Unreported Decisions – ST – January 2019

By Vinay Jain & Sachin Mishra, Advocate

1. Whether leasing of the entire club property under a joint venture agreement is liable to service tax under the category of ‘Renting of Immovable Property Services’?

Facts & Pleadings: 

M/s. Ambience Hospitality Pvt. Ltd. (hereinafter referred to as “appellants”) entered into a Joint Venture Agreement with Ambience Hospitality Management (P) Ltd. (“AMPL”), for running a club on “Revenue-Sharing Basis”. Under the agreement, AMPL was responsible for operating, running and maintaining the club and to share a percentage of the revenue earned per month with the appellants which was subsequently modified to be a fixed monthly payment. During the period, June 2007 to March 2009, appellants filed refund application as they had wrongly paid service tax considering the said activity to be ‘Renting of Immovable Property Services’.

The department contended that the appellants were receiving a monthly rental from AMPL and the same was taxable under ‘Renting of Immovable Property Services’. Further, department also contended that part of the demand is also barred by limitation.

The appellants contended that lease of a club does not fall under the meaning of “immovable property” under Section 65 (105)(zzzz) of Finance Act, 1994, inasmuch as clause (d) excludes building used solely for residential purposes & building used for the purposes of accommodation including hotels, boarding house, holiday resort, tents, camping facilities. The appellants further claimed that it is not a ‘simple leasing of immovable property’ but ‘leasing of entire business of club’ to the lessee under Joint venture. Hence not covered under the definition of ‘renting of immovable property services’. The appellants also argued that they had paid service tax under mistake of law hence, provisions of 11B of the Central Excise Act, 1944 are not applicable. In support of the same the appellants relied upon the decision of Union of India vs. ITC Limited reported in 1993 (67) ELT (SC) and K.V.R Constructions vs. CCR Bangalore 2010 (17) STR 6.

Judgment: The Hon’ble CESTAT held that the appellants and AMPL intended to run the club on principal to principal basis and the method of arriving at the value of consideration shall not determine the nature of the contract. Hence, the change in the revenue sharing clause of the agreement did not change the colour of the revenue sharing arrangement between the parties to that of tenancy. As per the Hon’ble CESTAT, there was no delivery of possession of club to AMPL by way of tenancy but only the right to manage and operate the club for mutual benefit was given by the appellants on a principle to principle basis. This does not attract the provisions of Service Tax. The Hon’ble CESTAT finally observed that in view of Union of India vs. ITC Limited reported in 1993 (67) ELT (SC), a tax wrongly realized is made outside the provisions of the Act and such amount cannot be retained by department, conflicting with Article 265 of the Constitution.

M/s. Ambience Hospitality Pvt. Ltd. vs. CCE, Delhi-IV, CESTAT, New Delhi decided on 17.12.2018 in Appeal No. 05/ST/Appeal/DLH-IV/2013.

M/s. Ambience Hospitality Pvt. Ltd.

2. Whether the remittance of ‘certain foreign exchange’ for ‘foreign expenditures’ in relation to ‘expenses incurred outside India’ amount to repatriation of export proceeds received in convertible foreign exchange?

Facts & pleadings: M/s. IMRB International (hereinafter referred to as the ‘appellants’) are inter alia engaged in rendering services under the category of ‘Market Research Agency Services’. The appellants have been rendering such services to their clients situated in India as well as abroad. The appellants were not paying service tax on the amount received for services rendered to foreign clients as the same amounted to export of service.

The department alleged that in respect of such foreign currency receipts, the appellants are liable to pay service tax in terms of proviso provided in Notification Nos. 6/1999-ST and 21/2003-ST. The department contended that in view of the above notifications, as a part of the amount received in foreign convertible exchange was repatriated outside India, the benefit of export of service will not be allowed.

The appellants contended that the appellant has made certain remittances in foreign exchange in connection with the foreign jobs of the appellant, purchase of software licences and other expenses. The appellants argued that this cannot be considered as repatriation in foreign currency rather this was in the nature of remittances, which cannot attract the provisions of the above Notifications. The appellants further contended that the services provided to overseas clients should be considered as services consumed abroad and hence not liable for service tax. Hence the appellants need not take recourse to the exemption notification to claim immunity from payment of service tax on the foreign currency receipts.

Judgment: The Hon’ble CESTAT observed that the appellants have made certain remittances in foreign currency for purchase of software licences and other expenses connected with providing services to foreign clients. The CESTAT held that such remittances will not fall within the mischief of the proviso in Notification No. 6/1999-ST and 21/2003-ST. In this regard, Hon’ble CESTAT followed the principle that the intention of the Government is always not to tax “Export of Services”. The Hon’ble CESTAT further held that the appellant was fully entitled to make remittances in foreign exchange outside the country for legitimate business expenses as per the guidelines issued by Reserve Bank of India from time to time. In this regard, the CESTAT relied upon the decision of the Tribunal in the case of SGS India Pvt. Ltd. vs. CST, 2011 (24) STR 60 (Tri.Mumbai) to set aside the demand.

M/s. IMRB International vs. CST, Kolkata, CESTAT, Kolkata, decided on 6-12-2018 in Appeal No. 171/2008.

M/s. IMRB International

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.