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The CESTAT, Hyderabad in the matter of M/s. VITP Private Limited v Commissioner of Central Tax, Hyderabad [Final Order No: A/30070-30073/2022 dated July 8, 2022] set aside the demand of service tax on refundable security deposit on the grounds that security deposit is refundable deposit and it cannot be included in the value of taxable service. Further, when there was no services rendered by the assessee towards the termination charges, the demand of termination charge cannot be sustained. Furthermore held that, assessee is entitled to the Cenvat Credit of input services for construction of immovable property, further let out to various customers.
Facts:
M/s. VITP Private Limited (“the Appellant”) has been engaged in the business of development of IT Parks and such other industrial and commercial places which are subsequently given on rent to a wide spectrum of industries. Service tax audit was conducted by the Superintendent, (“the Respondent”) and accordingly, Show Cause Notices were issued for four periods between 2007 to 2013. Disputes has been arrived and all the four appeals pertaining to the period of June 2007 to June 2013 are disposed off by a common order.
A table has been reproduced below which shows the demand raised for the relevant period in each appeal.
S.no | Particulars | ST/27964/2013 (Appeal I) |
ST/20282/2014 (Appeal II) |
ST/21736/2014 (Appeal III) |
ST/21497/2015 (Appeal IV) |
1 | Period | June 2007 to March 2011 | April 2011 to September 2012 | April 2010 to September 2012 | October 2012 to June 2013 |
2 | Demand |
INR 11,58,22,869
(i)Security Deposit – INR 2,87,57,891
(ii)Reimbursement expenses – INR 6,70,02,785
(iii)Credit related to construction of immovable property INR 1,93,65,135
(iv)Credit on event management -INR 6,97,058 |
INR 4,34,55,505
(i)Security Deposit- INR 1,13,91,754
(ii)Reimbursement expenses – INR 3,20,63,751 |
INR 14,62,807
(i)Termination charges – INR 14,62,807 |
INR 45,86,180
(i)Reimbursement of Diesel charges –INR 45,85,180 |
Appellant’s contention:
Issues:
The demand and the confirmation of the Service Tax liability is confined to the following five issues:-
Held:
The CESTAT, Hyderabad in [Final Order No: A/30070-30073/2022 dated 8 July,2022] has held as under:
Relied upon the judgement of Tribunal in the case of Electronics Technology Park v Commissioner of Custom., C. EX. & S.T., Trivandrum [2022 (56) G.S.T.L. 182 (Tri. - Bang.)] wherein it was held that refundable deposit cannot be included in the value of taxable service for the purpose of levy of Service Tax and this issue is decided against the Revenue Department and accordingly the demand of service on security deposit cannot be sustained and is thus set aside.
The expenses are mere reimbursement based on total cost incurred by the Appellant and the total floor area of the customers is not in dispute which goes to show that there is no profit element involved in the above reimbursements. Further, that the Appellant cannot be saddled with the liability on such reimbursements on account of water, electricity and diesel charges and thus the demand of Service Tax on this ground cannot be sustained either and is thereby 0quashed.
There was no service rendered by the Appellant towards such charges and the same was in the nature of penalty for early termination than the agreed terms of lease. Thus, it is not a consideration for the service of renting of immovable property but a compensation or liquidated damages for reneging the contract of renting. Also, the Respondent has considered the termination charges under security deposit above as these charges were adjusted with the deposit lying with the Appellant and thus, the demand cannot be sustained as it will lead to taxing the same amount twice. Hence the demand on account of termination charges is also liable to be quashed.
The Cenvat Credit of input services as availed by the Appellant for construction of immovable property which was further let out to various customers is eligible to be allowed. As regards the eligibility of Cenvat Credit on event management services, we find that Rule 2(l) of the Cenvat Credit Rules doesn’t exclude any such service from the eligibility of availment of Cenvat Credit as these expenses have been incurred in the course of furtherance of business and are thus business promotion expenses and the same is eligible as Cenvat Credit in our considered view.
(Author can be reached at info@a2ztaxcorp.com)
DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.
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