appellant agreed to pay a lump sum of ₹60 lakhs in three installments. VVNA accepted this amount as rent and discharged its service tax liability under the "Renting of Immovable Property Service" category.
The Revenue Department issued a show cause notice alleging that the settlement specifically the writing off of the balance ₹39 lakhs amounted to "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation". The department demanded service tax from the appellant under the Declared Service category under Section 66E(e) on an RCM basis.
The two-member bench comprising Dr. AjayaKrishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member), examined whether the payment was for outstanding rent or a consideration for "tolerating an act".
The tribunal observed that the appellant provided proof that VVNA had already paid service tax on the ₹60 lakhs under Renting of Immovable Property. The tribunal held that the same amount cannot suffer service tax twice.
The bench noted that for a service to fall under Section 66E(e), there must be an agreement to refrain from or tolerate an act for a consideration. The tribunal found these elements missing, as the payment was clearly for use of land (rent).
The tribunal agreed with the appellant that there was no suppression or fraud. Therefore, the extended period of limitation was not invokable. It was held that since there was no mens rea to evade tax, penalties under Section 78 and Section 77(2) were deemed unsustainable.
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It concluded that the demand for service tax on a reverse charge basis was not justified as the activity did not fall under the category of Declared Service. The tribunal set aside the impugned order and the pena
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