- Bookmark
- Share
- CaseIQ
Dinesh K Patwa v. Cst
Factual and Procedural Background
The Revenue filed this appeal against Order-in-Appeal No. RPS/179/NSK/2013 dated 13.06.2013. The appellants (respondents below) are four co-owners of a commercial property at Patel Plaza, Near Govinda Rickshaw Stop, M G Road, Jalgaon; there was no legal partition of the property. The co-owners entered into a joint Leave & License agreement with multiple commercial firms (including several banks and insurance companies) and collected rent and amenity charges for the period June 2007 to January 2012.
The department treated the activities as taxable under the renting of immovable property service described in Section 65(105) of the Finance Act, 1994, and issued a show cause notice. The adjudicating authority, after adjudication, confirmed service tax liability jointly and severally, demanded interest, and imposed various penalties. The appellants appealed. The first appellate authority reversed parts of the original order: it allowed the appellants' appeal to the extent of treating each co-owner individually (thus allowing exemption for certain years under Notification No. 6/2005-ST), maintained service tax liability for 2009-10 and 2010-11, set aside several penalties (but upheld penalties under Section 77(1)(a) and Section 77(2) of the Finance Act, 1994). The Revenue filed the present appeal challenging that appellate order.
Legal Issues Presented
- Whether the respondent and his brothers should be treated as an "association of persons" (AOP) for the purpose of service tax liability, or whether they should be treated individually as separate service providers.
- Whether the service tax liability (if any) should be determined without permitting the benefit of Notification No. 6/2005-ST (i.e., whether the appellants can claim the exemption available under that notification for relevant years).
- Whether penalties (specifically under Sections 76 and 78) were correctly set aside by the first appellate authority, and whether penalties under Section 77 were properly upheld.
Arguments of the Parties
Departmental Representative's (Revenue) Arguments
- The premises were rented to various banks and the amounts collected were rent receipts subject to service tax under renting of immovable property.
- The respondents claimed a partition to avail an exemption, but there was no registered document evidencing any partition; the property was not demarcated area-wise between the brothers.
- The agreement entered into by the respondents and their brothers was a composite contract for renting out the entire property and the property was used commonly for business, so the benefit of Notification No. 6/2005-ST should not apply.
- The benefit of Notification No. 6/2005-ST applies qua-service and not qua-service-provider; the first appellate authority's grant of exemption under this notification was incorrect.
- The first appellate authority erred in setting aside penalties under Sections 76 and 78; there was intentional suppression of facts to evade payment of service tax and thus penalties under those sections should apply.
Appellants' (Respondents') Arguments
- The first appellate authority's findings in favour of the appellants were correct and should be sustained.
- The adjudicating authority erred in treating the respondents and their brothers as an association of persons; they were separate co-owners and acted in individual capacities for the leases.
- Counsel referenced CIT v. Shiv Sagar Estate (Bombay High Court) for the interpretation of the expression "association of persons" to support the submission that the co-owners are not an AOP for tax liability.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Shiv Sagar Estate, 1993 (201) ITR 953 (Bombay High Court) | Interpreting the expression "association of persons" (as relied upon by counsel for the appellants). | Counsel relied on this decision to argue against treating the co-owners as an association of persons. The opinion records the citation by counsel; the court's written reasoning records counsel's reliance but does not state that the bench expressly based its conclusion solely on this precedent. |
| Dinesh K Patwa v. CST (Tribunal, Ahmedabad) | Support for the appellants' case that individual co-owners could claim exemption under Notification No. 6/2005-ST (as referenced by the first appellate authority). | The first appellate authority referred to and relied upon this Tribunal decision in support of its conclusion on entitlement to exemption; the present bench noted that the appellate authority's conclusion was supported by this Tribunal decision. |
Court's Reasoning and Analysis
The court considered submissions from both sides and examined the record and the impugned appellate order. It identified the core issue as whether the four co-owners should be treated collectively as an association of persons for service tax purposes or individually such that Notification No. 6/2005-ST might apply to each co-owner for certain years.
The court observed that it was undisputed that the property was jointly owned and that renting of the property attracts service tax liability. However, upon a detailed reading of the first appellate authority's order, the bench found that the first appellate authority had addressed the matter comprehensively and had correctly concluded that:
- The adjudicating officer treated the four co-owners as one person for determining tax liability without providing a legal basis for such clubbing.
- The appellants produced documentary evidence (a City Survey Extract) showing joint purchase and ownership, and the lease agreements were entered into in the individual capacities of the appellants.
- All four co-owners obtained separate Registration Certificates and individually paid service tax with interest on 14/02/2012.
- Rent receipts, when considered on a per-appellant basis (since rent was distributed equally), showed that in 2007-08 and 2008-09 each appellant's receipts fell below the exemption thresholds (8 lakhs and 10 lakhs respectively) and hence were exempt under Notification No. 6/2005-ST for those years.
- For 2009-10 and 2010-11 each appellant's receipts exceeded the exemption limit; the appellants had paid service tax with interest voluntarily before issuance of the SCN, and the adjudicating authority's claim that payment occurred only after departmental investigation was not supported by record.
- The first appellate authority concluded that subsection (3) of Section 73 applied (which provides that no notice under subsection (1) of Section 73 need be issued if the tax not levied or paid was paid with interest before the service of notice and the Central Excise Officer was informed in writing), and Explanation 2 to that sub-section bars imposition of penalties in such circumstances.
Based on these findings, the first appellate authority set aside penalties under Sections 76 and 78 for the relevant periods and applied the exemption for the early years. The present bench agreed with that analysis, concluding that co-owners could not be clubbed as a single service provider for the purpose of imposing joint and several liability in this case, and found no reason to interfere with the first appellate authority's detailed order.
The opinion also notes that the respondents did not appeal the part of the appellate order that upheld penalties under Section 77; accordingly, that part of the order stands.
Holding and Implications
HOLDING: The appeal filed by the Revenue is rejected.
Implications:
- The first appellate authority's order (Order-in-Appeal No. RPS/179/NSK/2013 dated 13.06.2013) is upheld to the extent described in that order: the co-owners are to be treated individually rather than as an association of persons for the purposes contested in this appeal, and the benefit of Notification No. 6/2005-ST was properly extended for the relevant earlier years (2007-08 and 2008-09) where each co-owner's receipts were below the exemption threshold.
- Service tax liability was maintained or recognized for the years where individual receipts exceeded the exemption threshold (2009-10 and 2010-11), but the appellants paid service tax with interest voluntarily prior to SCN and therefore the first appellate authority found subsection (3) of Section 73 and its Explanation 2 applicable (precluding imposition of penalties under the Act for that payment situation).
- Penalties under Sections 76 and 78 were set aside by the first appellate authority for the periods in question; the appellate order upholding penalties under Section 77 remains in place because the respondents did not challenge that aspect.
- No new legal precedent was declared by this bench; the bench primarily affirmed the detailed reasoning and conclusions of the first appellate authority and dismissed the Revenue's challenge to that order.
Per: M.V. Ravindran This appeal is filed by the Revenue against Order-in-Appeal No. RPS/179/NSK/2013 dated- 13.06.2013.
2. The facts in brief, leading to the present appeal, are that the appellants are co-owners of the property located at Patel Plaza, Near Govinda Rickshaw Stop, M G Road, Jalgaon and there is no legal partition or division amongst them. They entered into a joint agreement with M/s. Max New York Life Insurance Co Ltd, M/s HDFC Standard Life Insurance Ltd, M/s Oriental Bank of Commerce, M/s Axis Band and M/s Kotak Mahindra Bank, Jalgaon through joint Leave & License agreement for letting out the said premises. They collected rent and amenities charges from the commercial firms viz. M/s. Oriental Bank of Commerce, M/s Axis Bank and M/s Kotak Mahindta Bank during the period June-2007 to January -2012. The department viewed that the appellants were jointly engaged in providing the Services of Renting of Immovable Property as per Sub-Clause (ZZZZ) of Section 65(105) of Finance Act, 1994, which defines taxable service as any service provided or to be provided to any person, by any other person, in relation to renting of immovable property for use in the course of furtherance of business or commerce. After recording various submissions, show cause notice was issued to the appellant.
3. Appellant contested the show cause notice on merits as well as on limitation. Adjudicating authority after following due process of law confirmed the service tax liability jointly and severally, demanded interest on the same and imposed various penalties. Aggrieved by such an order, an appeal was filed before the first appellate authority. The first appellate authority after following the principles of natural justice, reversed the order in original and allowed the appeal to that extent and maintained that service tax liability has to be upheld for the year 2009-10 & 2010-11, but set aside various penalties and upheld the penalties under the provisions of Section 77(1) (a) and Section 77(2) of the of the Finance Act, 1994. The respondent is not in appeal against such an order.
4. Learned Departmental Representative would draw our attention to the facts of the case and findings of the adjudicating authority. It is his submission that the respondent here-in had a premise which was rented out to various banks and an amount was collected as rent. It is his submission that in order to avail ineligible exemption, respondent informed the lower authorities that there was partition of the properties, which was incorrect as there is no registered document of such partition. It is his submission that the respondent are not disputing that the services are covered under the category of renting of immovable property. It is his submission that respondent would not produce any documents showing that the property was demarcated area wise between the brothers. It is his submission that the agreement entered by the respondent and four brothers was composite contract for renting out the entire property and it is in use for commonly for business. He would submit that the benefit of notification no. 6/2005-ST dated-11/03/2005 is not applicable and is in respect of qua-service and not qua service provider. The exemption granted by the first appellate authority under this notification is incorrect. It is also his submission that the first appellate authority had set aside the penalties under section 76 and 78 incorrectly. It is his submission that there was an intentional suppression of the facts to evade payment of Service Tax, hence penalties under both the Sections are applicable.
5. Learned counsel would reiterate the findings of the first appellate authority. He would submit that the first appellate authority correctly went in to the details and held in the favor of the appellant. It is his submission that the adjudicating authority has erred in holding that respondent and his brothers were associations of persons. He would submit that Honble High Court of Bombay in case of CIT Vs. Shiv Sagar Estate has 1993 (201) ITR 953 BOM has interpreted the expression association of persons.
6. We have considered the submissions made by both sides and perused the records. The issue that needs to be decided in this case is whether the respondent and his brothers are to be treated as association of persons or other vise and service tax liability on it arises, should be confined without the benefit of the notification No. 6/2005-ST.
7. It is undisputed that the property which has been rented out by the respondent and his brothers is jointly owned property; Service Tax liability arises on such renting of property.
8. On deeper perusal of impugned order, we find that the first appellate authority has considered all the angles in the dispute and came to the correct conclusion. The findings of first appellate authority is as under. 6.2 On mere reading of the Order in Original, it is evident that the adjudicating officer has considered above named four persons as one person for determining tax liability and imposition of penalties without telling any legal basis for doing so. The appellants have contested the Order in Original mainly on the grounds that rented property belongs to four separate persons (all brothers) but the service tax has been demanded wrongly by the department from the appellants by clubbing the rent received by all the co-owners and, therefore, the demand off tax is not maintainable on this ground alone. In support they have produced a City Survey Extract as evidence regarding ownership of the rented property which shows that the said property was purchased in 2003 and is owned jointly by all the four co-owners. Further, the lease agreements with M/s Max New York Life Insurance Co Ltd, Oriental Bank of Commerce, Axis Bank, Kotak Mahindra Bank and HDFC Standard Life Insurance Ltd are also entered into by the appellants in their individual capacity, as per SCN also, all four co-owners have obtained separate Registration Certificate on 10/4/2012 and all the four co-owners individually paid their Service tax liability along with interest on 14/2/2012. Thus, the ownership of the Property and providing of taxable renting of immovable Property by the four appellants in this case is in their individual capacity and, therefore, their tax liability should have been determined by considering their individual rental receipts and not collective one. From the various lease agreements made with above mentioned Commercial firms, it cannot be disputed that monthly rent was paid by the above named concerns to each appellant after deducting tax at their end. 6.3 From the Show cause notice dated 19.10.2012, it is evident that the appellants had received rent as detailed below:- Sr No Period Amount (Rs) 1
5 2007-08 (1/6/2007 to 31/3/2008) 2008-09 2009-10 2010-11 2011-12 Rs.29,21,048/- Rs. 36,27,024/- Rs. 46,72,744/- Rs. 52,63,304/- Rs.44,28,360/- But as the rent was distributed equally among each of the appellant, it is evident that each of them received an amount lesser than Rs.8 lakhs and 10 lakhs in the years 2007-08 and 2008-09 respectively which is below the exemption limit of eight lakhs and ten lakhs during the relevant period. The appellants were, therefore, not liable to pay service tax on the amounts received by them during these two years by virtue of Notification No. 6/2005-ST dated 01.03.2005. The appellants case is also supported by the Tribunals decision in the case of Dinesh K Patwa Vs CST, Ahmedabed which is referred in Para 3(ii) above. However, in the Financial Year 2009-10 and 2010-22, the receipt off rent by each appellant exceeded the statutory exemption limit of Rs 10 lakhs and the appellants have paid service tax along with interest on their own before receipt of SCN. This fact is not disputed by the department also and no additional tax liability has been worked out for the said period in OIO. 6.4 Since the appellants were individually liable to pay service tax and eligible for the exemption under general exemption Notification 6/2005 ST dated 1/3/2005 during the period 2007-08 and 2008-09, no service tax was payable during the said period. Hence, the question of penalty under Section 76 for the said period does not arise. For the subsequent period i.e. 2009-10&2010-11, the appellants have already accepted their tax liability and paid Service tax along with interest on 14/2/2012. The said payment of service tax is certainly a delayed payment, but was made by the appellants on their own when they realized that their taxable value for renting of property had exceeded the exemption limit of Rs 10 lakhs. The adjudicating authority has claimed in his order that the appellants paid service Tax only after Department started investigation, but it is not supported by any evidence or the facts on record. The SCN or the OIO do not talk of any audit objection or Preventive action or any Inspection etc on the basis of which not payment of service tax by the appellants was pointed out. Instead in the SCN, one statement of Shri Chandulal Vishrambhai Patel is only referred to which was recorded on 22/2/2012 which is 8 days after the appellants had paid service tax along with interest on their own. Thus, the claim of the appellant that they had paid service tax for the years 2009-10 and 2010-11 on their own initiative and there was no suppression of facts etc on their part with any intention to evade service tax cannot be denied. Considering all these facts, I agree with the appellants contention that this case was squarely covered under sub section (3) of Section 73 which provided not to issue any notice under sub section (1) of Section 73 if the service tax not levied or paid was paid along with Interest by the person concerned before service of notice on him and informed the Central Excise Officer of such payment in writing. Further in Explanation 2 of the said sub section it is also clearly provided that no penalty under any of the provisions of the Act or the Rules made there under shall be imposed in respect of payment of service tax under this sub section and interest thereon. Hence, in fact no SCN was required to be issued in this case for recovery of service tax and imposition of penalty and even when it has been issued, no penalty under section 76 or 78 is imposable in this case for the period 2009-10 and 2010-11.
9. It can be seen from the above reproduced findings of the first appellate authority, the conclusion arrived at is very correct, as co-owners of the property cannot be considered as liable for a service tax jointly or severely as Revenue has took identify the service provider and the service recipient for imposing service tax liability, which in this case, we find our individual. The conclusion arrived at by the first appellate authority is correct and he has confirmed the demand raised on the respondents by extending the benefit of notification no. 6/2005-ST. We do not find any reason to interfere in such a detailed order.
10. Since the respondents are not in appeal against the said impugned order against the imposition of penalty under Section 77 of the Finance Act 1994 the order to that extent needs to be a upheld.
11. The appeal filed by the Revenue to the extent its challenges the impugned order is devoid of merit and liability to be rejected and we do so.
12. The appeal is rejected. (Dictated in Court) (C.J.Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial) akp Appeal No. ST/88801/13-Mum
Alert