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ST – Renting of immovable property – since notice not issued to joint owners but tax demand is confirmed against them, order is bad in law and cannot be sustained: CESTAT

2019-TIOL-2219-CESTAT-MAD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL 
SOUTH ZONAL BENCH, CHENNAI

Appeal No. ST/40291/2015

Arising out of Order-in-Appeal No.02/2015, Dated: 14.01.2015 
Passed by Commissioner of Customs & Central Excise (Appeals-2), Chennai

Date of Hearing: 01.10.2018
Date of Decision: 01.10.2018

SRIMATHY COMPLEX

Vs

COMMISSIONER OF CENTRAL EXCISE AND ST 
TIRUCHIRAPALLI

Appellant Rep by: Shri N Manickam, Adv. 
Respondent Rep by: Shri B Balamurugan, AC AR

CORAM: Sulekha Beevi C S, Member (J) 
Madhu Mohan Damodhar, Member (T)

ST – Renting of Immovable Property service – Four joint owners of the commercial complex rented out the property to various tenants – Department took the view that the total monthly rent so received would be liable to service tax under renting of immovable property for the period 1.6.2007 to 31.03.2012 – original authority confirmed the demand and imposed penalties as well – appeal before CESTAT.

Held: There is merit in the contention of the appellant that SCN not having been issued to joint owners, nonetheless proceedings have been confirmed against four joint owners, therefore, orders of the lower authorities have gone beyond the scope of the SCN and on this technical ground, the impugned order cannot be sustained – matter is already settled by a plethora of decisions of the Tribunal In the case of Sarojben Khusalchand Vs CST Ahmedabad – 2017-TIOL-2284-CESTAT-AHMinasmuch as the benefit of exemption Notification No. 6/2005-S.T. as amended is available to individual co-owners who jointly owned the property and provided the service of renting of immovable property, and received the rent in proportion to the shares in the immovable property – following the same, impugned order is set aside and appeal is allowed with consequential benefits, both on technical grounds as well as on merits: CESTAT [para 4, 5]

Appeal allowed

Case laws cited:

Sarojben Khusalchand Vs CST – 2017-TIOL-2284-CESTAT-AHM …Para 2

CCE Nasik Vs Deoram Vishrambhai Patel – 2015-TIOL-1936-CESTAT-MUM …Para 2

CC & C.Ex & ST Allahabad Vs Luxmi Chaurasia 2017 (49) STR 541 (Tri.-AII.)…Para 2

CIT Vs Indira Balkrishna – 2002-TIOL-1254-SC-IT-LB…Para 2

CIT Vs Deghamwala Estates 1979 (3) TMI 30 – Madras High Court….Para 2

Anil Saini Vs CCE – 2017-TIOL-1234-CESTAT-CHD …Para 4

Shri S. V. Janardhanam Vs. Commissioner of GST & Central Excise,- 2019-TIOL-298-CESTAT-MAD…Para 4

Shri Syed Ahamed & Others Vs CGST & CE, –2019-TIOL-443-CESTAT-MAD…Para 4

FINAL ORDER NO. 42534/2018

Per: Bench:

The facts of the case are that Srimathy Complex, a commercial complex located in Trichy was originally owned by one Mr.P. Ramanujam, by virtue of three settlement deeds dt. 18.05.2007 gave away 1/4th share of the property of the complex as settlement in favour of the wife Smt. R.Srimathy and his sons Shri R.Babu and R.Subramanian. It appears that the mother and the two sons Appeal No.ST/40291/2015 gave Power of Attorney to the father for renting out the property. Thus, all the four joint owners rented out the property to various tenants. Department took the view that the total monthly rent so received would be liable to service tax under renting of immovable property for the period 1.6.2007 to 31.03.2012. The original authority vide an order dt. 31.10.2004 has confirmed the demand of tax liability of Rs.10,55,358/- with interest thereon and also imposed penalties on the four co-owners under Section 77 & 78 of the Act. In appeal, the commissioner (Appeals) vide impugned order dt. 14.01.2015 upheld the order of original authority. Aggrieved, the appeal has been filed by Srimathy Complex through co-owner P. Ramanujam.

2. Today when the matter came up for hearing, on behalf of the appellant, Ld. Advocate Shri N. Manickam made various submissions which are broadly summarized as under:

i) SCN dt. 19.09.2013 was issued to Srimathy Complex only. Individual SCNs were not issued to the four co-owners. In spite of this, the original authority has confirmed demand and imposed penalty individually on four co-owners. So also, the Commissioner (Appeals) also rejected the appeal on the grounds that “the four co-owners are to be treated as ‘body of individuals’ willingly joining together to provide taxable value of service of renting”. He submits that though SCN has not been served to the four co-owners and these orders are also not being issued to them in spite of which, tax and penalty has been imposed on the individual co-owners and the entire proceeding would be bad abinitio.

ii) Even on merits, Ld. Advocate submits that the matter has been settled in their favour and it has been held in a number of decisions that in such cases co-Appeal No.ST/40291/2015 owners cannot be treated as association of persons and service tax cannot be clubbed on the total amount. He relies on the following case laws :

1) Sarojben Khusalchand Vs CST Ahmedabad 2017 (4) GSTL 159 (Tri.-Ahmd.) = 2017-TIOL-2284-CESTAT-AHM

2) CCE Nasik Vs Deoram Vishrambhai Patel 2015 (40) STR 1146 (Tri.-Mumbai) = 2015-TIOL-1936-CESTAT-MUM

3) CC & C.Ex & ST Allahabad Vs Luxmi Chaurasia 2017 (49) STR 541 (Tri.-AII.)

4) CIT Vs Indira Balkrishna 1960(4)TMI 7-SC = 2002-TIOL-1254-SC-IT-LB

5) CIT Vs Deghamwala Estates 1979 (3) TMI 30 – Madras High Court.

3. On the other hand, Ld. A.R Shri B. Balamurugan supports the impugned order.

4. Heard both sides. We find merit in the contention of the Ld. Advocate that SCN not having been issued to joint owners, nonetheless proceedings have been confirmed against four joint owners, Hence we have no hesitation in holdingthat orders of the lower authorities have gone beyond the scope of the SCN and even on these technical grounds, the impugned order cannot be sustained. We further find that the Ld. Advocate is correct in her assertion that the matter is already settled by a plethora of decisions of the Tribunal. In the case of Sarojben Khusalchand Vs CST Ahmedabad (supra) relied upon by Ld. Advocate, the Tribunal has observed as under:

“7. The basis of allegation by the Revenue against the Appellants rests on the premise that even though the immovable property is jointly owned by several persons, since the property itself is indivisible, and each person cannot separately render the service without involvement of other co-owners, hence the total rent received as a whole, be considered for the purpose of computing aggregate value of taxable services in extending the Notification No. 6/2005-S.T., dated 1-3-2005, as amended. In other words, the Service Tax is assessed on the total amount of rent, without extending the benefit .of exemption Notification No. 6/2005-S.T. on the rent received by each co-owner in proportion to his share in the immovable property rented/leased. The reasoning of the lower authorities in denying the benefit to each co-owner is that the meaning of “person” defined under Section 3(42) of General Clauses Act, includes any company or body of individual whether incorporated or not should be pressed into service to levy Service Tax on the total rent received by all co-owners considering them as body of individual or association of persons in computing the gross taxable value under the exemption Notification No. 6/2005-S.T. The appellants on the other hand, vehemently argued that the definition of ‘person’ provided under the General Clauses Act, is not relevant and inapplicable to the facts and circumstances of the present case, inasmuch as merely because several persons own the immovable property jointly, they cannot be treated as body of individuals or association of persons, when each co-owner receive the rent proportionate to their share in the immovable property, having separate PAN No. and subjected to TDS and income tax assessment separately. In support of their argument on the scope and meaning of association of persons they have referred to the judgment of Hon’ble Supreme Court in the case of CIT v. Indira Balkrishna (supra) followed in Deghamwala Estates (supra) case where under similar circumstances, the co-owners who received the rent income proportionate to their share had been assessed to income tax separately, but not as an association of persons.

…. …. ….

…. …. ….

9. We find force in the contention of the Id. Advocates representing the respective appellants inasmuch as “association of persons” has been considered as a separate legal entity under the Income-tax Act for assessment and provided separate PAN number different from the PAN number possessed by individual co-owners; who joined together to form an ‘association of persons’. In the present case, the show cause notices were issued in many cases to one person among the Joint owners and in other cases to all the persons who had jointly owned the immovable property provided on rent. Needless to mention, the Service Tax Registration of individual assessees for collection of Service Tax is PAN based, hence, collection of Service Tax from one of the co-owners, against his individual Registration for the total rent received by all co-owners separately, is neither supported by law nor by laid down procedure. Thus, it is difficult to accept the proposition advanced by the Revenue that all the co-owners providing the service of renting of immovable property be considered as an association of persons and the Service Tax on the total rent be collected from one of the co-owners. Another argument of the Revenue is that since the property is indivisible and not earmarked against each of the co-owners, hence the Service Tax is leviable on the total rent received against the said property without apportioning against each of the co-owners in proportion to their share. We find fallacy in the said argument of the Revenue. Conceptually Service Tax is levied on the service provided, which is an intangible thing and hence it is not necessary to be identified with physical demarcation of the immovable property given on rent against individual co-owners. Once the value of service provided by a service provider is ascertainable Service Tax is accordingly charged. This Tribunal in similar facts and circumstances in the cases of Deoratn Vishrambhai Patel, Anil Saini & Others and Lvxmi Chaurasia (supra) after considering the issues raised, rejected the contention of the Revenue and allowed the benefit of exemption Notification No. 6/2005-S.T., dt. 1-3-2005 as amended to individual co-owners who jointly owned the property and provided the service of renting of immovable property, and received the rent in proportion to the shares in the immovable property.

10. In the result, the impugned orders are set aside and the appeals are allowed with consequential relief, if any, as per law.”

The above ratio has been reiterated by the Tribunal in Anil Saini Vs CCE Chandigarh – 2017 (51) STR 38 (Tri.-Chan.) = 2017-TIOL-1234-CESTAT-CHD. This very Bench in the case of Shri S. V. Janardhanam Vs. Commissioner of GST & Central Excise, Salem vide Final Order No.42474/2018 dt. 25.09.2018 = 2019-TIOL-298-CESTAT-MAD and in the case of Shri Syed Ahamed & Others Vs CGST & CE, Trichy vide Final Order No.42477/2018 dt. 25.09.2018 = 2019-TIOL-443-CESTAT-MAD has taken an identical stand. Following the same ratio, we hold in favour of the appellant. The impugned order cannot then be sustained and is required to be set aside, which we hereby do. Appeal is allowed with consequential benefits, if any, as per law.

5. Hence both on technical grounds as well as on merits, we find that impugned order cannot be sustained and requires to be set aside we hereby do. Appeal is therefore allowed with consequential benefits, if any, as per law.

(dictated and pronounced in court)

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