sevakarahmedabad.nic.insevakarahmedabad.nic.in/doc/ADDL/56-2012-13.doc · Web viewBRIEF FACTS OF THE CASE: It was noticed that the following persons (herein after referred to as

OIO No.56/STC-AHD/ADC (AS)/2012-13 Page 1 of 38

BRIEF FACTS OF THE CASE:

It was noticed that the following persons (herein after referred to as ‘the AOP i. e. the Association Of Persons’) were providing services falling under the category of “Renting of Immovable Property Services”. They had, apart from renting out other premises, also rented out the premises located at (A) Ground Floor, Iskon Arcade, C. G. Road, Navrangpura, Ahmedabad and (B) 1/A, Ground Floor, Iskon Arcade, C. G. Road, Navrangpura, Ahmedabad (hereinafter referred to as “the said premises”) as defined under Section 65(90a) of the Finance Act, 1994 (hereinafter referred to as “the Act”):

(1) Shri Zaverilal Virjibhai Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad and holding Service Tax Registration No. ACCPM8738PSD001;

(2) Shri Chandreshbhai Zaverilal Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad and holding Service Tax Registration No. ACCPM8734BSD001;

(3) Shri Vipulkumar Zaverilal Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad and holding no Service Tax Registration;

(4) Shri Bharatbhai Pranjivandas Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad and holding Service Tax Registration No. ACCPM8736DST001; and

(5) Shri Kishorbhai Pranjivandas Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad and holding Service Tax Registration No. ACCPM8737CST001.

2. The “Renting of Immovable Property Service” has vast scope and a number of service providers are rendering this service in Ahmedabad. Accordingly, potential commercial properties like malls, shopping centers, commercial complexes, etc. were identified for intensive survey by the Service Tax Commissionerate, Ahmedabad.

2.1 During the course of the survey of the said premises, it was revealed that the said premises which were owned by the AOP (the Lessors) were rented out to the following companies (the Lessee):

(i) M/s Samtain Sales Pvt. Ltd., (herein after referred to as ‘M/s. SAMT’) having its office at Tainwala House, Road no.18, M.I.D.C., Marol, Andheri (East), Mumbai-400 093 (the Lessee) as per lease deed dated 14-10-2004;


(ii) M/s Samsonite South Asia Pvt. Ltd., (herein after referred to as ‘M/s. SAM’) having its office at 159-163, Mumbai-Nasik Highway, Village: Konde (Dumala), Tal: Igatpuri, Dist: Nasikas (the Lessee) as per lease deed dated 17-01-2008; and

(iii) M/s Bose Corporation India Pvt. Ltd., (herein after referred to as ‘M/s. BOSE’) having its office at 4th Floor, Shriram Bhartiya Kala Kendra, 1, Copernicus Marg, New Delhi-110 001 (the Lessee) as per lease deed dated 08-05-2008

M/s. SAMT were found to be engaged in the business of running a showroom styled “Samsonite Travel World” for the sale of Samsonite products as per the lease deed dated 14-10-2004. M/s. SAM were found to be engaged in the business of running a showroom styled “Samsonite Travel World” for the sale of Samsonite products as per lease deed dated 17-01-2008. M/s. BOSE were found to be engaged in the business of running a showroom styled “Bose Store” for commercial activities of sale & services for its products as per para 5 (a) of the lease deed dated 08-05-2008. Thus, the premises rented out by the AOP was used by M/s. SAMT, M/s. SAM and M/s. BOSE for use in the course of or, for furtherance of, business or commerce and accordingly, the rental income received by the AOP from M/s. SAMT, M/s. SAM and M/s. BOSE became taxable under the category of “Renting of Immovable Property Service”.

2.2 The survey further revealed that the AOP was not registered with Service Tax as an independent person but the members of the said AOP as shown at Sr. No. 1, 2, 4 and 5 in para 1 above, were registered with the Service Tax Range: XV, Division: III, Ahmedabad. The remaining member of the said AOP as shown at Sr. No. 3 was not registered with the Service Tax Commissionerate, Ahmedabad or anywhere in India.

3. Accordingly, all the members of the said AOP were issued summons, all dated 13-03-2012, under Section 14 of the Central Excise Act, 1944 as made applicable to all the service tax matters vide Section 83 of the Act to give evidence, to make statements and also to provide the copies of the Balance Sheets, Profit and Loss accounts as well as relevant Lease Deeds and details of rent paid by the said lessee to them, for the period from 2007-08 to 2011-12 (upto September, 2011).

3.1 All the above stated service providers remained present before the Superintendent of Service Tax, Range-XV, Division-III, Ahmedabad and deposed the following facts and also furnished the relevant documents, i. e. the balance sheets, profit and loss accounts as well as relevant lease deeds and details of rent received by them individually.

3.2 Shri Vipulkumar Zaverilal Mandalia deposed that he was not registered with the Service Tax department for the taxable services namely


“Renting of Immoveable Property Services” and hence he had not filed ST-3 returns and had not paid the Service Tax for the period from June, 2007 to September, 2011; that the reason for not obtaining service tax registration and also for not paying service tax was that the rent income received by him during the financial years 2007-08 and 2011-12 in respect of the above stated immovable property given on rent, had remained under the threshold small scale exemption limit in all these financial years. He also deposed that another lease deed dated 14-10-2004 and 22-01-2008 had been entered into by all of them (5 persons) as stated in the previous para for giving on rent another premises namely: 1/A, Ground Floor, Iskon Arcade, C.G Road, Navrangpura, Ahmedabad and that, except the above 2 (two) lease deeds, he had not entered into any other lease deed/ contract/ agreement with any other party/ lessee. He further stated that the rent income as shown in his profit and loss account of the each year was as per the rent ledger.

3.3 Shri Zaverilal Virjibhai Mandalia, Shri Chandreshbhai Zaverilal Mandalia, Bharatbhai Pranjivandas Mandalia and Shri Kishorbhai Pranjivandas Mandalia, all the members of the ‘AOP’ deposed that they were registered with the Service Tax department for the taxable services namely “Renting of Immoveable Property” and paying service tax on total rent amount received by them, after availing the threshold exemption from payment of service tax as per Notification No. 6/2005-ST, dated 01-03-2005 as amended from time to time. They also stated that they had filed ST-3 returns regularly after obtaining their service tax registration.

3.4 On perusal of the Lease Deed dated 14.10.2004 between the AOP and ‘M/s. SAMT’, it was revealed that ‘M/s SAMT’ were required to pay a monthly rent to all the 5 persons separately towards renting of the said premises. The details thereof are given below:

Sr. No.

Name of the lessor Share of each lessor as per lease deed dated 14.10.2004

1 Zaverilal Virjibhai Mandalia 20%2 Chandreshbhai Zaverilal Mandalia 20%3 Vipulkumar Zaverilal Mandalia 10%4 Bharatbhai Pranjivandas Mandalia 25%5 Kishorbhai Pranjivandas Mandalia 25%

3.5 On perusal of the Lease Deed dated 17.01.2008 between the AOP and ‘M/s. SAM’, it was revealed that ‘M/s SAM’ were required to pay a monthly rent to all the 5 persons separately towards renting of the said premises. The details thereof are given below:

Sr. No.


1 Zaverilal Virjibhai Mandalia 20%2 Chandreshbhai Zaverilal Mandalia 20%3 Vipulkumar Zaverilal Mandalia 10%4 Bharatbhai Pranjivandas Mandalia 25%


5 Kishorbhai Pranjivandas Mandalia 25%

3.6 On perusal of the Lease deed dated 08.05.2008 between AOP and ‘M/s. BOSE’, it was revealed that ‘M/s BOSE’ were required to pay a monthly rent to all the 5 persons separately towards renting of the said premises. The details thereof are given below:

Sr. No.


1 Zaverilal Virjibhai Mandalia 20%2 Chandreshbhai Zaverilal Mandalia 20%3 Vipulkumar Zaverilal Mandalia 10%4 Bharatbhai Pranjivandas Mandalia 25%5 Kishorbhai Pranjivandas Mandalia 25%

3.7 The total rent received by the AOP and the service tax liability required to be discharged by the AOP collectively, was shown in Annaxure: A attached to the Show Cause Notice.

3.8 Further, as per the said lease agreements, the AOP had given the following rights to all the lessee namely ‘M/s SAMT’, ‘M/s. SAM’ and ‘M/s BOSE’, with the right to conduct the business of running a showroom styled (i) “Samsonite Travel World” for the sale of samsonite products styled (for SAMT and SAM) and (ii) “Bose Store” for commercial activities of sale & services for its products respectively. It was thus evident from the above facts that, AOP were receiving rental income from M/s SAMT, M/s SAM and M/s BOSE in respect of the demised premises as per lease deeds.

4. The Government had introduced levy of service tax on “Renting of immovable Property Service” vide Notification No. 24/2007 dated 22.05.2007 which came into effect from 01.06.2007 and tax is leviable under sub-clause (zzzz) of clause 105 of Section 65 of the Act.

4.1 As per Section 65 (90a) of the Act, “Renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include —

(i) Renting of immovable property by a religious body or to a religious body; or (ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

Explanation 1.—For the purposes of this clause, “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings;]*


Explanation 2.— For the removal of doubts, it is hereby declared that for the purposes of this clause “Renting of immovable property” includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property;

4.2 Further, Section 65(105)(zzzz) of the Act defined the term taxable service for renting of property services as under:

“Taxable service means 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 or furtherance of business or commerce.”

Explanation 1- For the purposes of this sub-clause, “immovable property” included-

(i) building and part of a building, and the land appurtenant thereto;(ii) land incidental to the use of such building or part of a building;(iii) the common or shared areas and facilities relating thereto; and (iv) in case of a building located in complex or an industrial estate, all

common areas and facilities relating thereto, within such complex or estate,

but does not include-(a) vacant land solely used for agriculture, aquaculture, farming, forestry,

animal husbandry, mining purposes;(b) vacant land, whether or not having facilities clearly incidental to the

use of such vacant land;(c) land used for educational, sports, circus, entertainment and parking

purposes; and (d) building used solely for residential purposes and buildings used for the

purpose of accommodation, includes hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2 - For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;

4.3. The Finance Act, 2010 has amended the definition of the taxable service ‘Renting of immovable property’ [Section 65 (105) (zzzz)] to the following extent:

(i) to provide explicitly that the activity of ‘renting’ itself is a taxable service. This change is being given retrospective effect from 01.06.2007; and

(ii) to provide that renting of vacant land, where the agreement or contract

between the lessor and lessee provides for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease, shall be subjected to service tax.


5. Renting of immovable property is taxable service as defined under Section 65(90a) of the Act. Further, taxable service means any service provided or to be provided to any person by another person by renting of immovable property or any other service in relation to such renting for use in course of or for furtherance of business or commerce. The term “person” has not been defined in the Act but the term person has been defined in clause (42) of Section 30 of the General Clause Act, 1897 as “person shall include any company or association or body of individuals, whether corporate or not”. However, explanation below Section 73D of the Act elaborates the category of “person” with their respective authorized representative which includes Association of persons (AOP) as one of the category of person. Further, it is clarified by the Central Board of Excise & Customs in November 2007 as Frequently Asked Questions (FAQ) on Service Tax, that the word “person” shall include any company or association or body of individuals, whether incorporate or not. Thus, the expression “person” includes any individual, HUF, proprietary Firm or partnership firm, company, Trust”. The obligation to pay service tax in case of renting of immovable property for commercial use rests with the owner/ lessor of the property as a “person” liable for payment of service tax. The person may be individual, Body of Individuals (BOI), Association of Persons (AOP), Company, Trust, HUF, etc. and accordingly Lessor/ joint owner will be treated as single entity for liability of service tax.

6. The object of the Finance Act is of general application and not intended to confer any special benefit to a service provider, in subject matter, the joint owners. The definition of “assessee” includes individual, proprietary firm, partnership firm (as per Rule 6 of the Service Tax Rules) body of individuals, association of persons whether or not incorporated the term person being conferred an inclusive and wider meaning by the General Clauses Act, 1897. Then, it is not conceivable why the Legislature would intend to exclude joint owners providing a particular class of taxable service falling within Section 65(105) (zzzz) of the said Act. In consonance with the definition of ‘person’ read together with the General Clauses Act, 1897, Sections 66 and 68 of the Act having regard to the object and purpose of the enactment, when the statute is not a statute aimed at conferring certain special treatment for protecting the interest of a class of persons, the joint owners are included in the wider, inclusive meaning of the word person. In the subject matter, the joint owners viz. (1) Shri Zaverilal Virjibhai Mandalia, (2) Shri Chandreshbhai Zaverilal Mandalia, (3) Shri Vipulkumar Zaverilal Mandalia, (4) Shri Bharatbhai Pranjivandas Mandalia, and (5) Shri Kishorbhai Pranjivandas Mandalia had purchased the immovable property vide a single legal document, rendered the service of renting the said property vide a single legal document and entered into transaction with the service recipient also as a single party. All of them are covered under the definition of the word “Person” under the category of Association of Persons.

7. It was found that the service providers viz. (1) Shri Zaverilal Virjibhai Mandalia, (2) Shri Chandreshbhai Zaverilal Mandalia, (3) Shri Vipulkumar Zaverilal


Mandalia, (4) Shri Bharatbhai Pranjivandas Mandalia, and (5) Shri Kishorbhai Pranjivandas Mandalia, had received rent from ‘M/s. SAMT’, ‘M/s. SAM’ and ‘M/s. BOSE. In the subject matter, it is merely a class of persons/joint owners who grouped for a common purpose and the purpose is the act of rendering an indivisible single service of renting of said immovable property to a single service recipient. This is in fact, evident from the lease agreement entered into by the said service provider as a single party in which, the service recipient is another party. The title of the immovable property belongs to service provider and entitlement to render the service of renting to the recipient has therefore not diminished the fact of dissolution of the joint owners into individual principal to principal transaction between each unit of the same entity called, the service provider who as a class of person here is the joint owners.

8. In view of the above, as per the provisions of the Act and rules made there under, the AOP were required to assess correct value for the service provided by them as well as to pay service tax on the amount received by them for rendering ‘Renting of Immovable Property Service’ on due time as prescribed and to follow all the procedures laid down in the Act and Rules. From the above, it appears that the said service defined under “Renting of Immovable property Service” under Section 65 (90a) of Chapter V of the Act and the service provided to their clients viz. ‘M/s. BOSE’, ‘M/s. SAMT’ and ‘M/s. SAM’ by the AOP was taxable service as provided under Section 65(105)(zzzz) of the Act.

9. Thus, in respect of such taxable services provided by the AOP under the category of “Renting of Immovable Property Services”, the entire rental income for the period 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12 (up to September-2011) received by them as rent towards the premises leased out to ‘M/s. SAMT, ‘M/s. SAM’ and ‘M/s. BOSE’ for use in the course or furtherance of business or commerce. Therefore, all the 5 (five) persons of the said AOP were issued summons dated 13.03.2012 under Section 14 of the Central Excise Act, 1994 read with Section 83 of the Act for appearing before the Superintendent of Central Excise, Range-XV, Division-III, Ahmedabad to give evidence and to make statement regarding activities carried out by them during the period 2007-08 onwards.

10. In response to that, Shri Vipulkumar Zaverilal Mandalia (who has not obtained service tax registration) appeared before the Superintendent, Service Tax, Range-XV, Division-III, Ahmedabad. His statement was recorded under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Act before the Superintendent of Service Tax, Range-XV, Division-III, Ahmedabad on 10-04-2012 wherein he, inter alia, stated that:

he is not registered with the Service Tax Department for the taxable services namely: Renting of Immoveable Property Services and hence he had not filed


ST-3 returns and had not paid the Service Tax from June: 2007 to March-2012;

he had not obtained service tax registration and was not paying service tax due to the reasons that the rent income received by him during the financial years: 2007-08 and 2011-12 in respect of the above stated immovable property given on rent, was within the threshold small scale exemption limit in all these financial years.

10.1 On being shown the lease deed dated 08-05-2008 in respect of the above stated immoveable property owned by them and asked to clarify whether any further lease deed had been prepared and entered into between him and any other lessee for any other premises, Shri Vipulkumar Zaverilal Mandalia clarified that another lease deed dated 22-01-2008 had been entered into by all of the 5 persons for giving on rent another premises namely: 1/A, Ground Floor, Iskon Arcade, C. G. Road, Navrangpura, Ahmedabad; that

except the above 2 (two) lease deeds, I had not entered into any other lease deed/ Contract/ agreement with any other party/ lessee;

the rent income as shown in his profit and loss account of each year was as per the rent ledger.

10.2 Shri Vipulkumar Zaverilal Mandalia provided copies of the following documents in this regard:

(1) Rent income ledger for the financial year: 2007-08 to 2011-12 (up to September-2011).(2) Balance sheets as well as profit and loss account for the financial years: 2007-08 to 2011-12 (up to Sep.2011).(3) Income Tax Returns along with TDS certificates for the year: 2007-08 to 2010-11.

10.3 On being asked specifically as to why he had not paid service tax on total rent received by all the five lessors collectively, Shri Vipulkumar Zaverilal Mandalia clarified that he had collected/ received rent separately as per his ledger provided and TDS was also deducted in the individual name. He further clarified that:

it is quite evident that all the five co-owners are a separate entity from each other and hence they cannot be treated as a single person;

hence service tax liability has not been discharged on aggregate amount of rent received by all the five lessors collectively.


11. Similarly, in response to the aforesaid summons, Shri Zaverilal Virjibhai Mandalia, Shri Chandreshbhai Zaverilal Mandalia, Shri Bharatbhai Pranjivandas Mandalia and Shri Kishorbhai Pranjivandas Mandalia also appeared before the Superintendent, Service Tax, Range-XV, Division-III, Ahmedabad. Their statements were recorded under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Act before the Superintendent of Service tax, Range-XV, Division-III, Ahmedabad on 10-04-2012 wherein they all deposed identically, inter alia, stating that:

They had filed ST-3 returns from 01-04-2011 onwards;

They are small scale service providers and while filing return for the period April-2011 to September-2011, they had claimed an exemption of small service providers and had also paid service tax accordingly;

Their taxable turnover up to 31-03-2011 was below threshold limit of small service provider;

They had not paid service tax due to the reasons that the rent income received by them during the financial years: 2007-08 and 2010-11 in respect of the above stated immovable property given on rent, was within the threshold small scale exemption limit in all these financial years.

11.1 On being shown the lease deed dated 08-05-2008 in respect of the above stated immoveable property owned by them and asked to clarify whether any further lease deed had been prepared and entered into between them and any other lessee for any other premises, they clarified that another lease deed dated 22-01-2008 had been entered into by all of the 5 persons for giving on rent another premises namely: 1/A, Ground Floor, Iskon Arcade, C. G. Road, Navrangpura, Ahmedabad; that

except the above 2 (two) lease deeds, they had not entered into any other lease deed/ Contract/ agreement with any other party/ lessee;

the rent income as shown in their profit and loss accounts of each year was as per the rent ledger.

11.2 They provided copies of the following documents in this regard:

(1) Rent income ledgers for the financial year: 2007-08 to 2011-12 (up to September-2011).(2) Balance sheets as well as profit and loss accounts for the financial years: 2007-08 to 2011-12 (up to Sep.2011).(3) Income Tax Returns along with TDS certificates for the year: 2007-08 to 2010-11.


11.3 On being asked specifically as to why he had not paid service tax on total rent received by all the five lessors collectively, they clarified that they had collected/ received rent separately as per their ledgers provided and TDS was also deducted in the individual name. They further clarified that:

it is quite evident that all the five co-owners are a separate entity from each other and hence they cannot be treated as a single person;

hence service tax liability has not been discharged on aggregate amount of rent received by all the five lessors collectively.

12. In view of the above, it appeared that the AOP were required to pay Service Tax amounting to Rs.19,68,972/- (Service Tax: Rs.19,11,621/- + Education Cess: Rs.38,234/- + Secondary & Higher Education Cess: Rs.19,117/-) during the period 2007-08 (June-2007 to March-2008), 2008-09, 2009-10, 2010-11 and 2011-12 (up to September-2011) as per the worksheet showing calculation of service tax not paid by the AOP attached to the Show Cause Notice as Annexures A & B. It was evident from the said details that the AOP received total rent of Rs.1,85,61,143/- for the period from 2007-08 (June, 2007 to March, 2008) to 2011-2012 (upto September, 2011) and after deduction of threshold exemption limit of the first aggregate taxable value of Rs.8,00,000/- from the said amount, the net taxable value arrived at Rs.1,77,61,143/- on which, the AOP had not paid Service Tax of Rs.19,68,972/- (Service Tax: Rs.19,11,621/- + Education Cess: Rs.38,234/- + Secondary & Higher Education Cess: Rs.19,117/-).

13. However, it was observed that the following persons of the said AOP had paid service tax by obtaining their individual service tax registration from time to time as per the details shown against their names:

Financial Year Shri Zaverilal Virjibhai Mandalia

Shri Chandreshbhai Zaverilal Mandalia

Shri Bharatbhai

Pranjivandas Mandalia

Shri Kishorbhai

Pranjivandas Mandalia

Grand total of service tax paid (Rs.)

2007-08 (June, 07 to March, 08)

0 0 0 0 0

2008-09 0 0 63134 63134 1262682009-10 0 0 108228 108228 2164562010-11 0 0 113214 113214 2264282011-12(April,11 to Sept,11)

0 0 62092 62975 125067

Total: 0 0 3,46,668 3,47,551 6,94,219

14. From the above, it appeared that the AOP had failed to pay service tax on the gross amount of renting income received by them during the period from


2007-08 (June, 2007 to March, 2008) to 2011-2012 (upto September, 2011) with an intent to evade payment of service tax and therefore, service tax was required to be demanded / recovered from them under Section 73(1) of the Act read with Section 68 of the Act. During the relevant year: 2006-07 onwards, each individual had availed S.S.I. threshold exemption from payment of service tax, in respect of the first aggregate taxable value of Rs.8 lakh or Rs.10 lakh, as the case may be for the relevant year, depending upon the taxable value of the preceding year, in view of the Notification No. 06/2005-ST, dated 01-03-2005, effective from 01-04-2005 as amended from time to time. Such S.S.I. threshold exemption from payment of service tax, in respect of the first aggregate taxable value of Rs.8 lakh, for the financial year: 2007-08, depending upon the taxable value of the preceding year: 2006-07, was only admissible to the taxable value of the said AOP, and not to all the persons separately as availed by them wrongly.

15. Moreover, it was also observed from the Annexure: A attached to the notice that the said AOP had crossed the first aggregate taxable value of Rs.8 lakh in the month of August, 2007. Therefore, the said AOP was required to apply for and also to obtain the service tax registration in the month of August, 2007. However, out of the 5 (five) persons of the said AOP, only 4 (four) persons had obtained their service tax registration as per details given below:

Sr.No.

Name of the person registered Service Tax Registration number

Date of issue of service tax registration

1 Zaverilal Virjibhai Mandalia ACCPM8738PSD001 01.03.20122 Chandreshbhai Zaverilal Mandalia ACCPM8734BSD001 01.03.20123 Bharatbhai Pranjivandas Mandalia ACCPM8736DST001 04.04.20084 Kishorbhai Pranjivandas Mandalia ACCPM8737CST001 04.04.2008

16. Thus, it appeared from the foregoing discussion that the AOP had contravened the provisions of:

(i) Section 68 of the Act read with Rule 6 of the Service Tax Rules, 1994 in as much as they had failed to pay the service tax as mentioned in para supra for the period from 2007-08 (June, 2007 to March, 2008) to 2011-12 (upto Sep., 2011) in case of “Renting of Immovable Property Services” to the credit of the Government within the stipulated time limit;

(ii) Section 69 of the Act read with Rule 4 of the Service Tax Rules, 1994 in as much as they failed to take registration from the department as Service provider for payment of Service Tax under “Renting of Immovable Property Services”;

(iii) Section 70 of the Act, as amended, read with Rule 7 of the Service Tax Rules, 1994, in as much as they had failed to self assess the Service Tax on the taxable value received by them and to file ST-3 returns for the “Renting of Immovable Property Services” provided by them during the period from 2007-08 (June, 2007 to March, 2008) to 2011-12 (upto Sep., 2011). They had failed to file the S.T.-3 returns for the half year ending October, 2007, March, 2008, October, 2008, March, 2009, October, 2009 and March, 2010, i. e. 6 (six) S.T.-3 returns, alongwith the late fees as


prescribed from time to time nor have they provided the copies of invoices issued by them to their clients in accordance with the provisions of the Act or rules made thereunder. In view of the above, it appeared that the AOP had contravened the provisions of the Act and the rules made thereunder.

17. Further, as per Section 75 ibid,

“every person liable to pay the tax in accordance with the provisions of Section 68, or rules made thereunder, who fails to credit the tax or any part thereof, to the account of the Central Government within the period prescribed, shall pay simple interest (at such rate not below ten percent and not exceeding thirty six percent per annum, as is for the time being fixed by the Central Government, by notification in the official Gazette) for the period by which such crediting of the tax or any part thereof is delayed.”

17.1 The AOP had not discharged their Service Tax liability and hence, were liable to pay interest under Section 75 of the Act.

18. The Government has, from the very beginning, placed full trust on the service providers so far as service tax is concerned and accordingly, measures like self assessment etc., based on mutual trust and confidence are in place. Further, a taxable service provider is not required to maintain any statutory or separate records under the provisions of the Service Tax Rules as considerable amount of trust is placed on the service providers and private records maintained by them for normal business purpose are accepted, practically for all the purposes of Service Tax. All these operate on the basis of honesty of the service provider. Therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on the service provider. From the evidence, it appeared that the AOP had deliberately not discharged their Service Tax liability. The deliberate efforts in not paying the correct amount of service tax were utter disregard to the requirements of law and constituted a breach of trust deposed on them. Such outright act in defiance of law appeared to have rendered them liable for stringent penal action as per the provisions of Section 78 of the Act for suppression or concealment or furnishing inaccurate value of taxable service with intent to evade payment of service tax. Thus, all the above acts of contravention on the part of the AOP appeared to have been committed by way of suppression of facts with an intent to evade payment of service tax and, therefore, the said service tax not paid, was required to be demanded and recovered from them under the proviso to Section 73 (1) of the Act by invoking extended period of five years. All these acts of contravention of the provisions of Section 68, Section 69 and Section 70 of the Act read with Rule 4, Rule 6 and Rule 7 of the Service Tax Rules, 1994 are punishable under the provisions of Section 76, Section 77 and Section 78 of the Act as amended from time to time.

19. Therefore, the AOP i. e. (1) Shri Zaverilal Virjibhai Mandalia, (2) Shri Chandreshbhai Zaverilal Mandalia, (3) Shri Vipulkumar Zaverilal Mandalia, (4) Shri


Bharatbhai Pranjivandas Mandalia, and (5) Shri Kishorbhai Pranjivandas Mandalia, were issued a show cause bearing F.NO. STC-11/O&A/SCN/Mandalia/JC/D-III/2012-13 dated 18.06.2012, calling upon them to show cause as to why:

(i) Amount of Service Tax of Rs.19,68,972/- (Rupees Nineteen lacs sixty eight thousand nine hundred seventy two only) (Service Tax: Rs.19,11,621/- + Education Cess: Rs.38,234/- + Higher Education Cess: Rs.19,117/-) for the period 2007-08 (June, 2007 to March, 2008), 2008-09, 2009-10, 2010-11 and 2011-12 (upto September, 2011) not paid by them, should not be confirmed and recovered from them under the provisions of Section 73(1) of the Act and also an amount of Rs.3,46,668/- paid by Shri Bharatbhai Pranjivandas Mandalia and Rs.3,47,551/- paid by Shri Kishorbhai Pranjivandas Mandalia after obtaining their service tax registrations should not be appropriated / adjusted against the demand of service tax confirmed;

(ii) Interest at appropriate rate, should not be charged upon them under Section 75 of the Finance Act 1994;

(iii) Penalty should not be imposed upon them under Section 76 of the Act for contravention of Section 68(1) of the Act read with Rule 6 of the Service Tax Rules, 1994;

(iv) Penalty under Section 77 (1) (a) of the Act should not be imposed upon them for the contravention of Section 69 of the Act for failing to take registration in accordance with the said provisions or rules made there under;

(v) Penalty under Section 77 (1) (b) of the Act should not be imposed upon them for failure to keep, maintain books of accounts and other documents as required under the provisions of the Act or rules made thereunder;

(vi) Penalty under Section 77 (1) (e) of the Finance Act 1994 should not be imposed upon them for failure to issue invoice in accordance with the provisions of the Act or rules made there under, with incorrect or incomplete details or fails to account for an invoice in his books of account;

(vii) Penalty under Section 77 (2) of the Act should not be imposed upon them for the contravention the provisions of Section 70 of the Act for failure to self assess the tax due on the services provided by him;

(viii) Prescribed late fee, should not be recovered from them for each return, i. e. S.T.-3 returns for the half year ending October, 2007, March, 2008, October, 2008, March, 2009, October, 2009 and March, 2010 under Rule 7 C read with Section 70 of the Act; and

(ix) Penalty under Section 78 of the Act as amended should not be imposed upon them for suppressing the taxable value of taxable services provided by them before the department with intent to evade the payment of service tax amounting to Rs.19,68,972/-.


Defence reply:-

20. The AOP filed their defence replies vide their identical letters dated 20th July, 2012 wherein, they, inter-alia, submitted that:

they are individuals and independent persons, and they had never formed or constituted any AOP as is being suggested in the Show Cause Notice;

they had purchased the properties in question out of their own funds and they are the owners of the properties as regards the area of the properties paid for by them, and therefore they are being paid rent by lessee separately for the area of the premises that belongs to them;

the basis of the Show Cause Notice that they were in the nature of an AOP and hence the five persons as an AOP had rendered renting of immovable property services is wholly illegal and totally fallacious;

the liabilities sought to be fastened on this illegal and fallacious basis therefore deserve to be withdrawn and the present proceedings deserve to be vacated at once in the interest of justice.

the proposals for recovering service tax, interest and penalties are made on the basis that there was an AOP of five persons;

though it is suggested in the Show Cause Notice that the premises in question were rented out to three lessees by virtue of three lease deeds, but no separate lease deeds were made between the lessee and five owners;

each of the lease deeds for each of the properties clearly indicated extent of the area owned by each of the five owners, and while specifically defining the percentage of ownership of the properties the lessees are also bound under the agreements to pay rent separately to each of these five persons in accordance with the rent payable for the share of the property owned by them;

though there is one lease deed for each of the properties, the share of the owners of the area owned by them is separately defined and identified in the lease deeds also;

similarly, while purchasing the properties also, the share and area of each of the owners have been defined and identified separately in the document of purchase and transfer of the properties;

moreover, the payment of rent is also separately made to each of the owners by the tenants by separate cheques, and the rent is also paid to each of the owners of the property in accordance with their ownership share;

keeping in view these facts, it will have to be considered whether the theory of an AOP propounded by the department against them is sustainable in facts as well as in law, or not.

there is no entity like an AOP that they involved in this case have constituted or formed;


no entity like an AOP is registered anywhere nor have they purchased the properties in question as an AOP; but, as aforesaid, properties have been purchased by each one of them individually and separately;

rent is also not being collected by them as an AOP, but as aforesaid, rent is being paid to each of them individually and separately by the tenants;

there is no evidence at all that the department has led in this case to establish that there actually existed an AOP of five persons; and thus the theory of an AOP is only an imagination and presumption on part of the department;

considering five individuals as an AOP and treating them as one single service provider is therefore illegal and fallacious.

it is also an admitted position of fact in this case that he and some of the other individuals have obtained Service Tax Registrations after threshold exemption limit was exhausted in case of each of them;

appropriate amounts of service tax has also been paid by the individuals as regards the rental income earned by them after the exemption of Notification No.6/2005-ST was exhausted in case of the concerned individuals;

however, the proposal in the Show Cause Notice is to deny this exemption to the individuals by treating them as an AOP and hence one single service provider, and also to levy and collect service tax on the total rental for all the premises in question by considering rental income of all the five persons as the value of the service provided by one single entity;

this twin basis adopted in the Show Cause Notice is however wholly illegal and without jurisdiction.

the first and foremost error committed by the Revenue in proposing to deny exemption of the above Notification to the individuals involved in this case by considering them as one service provider is that all these individuals were independent and separate persons and were providing service of renting of immovable property to M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd., and M/s. Bose Corporation India Pvt. Ltd. individually, and hence all of us were separate assessees in the eye of law;

the Revenue has mis-directed itself in considering the whole issue of availability or otherwise of the above exemption separately for these individuals on the basis that there were not more than one service and the tenant i.e. the “recipient” received a single service; but the core issue involved in this case is missed by the Revenue because the core issue was whether there were more than one “service providers” who provided the above service to M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd. or not;

the exemption of Notification No.6/2005-ST has been available to a person liable to pay service tax i.e. the person who provided a taxable service and therefore the issue to be decided in this case is whether there was only one service provider or there were five individuals providing renting of immovable property service to M/s.


Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd., but the Revenue has committed a grave error by proceeding on the basis that there was “only one service” which was indivisible and that the “recipient of service” had received a single service;

even though the service received by M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd. was one, namely, renting of immovable property service, the service providers were five individuals and therefore these five individuals, who were persons liable to pay service tax under Section 68(1) of the Act as amended from time to time, could not have been denied the individual identity as an assessee as well as the exemption available to each of them individually in the facts of this case.

the Revenue has suggested that renting of immovable property service was an indivisible service and the indivisible service was to be treated as only one service, and that the recipient of the service had received a single service; and on this basis, the Revenue has further suggested that the renting of immovable property service provided by each person was not to be treated as individual service;

there is a clear error on part of the Revenue in proceeding on this basis because it has been an undisputed fact that the taxable service involved in this case was only one namely, renting of immovable property service;

it was totally irrelevant for deciding the issue involved in this case as to whether the service of renting of immovable property was to be considered as an indivisible service, or that it was to be treated as one, or more than one service, or that the recipient of the service received a single service;

they have never submitted that there were more than one services rendered by the individuals owning the premises and therefore the basis for proceeding wholly illegal and irrelevant;

on the other hand, the core issue involved in this case whether five individuals who own the property were separate persons and hence separate service providers or not has escaped the attention though it has been the most relevant issue in the adjudication whether the five individuals in question were rendering renting of immovable property service to M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd. and hence they were persons liable to pay service tax for the service provided by each of them individually by virtue of Section 68(1) of the said Act;

the service may be one, the recipient of the service may also be one and the concerned property for which the service was provided may also be jointly owned property; but the service providers were five individuals who were independent of one another and therefore the liability to pay service tax (as well as admissibility of the exemption) were for each of the individuals being individual service providers and hence individuals liable to pay service tax in respect of the value of above service provided by each of them;

the Revenue has approached the whole issue from a totally incorrect angle whereas the core issue involved in this case has not been addressed to, and consequently the


proposal for fastening liabilities on us on the basis that there was only one service involved in the case is ex-facie illegal;

another equally grave error committed by the Revenue is in completely ignoring the fact that five individuals in question were independent persons assessed to income tax separately even in respect of income of rent received for the premises in question and the liability to pay service tax was also therefore falling on each individual as regards the value of renting of immovable property service provided by each of them; and consequently exemption, if any, was also available to each of the persons in respect of the value of taxable service provided by them individually;

relevant facts like the property being registered in name of individuals, the rent being paid to each of them by separate cheques and the rent being deposited in the bank accounts of each of them separately, disclosure of rent income in Income Tax return of each of the individuals separately and payment of income tax thereon by each of them individually, adjustment of TDS also being made by the recipient of service for each of the five individuals separately and the rent agreement also having been signed by all the five individuals separately are within the knowledge of the Revenue, but these vital facts showing that five individuals owning the property were separate persons providing taxable service to M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd. in their own right and hence they were individual assessees even under the Service Tax law entitled to the exemption available to an individual assessee, have not been taken into account by the Revenue and consequently the whole decision making process stands vitiated;

in any case, the individuals in question owing the property rented to M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd. have been separate assessees providing taxable service to M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd. on their own and hence the Revenue could not have relied on the irrelevant facts like a common property purchase/sale deed document, and a common lease agreement when all these agreements/documents/deeds were also signed by all the five individuals separately;

the property was registered in name of each of the individuals and each of these five individuals have disclosed rent income in their IT Returns which were separately filed because each of the individuals is a separate assessee under the Income Tax Act also;

all these facts show that the persons involved in this case were separate individuals who were assessed as separate assessee under other taxation statues like Income Tax Act also;

in this view of the matter, the Revenue has no jurisdiction to hold that all the five individuals were to be treated as a “person” for the purpose of levy of service tax and also admissibility of exemption of Notification No.6/2005-ST because, in the view of above admitted facts and evidence, all the five individuals have been independent “persons” liable to pay service tax for the value of the service provided by them individually i.e. the rent received by each of them, by virtue of Section 68(1) of the said Act also;


the Revenue holds that all the five individuals were “lessors” to whom a monthly rent was agreed to be paid by the lessee, but this is also not relevant for deciding whether five persons in question were to be treated as ‘one person’ and exemption of the above Notification was admissible to each of the individuals separately or not, more so when all the five individuals have signed all the agreements including the lease agreements as “lessors” signifying thereby that all the five were separate persons owning the property rented out to M/s. Samtain Sales Pvt. Ltd., M/s. Samsonite South Asia Pvt. Ltd. and M/s. Bose Corporation India Pvt. Ltd.;

the Revenue has therefore committed a grave error in suggesting that joint owners of the property were to be treated as a single party and as a “person” under the Service Tax law and this proposition being contrary to the factual and legal position above referred, the proposal of the Revenue on such illegal and fallacious basis deserves to be set aside at once in the interest of justice.

there is a further grave error of jurisdiction committed by the Revenue in this case in holding the individuals in question as “person” under the category of “Association of Person” because the five individuals in question admittedly being assessed separately for their income including the rent income from the property in question as individual assessees under the Income Tax Act could never have been considered to be AOP for levy of service tax and for denying exemption of Notification No.6/2005-ST;

the reference to the provisions of the General Clauses Act, 1897 for the purpose of construing the term “person” and holding with reference thereto that two individuals in question fall under the category of AOP is also a grave error because these provisions of the General Clauses Act have no application of whatsoever nature in the facts of this case;

the word “person” defined under the General Clauses Act may include Association of Person also, but the individuals in question were not an Association of Person as legally understood only because all the five individuals purchased immovable properties and were therefore in the nature of co-owners of the properties;

there being no common income for these five individuals even in respect of the immovable property in question and the rent for the property admittedly having been paid separately and individually to these persons by the recipient of service in accordance with the area of property owned by each of them, these two persons were separate and individual entities not covered under the category of AOP; and therefore they could not have been considered to be a “person” for allowing exemption of the above Notification collectively thereby denying their individual identity.

the Revenue has extensively referred to the provisions of the General Clauses Act as well as to case law on the interpretation of the word “includes” in the show-cause notice for suggesting that the term “person” included an Association of Person also;

the Revenue has gravely erred in not appreciating that an AOP was separate category of “person” primarily for associating themselves in income producing activity for which they became an AOP’ whereas in the present case, there was no combined engagement in any activity by five individuals in question and there was


no common object to produce income inasmuch as the income was produced by each of them individually in accordance with the investment made by them;

Under the Income Tax Act, the phrase used in past was “Association of Individuals” but Section 2(31) of the IT Act has been amended for removing any doubt as to the assessability as a taxable unit of an association of which the members might not, strictly speaking, be called “individuals”;

The phrase “Association of Persons” is a very comprehensive import, because an AOP may have as its members, companies, firms, joint families and associations; and all such members enter into a joint venture for a common purpose or common action, and the object of the association also being to produce income, profits or gains, such association is also taxed as an individual for such income, profits or gains earned by it. The members of such association must combine to engage in an activity and common interest is not enough as well as production of income is also not enough; the crystalised judicial view on the concept of AOP shows that only when a common action with object to produce profit or gains brings two or more persons together voluntarily that AOP could be considered to have been formed;

It is also held by the Hon’ble Supreme Court in various cases that AOP was in many respects similar to a partnership and was approximate to a partnership because the control and management of business in hands of the receiver was a unified one, the receivers of profit joined in a common purpose and they acted jointly, the profits were earned on behalf of the persons who had a common interest and existence of a specific defined interest in the profits was also there and the liability to tax depended upon the earning of the profits by a unit and not upon the ultimate division of the profits; and these are the essentials of an AOP in view of the judgements;

When these essentials are considered vis-à-vis the facts of this case, it is clear that there is no common income or profit or gain in this case because rent being the only income is earned by five individuals separately and individually, there is no common control and management of any business also and the money is not received in a unified manner by the individuals in this case;

The rent earning is also not taxed under the IT Act considering these five individuals as a unit but, as aforesaid, all the five individuals are assessed separately even for their respective earnings of rent from the property in question;

The Revenue has therefore committed a grave error in suggesting that these five individuals fell under the category of AOP, and the case of the Revenue that they were to be treated as a “person” for the purpose of levy of service tax and also for exemption of Notification No.6/2005-ST is wholly illegal and erroneous.

In this view of the matter, there is a grave jurisdictional error in proposing that all the five individuals were a “person” and denial of exemption of Notification No.6/2005-ST to these individuals for their respective service of renting of immovable property and the value of this service provided by them individually is illegal and liable to be set aside.


there are a few glaring clerical and arithmetical errors that have crept in while demanding service tax in this case, which have also resulted in inflated demand of service tax.

In para 16 of the Show Cause Notice, details of service tax paid by the persons who are proposed to be considered as an AOP in this case are tabulated. Against the name of Shri Bharatbhai P. Mandalia is shown as Rs.3,46,668/- whereas the service tax paid by Shri Kishorebhai P. Mandalia is shown as Rs.3,47,551/-; but as a matter of fact, service tax paid by these individuals after they obtained Service Tax registration has been Rs. 417838/-and Rs. 417838/-, respectively; Thus, there is an error on part of the Revenue in considering the service tax actually paid by these two individuals resulting in inflated figure of demand for service tax.

They also attached the details as per “EXIBIT I” as under:

EXIBIT I

FINANCIAL YEAR

SHRI ZAVERILAL VIRJIBHAI MANDALIA

SHRI CHANDRESHBHAI ZAVERILAL MANDALIA

SHRI BHARATBHAI PRANJIVANDAS MANDALIA

SHRI KISHORBHAI PRANJIVANDAS MANDALIA

GRAND TOTAL OF SERVICE TAX PAID(RS.)

2007-08 (JUNE,07 TO MARCH,08) 0 0 5368 5368 107362008-09 0 0 128054 128054 2561082009-10 0 0 108228 108228 2164562010-11 0 0 113214 113214 2264282011-12(APRIL,11 TO SEPT,11) 0 0 62974 62974 125948TOTAL 0 0 417838 417838 835676

The details of rent received by each of the individuals involved in this case are given at Annexure-“A” to the Show Cause Notice, but the figure of rent received by Shri Vipulkumar Z. Mandalia during F.Y. is wrongly shown. The rent actually received by him during F.Y. 2011-12 (upto September, 2011) was Rs. 185249/-. They attached the details as per “EXIBIT II” as under:

EXIBIT II(Refer Your Annexure : A)

RENT INCOME

Name of the person by whom rent is received

2007-08 (From 01.06.07) 2008-09 2009-10 2010-11

2011-12 (Upto sept 2011) GT

Zaverilal Virjibhai Mandalia 708729 889415 889416 919140 518723 3925423Chandreshbhai Zaverilal Mandalia 708729 888915 889416 919140 518718 3924918Vipulkumar Zaverilal Mandalia 269405 322212 322212 336514 185249 1435592Bharatbhai Pranjivandas Mandalia 843435 1050516 1050516 1083195 611346 4639008Kishorbhai Pranjivandas 843435 1050516 1050516 1080449 611346 4636262


Mandalia

TOTAL Rent Received 3373733 4201574 4202076 4338438 2445382 18561203Minus: SSI threshold exemption 800000 0 0 0 0 800000

Taxable value: 2573733 4201574 4202076 4338438 2445382 17761203ST PAYABLE 308848 504189 420208 433844 244532 1911621E.S 6177 10084 8404 8678 4891 38234FES 3089 5042 4202 4339 2445 19117

TOTAL ST PAYABLE 318114

519315 432814 446861 251868 1968972

The details and calculations shown at Annexure-“B” to the Show Cause Notice would therefore undergo change when the above two errors are considered. We therefore enclose and mark as “EXIBIT III” a statement showing the correct figures and calculations, of course without prejudice to our rights and contention that there is no justification in the demand of service tax in this case.

EXIBIT III(Refer Your Annexure : B page 3)

YEAR 2011-12 (FROM APRIL-2011 TO SEPTEMBER-2011 FOR 6 MONTHS

Sr No.

Name of the person by whom rent is received

Total Rent received (In rupees)

Service tax payable (@10%)

Education cess payable (@2%)

S.H.E.C. payable (@1%)

1 Zaverilal Virjibhai Mandalia 518723

2Chandreshbhai Zaverilal Mandalia 518718

3Vipulkumar Zaverilal Mandalia 185249

4Bharatbhai Pranjivandas Mandalia 611346

5Kishorbhai Pranjivandas Mandalia 611346

TOTAL : 2445382 244538.2 4890.764 2445.382

GRAND TOTAL OF SERVICE TAX 251874.3

Total Service Tax liability of the said AOP for the period from : June-2007 to September-2011:

Period

Service tax payable (@10%)

Education cess payable (@2%)

S.H.E.C. payable (@1%)

Total Service tax payable

2007-08 (June-07 to March-08) (10 months) 308848 6177 3089 3181142008-09 504189 10084 5042 5193152009-10 420208 8404 4202 4328142010-11 433844 8678 4339 4468612011-12 (April-11 to September-11) (6 months) 244538 4891 2446 251875TOTAL 1911627 38234 19118 1968979

Total Rent received and taxable Value:

Period/ Year Total SSI Taxable


Rent received

threshold exemption value

2007-08 (June-07 to March-08) (10 months) 3373733 800000 25737332008-09 4201574 Nil 42015742009-10 4202076 Nil 42020762010-11 4338438 Nil 43384382011-12 (April-11 to September-11) (6 months) 2445382 Nil 2445382TOTAL 18561203 800000 17761203

Lastly, the total amount of Rs.8,35,676/- paid as service tax by individuals involved in this case is also not adjusted/deducted while raising the demand of service tax. The service tax totaling to Rs.8,35,676/- paid in individual capacity by the concerned individuals would have to be offset and adjust if any demand of service was held to be sustainable in this case.

Thus, the above errors may also be considered while deciding the Show Cause Notice and the liabilities, if any, for the persons concerned in the present case.

The demand raised against them is barred by limitation also, because there is no suppression of facts on their part, nor is there any evidence brought on record by the Revenue showing that they had any malafide intention and therefore, they resorted to any of the elements contemplated under the proviso to Section 11A(1) of the Act.

For invoking extended period of limitation, it is alleged in para 21 of the show cause notice that there was a breach of trust placed on them, and that they as an AOP have deliberately not discharged their service tax liability. However, the allegations of suppression of facts and willful mis-statement with intent to evade payment of tax made on this basis are wholly unsustainable in the facts of this case.

It is an admitted position of fact, that the entire transactions that have taken place in this case have duly been reflected in their books of accounts and balance-sheets. When the entire transactions were duly shown in the balance-sheets and books of accounts which were open to scrutiny by any person including the Revenue Officers, there was no failure or omission in disclosing this information to the Excise authorities by us. The entire basis of invoking extended period of limitation i.e. non-availability of the relevant information is thus, totally incorrect and hence, the proposal of invoking extended period of limitation on this basis deserves to be dropped at once.

The law about invocation of extended period of limitation is well settled. Only in a case where the assessee knew that certain information was required to be disclosed and yet the assessee deliberately did not disclose such information, the case would be that of suppression of facts. When the Excise Officers called or certain information and the assessee did not disclose the same or deliberately disclosed wrong information that would be a case of willful mis-statement. Even in cases where certain information was not disclosed as the assessee was under a bonafide impression that it was not duty bound to disclose such information, it would not be a case of suppression of facts as held by the Hon’ble Supreme Court in the landmark


cases of Padmini Products and Chemphar Drugs & Liniments reported in 1989 (43) ELT 195 (SC) and 1989 (40) ELT 276 (SC) respectively.

What is “suppression” is once again considered by the Hon’ble Supreme Court in the case of Continental Foundation Jt. Venture V/s CCE, Chandigarh reported in 2007 (216) ELT 177 (SC), and it is held by the Hon’ble Supreme Court with regard to the proviso to Section 11A of the Central Excise Act, 1944, which is akin to the proviso to Section 73 of the Act, that mere omission to give correct information was not suppression of facts unless it was deliberate and to stop the payment of duty. In the previous case like Messrs Jaiprakash Industries Ltd. reported in 2002 (146) ELT 481 (SC) also, the Hon’ble Supreme Court has held that a bonafide doubt as to non-dutiability of goods was sufficient for the assessee to challenge the demand on the point of limitation.

Thus, it is a totally settled legal position that extended period of limitation by invoking proviso to the main Section for demanding duty or tax beyond the normal period of limitation would be justified only when the assessee knew about the duty/tax liability and still however, he did not pay the tax and deliberately avoided such payment, and it was only such a situation where suppression of facts on part of the assessee could be justifiably alleged by the Revenue. However, mere failure in giving correct information would not be a case where the Revenue can invoke extended period of limitation.

In fact, the present one is a case where all the facts discussed in the show cause notice issued to them were within the knowledge of the Department right from day one. Under these circumstances, the show cause notice issued to them is barred by limitation and there is no justification in the action of invoking extended period of limitation against them in these facts of the case.

There being no contravention by way of suppression of facts with intent to evade payment of service tax on their part, the extended period of limitation is invoked without any jurisdiction and without any authority in law.

The matter of penalty is governed by the principles as laid down by the Hon’ble Supreme Court in the land mark case of Messrs Hindustan Steel Limited, reported in 1978 ELT (J159) wherein the Hon’ble Supreme Court has held that penalty should not be imposed merely because it was lawful to do so. The Apex Court has further held that only in cases where it was proved that the assessee was guilty of conduct contumacious or dishonest and the error committed by the assessee was not bonafide but was with a knowledge that the assessee was required to act otherwise, penalty might be imposed. It is held by the Hon’ble Supreme Court that in other cases where there were only irregularities or contravention flowing from a bonafide belief, even a token penalty would not be justified.

Further penalties under all the Sections i.e. 76, 77 and 78 of the said Act would be unjustified because separate penalties cannot be imposed for the same cause. In view of the fact that the Constitution of India also prohibits punishing a person more than once for the same offence, the penalties proposed to be imposed on us under different Sections for the same offence is also a punishment more than once for the


same alleged offence. The proposal for penalizing us many times for the same alleged offence is therefore illegal and liable to be withdrawn.

The proposal to charge interest under Section 75 of the Act is also without any authority in law inasmuch as the provision of section 75 is not attracted in the instant case. Section 75 provides for interest in addition to duty where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded with an intent to evade payment duty. In the instant case, there is no short levy or short payment or non-levy or non-payment of any excise duty. Therefore, the proposal to charge interest under Section 75 of the Act is also not maintainable in the present case.

In the above premises, they requested to withdraw the show cause notice as demand of service tax and further proposals for penalties and interest are unsustainable. They also requested for personal hearing before passing any final order on this show cause notice.

Personal Hearing:

21. The personal hearing in this case was fixed on 10.01.2013 and the all the noticees were informed about the same vide letter dated 24.12.2012. However, Shri Keyur R. Parekh, Chartered Accountant appeared on behalf of the noticees on 09.01.2013 with a letter dated 09.01.2013 requesting to pre-pone the personal hearing a day in advance, i. e. on 09.01.2013. The request was considered and the personal hearing was conducted on 09.01.2013. Shri Keyur R. Parekh, Chartered Accountant appeared on behalf of the noticees and referred to their earlier written submissions dated 20.07.2012 and submitted the CESTAT’s case order of Dinesh K. Patwa Vs. Commissioner of Service Tax, Ahmedabad in their favour, and Shri K. D. Chaudhary Vs. Commissioner of Service Tax, Ahmedabad which is also in their favour.

Discussions and findings- 22. I have carefully gone through the case records, defence replies filed by all the five noticees and submission made by the Authorized Representative of the noticees during personal hearing.

23. I find that the instant Show Cause Notice had been issued to five persons viz. S/Shri (1) Zaverilal Virjibhai Mandalia, (2) Chandreshbhai Zaverilal Mandalia, (3) Vipulkumar Zaverilal Mandalia, (4) Bharatbhai Pranjivandas Mandalia, and (5) Kishorbhai Pranjivandas Mandalia, all of them having a common address at Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad. As per the survey conducted by the officers of the Service Tax, it had come to their notice that the said persons had rented out a commercial property situated at (A) Ground Floor, Iskon Arcade, C. G. Road, Navrangpura, Ahmedabad and (B) 1/A, Ground Floor, Iskon Arcade, C. G. Road, Navrangpura, Ahmedabad to three firms viz. (1) M/s Samtain Sales Pvt. Ltd., Tainwala House, Road no.18, M.I.D.C., Marol, Andheri


(East), Mumbai-400 093, (2) M/s Samsonite South Asia Pvt. Ltd., 159-163, Mumbai-Nasik Highway, Village: Konde (Dumala), Tal: Igatpuri, Dist: Nasikas and (3) M/s Bose Corporation India Pvt. Ltd., 4th Floor, Shriram Bhartiya Kala Kendra, 1, Copernicus Marg, New Delhi-110 001 for carrying out their business from the said premises. The stand taken by the department in the Show Cause Notice is that the said five persons had provided the services of “Renting of Immovable Property” as an “Association of Persons” (AOP) and therefore, they were not entitled to avail the benefit of threshold limit individually for the purpose of payment of Service Tax.

24. I find that the Government had introduced levy of service tax on “Renting of immovable Property Service” vide Notification No. 24/2007 dated 22.05.2007 which came into effect from 01.06.2007 and tax is leviable under sub-clause (zzzz) of clause 105 of Section 65 of the Act. The scope of “renting of immovable property” under the service tax includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include-

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

24.1 The term “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings

24.2 The term "taxable service" means 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 or furtherance of business or commerce.

24.3 The term “immovable property” includes—

(i) building and part of a building, and the land appurtenant thereto;

(ii) land incidental to the use of such building or part of a building;

(iii) the common or shared areas and facilities relating thereto; and

(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate,

but does not include-

(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(c) land used for educational, sports, circus, entertainment and parking


purposes; and

(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

24.4 An immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce.

24.5 However, from the records of the case, I find that there is no dispute so far as taxability of the service of “Renting of Immovable property” is concerned. The noticees have not challenged anything in this regard. The main contention of all the noticees is that since the said commercial property is owned by them jointly and since all of them (except one notice) are registered with the Service Tax department separately, the services of renting would be treated as provided by individual service providers and also, the exemption benefit of threshold limit would be available to all of them separately.

25. Therefore, it will be pertinent to examine the claim of the noticees. First, I would like to have look at the copies of the Lease Deeds dated 14.10.2004, 17.01.2008 and 08.05.2008 between the AOP and ‘M/s. SAMT’, ‘M/s SAM’ and ‘M/s BOSE’ respectively. On going through the same, I observe that the five noticees had rented out the said premises to the above mentioned three Lessees, jointly and the said three Lessees were required to pay a monthly rent to all the 5 persons separately towards renting of the said premises in the identical shares to each person of the AOP i. e. 20%, 20%, 10%, 25% and 25% to (1) Shri Zaverilal Virjibhai Mandalia, (2) Shri Chandreshbhai Zaverilal Mandalia, (3) Shri Vipulkumar Zaverilal Mandalia, (4) Shri Bharatbhai Pranjivandas Mandalia, and (5) Shri Kishorbhai Pranjivandas Mandalia respectively. As per the said lease agreements, the AOP had given the rights to all the lessees to conduct the business of running showrooms for the sale of their products and commercial activities of sale & services for their products. I find that Shri Zaverilal Virjibhai Mandalia had signed the said Lease Deeds on behalf of all the five members in the capacity of Power of Attorney Holder of the AOP. I find here that the fact regarding an H.U.F. comprising of the above mentioned five members of the family was deliberately suppressed with an intention to avail the benefit of threshold exemption. I find that each noticee has claimed that he had received separate cheque for rent and each noticee had shown the same in their respective ITR and mere on this ground, they had availed the benefit of SSI exemption individually.

26. Therefore, I have to decide following issues in the present case:

(i) Whether the five noticees acted as an “Association of Persons” (AOP) for renting out the said premises;


(ii) Whether all the noticees were entitled to avail the benefit of threshold limit individually;

(iii) Was the amount of demand raised in the Show Cause Notice calculated correctly; and

(iv) Whether the noticees suppressed the facts from department, resulting in short/non payment of Service Tax; Has the proviso to Section 73(1) been invoked correctly;

(v) Whether penalties as proposed in the Show Cause Notice, are imposable upon the noticees.

I take up the issues one by one as under:

27. Whether the five noticees acted as an “Association of Persons” (AOP) for renting out the said premises;

27.1 I find that the stand taken by the department in the impugned Show Cause Notice is that the said five persons had provided the services of “Renting of Immovable Property” as an “Association of Persons” (AOP) and therefore, they were not entitled to avail the benefit of threshold limit individually for the purpose of payment of Service Tax. However, the noticees have denied to have formed or registered an AOP contending that the phrase “Association of Persons” (AOP) means an association of members, companies, firms, joint families and associations; and all such members enter into a joint venture for a common purpose or common action, with the object to produce income, profits or gains. They have also admitted the fact that such association is also taxed as an individual for such income, profits or gains earned by it. They have also admitted the important aspect that the crystalised judicial view on the concept of AOP shows that only when a common action with object to produce profit or gains brings two or more persons together voluntarily that AOP could be considered to have been formed.

27.2 The noticees have also contended that though there was one lease deed for each of the properties, the share of the owners of the area owned by them was separately defined and identified in the lease deeds also. They have argued further that similarly, while purchasing the properties also, the share and area of each of the owners have been defined and identified separately in the document of purchase and transfer of the properties. Moreover, the payment of rent was also separately made to each of the owners by the tenants by separate cheques, and the rent was also paid to each of the owners of the property in accordance with their ownership share and therefore, keeping in view these facts, it will have to be considered whether the theory of an AOP propounded by the department against them is sustainable in facts as well as in law.

27.3 In this regard, I first of all examine as to who is liable to pay Service Tax in terms of the Act. I find that in terms of Section 68 of the Act, every ‘person’ providing taxable service to any person has been made responsible to pay service


tax. However, the term ‘person’ has not been found defined in the context of Service Tax. It has been defined vide clause (42) of Section 3 of the General Clauses Act, 1897, as “person shall include any company or association or body of individuals, whether incorporated or not”. Therefore, the word "Person" appearing in the definition of taxable service shall include any company or association or body of individuals, whether incorporated or not. Thus this expression includes any individual, HUF, proprietary firm or partnership firm, company, trust, institution, society etc.

27.4 As regards the scope of ‘includes’, the Apex Court in the case of Doypack System (Pvt.) Ltd. V/s UOI reported at 1988(36) ELT 201 (SC), has held that it is well settled that the word ‘includes’ is an inclusive definition and expands the meaning. In this context, it would be of benefit to extract the Judgment of the Hon’ble Supreme Court of India in the case of Karnataka Power Transmission Corporation Ltd Vs Ashok Iron Works Pvt. Ltd., reported in 2009 AIR SCW 1502 at paras 12, 13 & 14 which reads as follows :

“12. Lord Watson in Dilworth v. Commissioner of Stamps (1899) AC 99 made the following classic statement :

“The word “include” is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; end when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things, which the interpretation clause-declares that they shall include. But the word “include” is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined, It may be equivalent to “mean and include”, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions.”

15. Dilworth (supra) and few other decisions came up for consideration in Peerless General Finance and Investment Co. Ltd. and this Court summarized the legal position that inclusive definition by the Legislature is used; (one) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the statute wishes to attribute to it; (two) to include meaning about which there might be some dispute; (three) to bring under one nomenclature all transactions possessing certain similar features but going under different names.

16. It goes without saying that interpretation of a word of expression must depend on the text and the context. The resort to the word ‘includes’ by the Legislature often shows the intention of the Legislature that it wanted to give extensive and enlarged meaning to such expression. Sometimes, however, the context may suggest that word “includes” may have been designed to mean “means” The setting, context and object of an enactment may provide sufficient guidance for interpretation of word “includes” for the purposes of such enactment.”


27.5 Further, as held in the case of Arunachal Forests Products Ltd. V/s UOI reported at 1993 (66) ELT 345 (Gau), inclusive definition may enlarge the scope or include something which may be disputed. Further, also in the case of Tata Consultancy Service V/s State of Andhra Pradesh reported at 2004(178) ELT 22(SC), the Apex Court held that ‘includes’ used in a clause will include all those which are sought to be included.

27.6 I find that one of the noticees viz. Vipulkumar Zaverilal Mandalia, in reply to a query raised by the Superintendent of Service Tax, range XV, Division-III, Ahmedabad, had submitted a reply vide his letter dated 05.05.2012 wherein, he had submitted a copy of a Sale Deed dated 21.02.2011 in respect of a property (a building namely Manav Mandir) at Surat. From the copy of the said Sale Deed dated 21.02.2011, I have observed that the commercial property was sold by them jointly in the capacity of Hindu undivided family (abbreviation: HUF). In the said Sale Deed, following members have been shown as part of the HUF:

(1) Shri Bharatbhai Pranjivandas Mandalia (HUF), having I. T. P. A. No. AAEHB 1016R;

(2) Shri Kishorbhai Pranjivandas Mandalia (HUF), having I. T. P. A. No. AAEHK 6315G;

(3) Shri Chandreshbhai Zaverilal Mandalia (HUF), having I. T. P. A. No. AACHM 9589A;

(4) Shri Vipulkumar Zaverilal Mandalia (HUF), having I. T. P. A. No. AEQPM 9092Q;

(5) Shri Zaverilal Virjibhai Mandalia, who had signed the said Sale Deed in the capacity of Power of Attorney Holder of the HUF.

27.7 It is further observed from the said Sale Deed that all the five noticees had formed a partnership firm viz. M/s. Tribhovan Associates to develop the said property. It is also established that the above mentioned five members of a family has been registered as an H. U. F. with the Income Tax department. I also find that all the above persons except Shri Vipulkumar Zaverilal Mandalia have obtained Service Tax registration on the basis of their individual P. A. Numbers which are different from those obtained as members of the above mentioned H.U.F.

27.8 Now, I examine the provisions and liabilities of Hindu undivided family (HUF).

What is a HUF?

HUF stands for Hindu Undivided Family. In India, there is a culture of Joint Families and there are many Incomes which arise to the Family as a whole and not to one specific Individual say for e.g. Rent. If Rent is received from a property which is jointly owned by all the Members of the Family, that Income will be taxed under the Income Tax Act, in the hands of the whole Family and not in the hands of one specific Individual.


Definition: Hindu undivided family (HUF) is a legal term related to the Hindu Marriage Act. Due to the development of Indian Legal System, of late, the female members are also given the right of share to the property in the HUF.

An HUF consists of:

Karta: Karta is generally the father of the family who has the right to do all the things for the family and takes all the decisions on the behalf of the family.

Co-Parceners: Coparcener is the person who has the right to demand the share of the property of family if he/she wants to part away with the family with his/her share.

Not all members of the HUF are its coparceners. The co-parcenery extends to four degrees down the family hierarchy in the following manner:

1st degree: Holder of ancestral property for the first time. 2nd degree: Sons and daughters 3rd degree: Grandsons. 4th degree: Great grandsons.

1. Karta is the senior most male member (most of the times) of the family

2. Only the Karta has the right to manage the property and business of the HUF.

3. Karta can enter into contract on behalf of the HUF and bind all the members to the extent of their share in the property/business

4. If the coparceners so desire, all the coparceners and Karta may authorise any one or more adult coparceners to manage the business. Such a person (s) is/are known as “Manager(s)”.

Powers of Manager

The powers of a Manager are more extensive than those of a Karta. The manager of a joint Hindu Family has all the powers required for the purposes of carrying on the family business. He can contract debts for the purpose of the business, and pledge the credit and property of the family for the purpose of its ordinary business, but not for any speculative transactions. His actions must not be tainted with immorality. He can bind the members of the family including minors by means of Negotiable Instruments, executed in the name of the family firm. He can also compromise a dispute but he cannot embark on a new venture.

Logic behind Forming an HUF to save Taxes

Basically the logic behind forming an HUF is to avail the benefit of an extra PAN Card legally. As the Income of the Family is not taxed in the hands of any specific Individual, a new PAN Card is allotted to the HUF and Tax would be paid by the Family using this PAN Card.

http://en.wikipedia.org/wiki/Hindu_Marriage_Act

http://en.wikipedia.org/wiki/Hindu_Marriage_Act


As a new PAN Card would be allotted to the whole family, it will also enjoy the benefits of Income Tax Slab Rates i.e. Income would be Tax Free up to the specified limits and would then be taxed progressively.

27.9 From the above, it is clear that the above mentioned five family members have formed an H.U.F. so as to avail the additional benefits under the Income Tax Act. However, the same members of the H.U.F. had failed to disclose about the formation of H.U.F. to the Service Tax department so that they can avail undue benefit in the capacity of individual service providers. In the facts and circumstances of the case, I find that though the noticees did not reveal the fact to the department that they all constitute an H. U. F., all the noticees acted as an association of individuals in relation to providing the subject service to the ‘Lessee’. The service has been provided by all of them jointly in the capacity of an H.U.F. which is nothing but an “Association Of Persons” (AOP). The service provided was a taxable service falling under the category of “Renting of Immovable Property”. The recipient of the service has received a single service. It is immaterial whether the recipient of the service has made payment by a single Cheque or multiple Cheques as per the directions of the said noticees i.e. the joint owners of the property.

27.10 I am convinced that the definition of “assessee” includes individual, proprietary firm, partnership firm (as per Rule 6 of the Service Tax Rules) body of individuals, association of persons whether or not incorporated the term person being conferred an inclusive and wider meaning by the General Clauses Act, 1897. Then, it is not conceivable why the Legislature would intend to exclude joint owners providing a particular class of taxable service falling within Section 65(105) (zzzz) of the said Act. In consonance with the definition of ‘person’ read together with the General Clauses Act, 1897, Sections 66 and 68 of the Act having regard to the object and purpose of the enactment, when the statute is not a statute aimed at conferring certain special treatment for protecting the interest of a class of persons, the joint owners are included in the wider, inclusive meaning of the word person. In the subject matter, the joint owners viz. (1) Shri Zaverilal Virjibhai Mandalia, (2) Shri Chandreshbhai Zaverilal Mandalia, (3) Shri Vipulkumar Zaverilal Mandalia, (4) Shri Bharatbhai Pranjivandas Mandalia, and (5) Shri Kishorbhai Pranjivandas Mandalia had purchased the immovable property vide a single legal document, rendered the service of renting the said property vide a single legal document and entered into transaction with the service recipient also as a single party. All of them have formed an H.U.F. for a common purpose of availing benefits under the Income Tax Act and are covered under the definition of the word “Person” under the category of Association of Persons.

28. From the facts of the case on hand, I find that the noticees have rented the said premises jointly by forming an association, for use in the course or furtherance of business or commerce. It can be the plea of the noticees that renting of immovable property service provided by each person was to be treated as indivisible service and rent receipt by individual person was to be treated as a

http://www.charteredclub.com/income-tax-slabs/


single service. On one hand it is considered that it is ‘indivisible service’ and on other hand it is said that rent receipt by individual should be treated as a ‘single service’. The nature of service provided, in this case, is renting of a premise for business purpose, to a recipient only. Thus an indivisible single service has been provided jointly by individuals cannot be considered to be divided into 5 services on the ground that such service has been provided jointly by 5 individuals. Hence, all the noticees were not entitled to avail the benefit of threshold limit individually for the purpose of payment of Service Tax. In the facts and circumstances of the case, joint owners of the property should be considered as ‘association of individuals/ persons’ which is included in the definition of ‘person’ in terms of the clause (42) of Section 3 of the General Clauses Act, 1897.

28.1 The service of “Renting of Immovable Property” is an indivisible service where the service is being provided by renting out the immovable property, which, in this case, is owned by more than one individual jointly and thus the service to the recipient has been provided jointly by all the noticees acting as the ‘association of persons’ irrespective of the fact whether or not gross amount of taxable service provided received from the recipient is by a single Cheque or by separate Cheques issued to all the joint owners in terms of the condition incorporated in the Lease Deed. In such a situation, by no stretch of imagination, it can be considered that since separate payments have been made by the recipient of service, such service provided to the recipient should be considered separate service provided by all the individuals i.e. the noticees.

28.2 I also find that the noticees have quoted cases of Dinesh K. Patwa Vs. Commissioner of Service Tax, Ahmedabad and Shri K. D. Chaudhary Vs. Commissioner of Service Tax, Ahmedabad claiming to be in their favour. On going through the said cases, I find that both the cases are still pending before the Hon’ble CESTAT, Ahmedabad and the final decisions are awaited. Therefore, the noticees do not have any order passed by Hon’ble Tribunal in their favour.

29. To examine whether the amount of demand raised in the Show Cause Notice was calculated correctly or otherwise, I take a look at the calculation sheet shown at Annexure A attached to the Show Cause Notice. I find that the officers of the Service Tax Division-III have meticulously worked out the figures of “Rent received”, “Taxable value” and “Service Tax payable” by each and every notice for the period from 2007-08 (from 01.06.2007) to 2011-12 (upto Sept., 2011) on the basis of their office record. While claiming that Shri Bharatbhai P. Mandalia and Shri Kishorebhai P. Mandalia had paid Service Tax of Rs. 4,17,838/- and Rs. 4,17,838/- respectively against the amounts shown as Rs.3,46,668/- and Rs.3,47,551/- respectively, I find that the noticees have not produced any documentary proof in support of their claim. Therefore, I have no other option to consider the amounts mentioned in the Annexure A attached to the Show Cause Notice.

Suppression of facts:


30. I find that the noticees had concealed the fact that they had formed an association by way of constituting an H.U.F. so as to avail gains under the Income Tax Act. At the same time, they misled the department by showing that they all are independent service providers. As a result of such act of suppressing the vital fact from the department, they unauthorisedly availed undue benefit of threshold exemption individually and thereby, short/not paid the service tax amount of Rs. 19,68,972/- under the category of “Renting of Immovable Property Services”. I find that the charge of suppression of material facts with intention to evade Service Tax has been conclusively established herein above. Had the officers of the Service Tax department not surveyed the said premises of the noticees, and subsequently, had the department not investigated the case, the said taxable value would have escaped assessment and might have resulted in non payment of Service Tax. They were aware of the facts regarding payment of Service Tax on the above services provided by them but had not paid/short paid or had not disclosed with regard to service provided by them and its payment towards the same to the department. Such information is statutorily prescribed to be furnished by the service provider of service in the form ST-3 returns from time to time. The suppression with an intent to evade payment, on part of the said noticees, is proved beyond doubt and proviso to Section 73(1) of the Act has rightly been applied in the instant case and therefore, by their such act of omission and commission, the said noticees have rendered themselves liable for penalty.

30.1 In view of the above, I find that extended period for demand of Service Tax under the proviso to Section 73(1) of the Act was rightly invoked and the Show Cause Notice is sustainable on limitation.

31. I also observe that in the Union Budget 2012-13, a new Section called Section 80(2) was proposed to be introduced. According to the said proposal, no penalty was imposable on service tax payables as on 6/03/2012 i.e. service tax payable on rents received/receivable till February, 2012, if the service tax along with interest was paid in full within a period of six months from the date on which Finance Bill receives the assent of the President. The President assent was received on 28.05.2012. Therefore, no penalty was leviable if the entire service tax amount alongwith interest had been paid on or before 28.11.2012. However, I have observed that till date, the AOP has not deposited service tax, hence, they have lost the opportunity to take benefit of the newly introduced Section 80(2) and have rendered themselves liable to penalty under several Sections of the Finance Act, 1994.

Penalties:32. Penalty under Section 76:

As regards the penalty proposed to be imposed under Section 76 of the Act, I observe that during the relevant period, the said noticees had defaulted in payment of service tax which has been established as not paid, in accordance

http://www.simpletaxindia.net/2012/03/renting-of-immovable-property-penalty.html




with the provisions of Section 68 of the Act read with Rule 6 of the Service Tax Rules, 1994, and thereby, they have rendered themselves liable to pay mandatory penalty under the provisions of Section 76 of the Act for default in payment of service tax on time till the final payment. It has come to my notice that till date the said service provider has not paid the service tax, hence imposition of mandatory penalty under Section 76 is once again justified.

32.1 Accordingly, I hold that the said noticees are liable to imposition of penalty under Section 76 of the Finance Act, 1944. My conclusion is also based on various decisions of Hon’ble High Courts & Tribunals as mentioned below;

CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.) UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.) UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.) Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd) CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–

Ahmd) Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)

32.2 I further observe that the Hon’ble CESTAT in a recent judgment in the case of M/s Gujarat Industrial Security Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated 05.08.2010, has held that no lenient view can be taken under section 76 of the Act. Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of penalty under Section 76.

32.3 The Hon’ble High Court of Gujarat has further confirmed the above view in the case of CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises reported at 2011 (21) STR 107 (Guj.).

33. Penalty under Section 77:

I further find that the noticees have failed to file their correct ST-3 returns for the period covered under the impugned show cause notice & hence they are liable for penalty under Section 77 of the Act for contravention of Section 70 (1) of the Act read with Rule 7 of the Service Tax Rules, 1994.

34. Penalty under Section 78:

I further observe that the Show Cause Notice also proposes imposition of penalty under Section 78 of the Act. I find that suppression of facts and wilful mis-statement on the part of the said assessee has been established beyond doubt as discussed and concluded in the earlier part of this order. Accordingly, I hold that the said assessee is also liable to penalty under the provisions of Section 78 of the Act. My above view gets support from below mentioned case laws;


Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680 (Tri.Ahmd.) CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri. Ahmd.) Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in the case of

M/s Bajrang Security Services Vs CST, Ahmedabad. Order No. A/1937/WZB/AHD/2010 dated 08.10.2010 / 20.12.2010 in the

case of M/s Dhaval Corporation Vs CST, Ahmedabad.

34.1 I further observe that the Hon’ble High Court of Punjab & Haryana, in the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to service tax imposed under Section 78 of the Act. The Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.).

35. Penalty under Section 76 & 78 justified.

I find that the period covered under the impunged Show Cause Notice is from 2007-08 to 2011-12. I also find that penalty under Section 76 ibid is provided for failure to pay service tax whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service Tax Rules, 1994, have not been found paid as well as service tax has not been paid / short paid by suppressing value of taxable service by reason of wilful mis-statement and suppression of facts. Of course, these two offences may arise in the course of same transaction, or from the same action of the person concerned. But the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act the penalty is imposable for ingredients of both offences, this aspect was also considered by the Hon’ble High Court of Kerala in the case of Assistant Commissioner, C. Ex. Vs Krishna Poduval – 2006 (1) STR 185 (Ker).

35.1 Therefore, I am of the view that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed under the provisions of Section 76 and 78 of the Act, separately, following the decisions of Hon’ble Kerala High Court and Mumbai tribunal (supra).

36. In light of the aforesaid discussions and findings, I hold that the Service Tax amount of Rs. Rs. 19,68,972/- under the category of “Renting of Immovable Property Services” is liable to be confirmed under Section 73(2) of the Act alongwith interest thereon, under Section 75 of the Act. They are also liable to penalty under the provisions of Section 76 and 78 of the Act.

37. In view of the foregoing discussion, I pass the following order: ORDER

i. I confirm the demand of Service Tax amounting to Rs. 19,68,972/- (Rupees nineteen lakh sixty eight thousand nine hundred seventy two only) not paid by the AOP comprising of (1) Shri Zaverilal Virjibhai


Mandalia, (2) Shri Chandreshbhai Zaverilal Mandalia, (3) Shri Vipulkumar Zaverilal Mandalia, (4) Shri Bharatbhai Pranjivandas Mandalia, and (5) Shri Kishorbhai Pranjivandas Mandalia during 2007-08 to 2011-12 and order to recover the same from them under Section 73(2) of the Act; I also order to appropriate the amounts of Rs.3,46,668/- paid by Shri Bharatbhai Pranjivandas Mandalia and Rs.3,47,551/- paid by Shri Kishorbhai Pranjivandas Mandalia against the demand of service tax confirmed;

ii I direct the AOP to pay the interest as applicable on the amount of their service tax liability of Rs. 19,68,972/- (Rupees nineteen lakh sixty eight thousand nine hundred seventy two only) under the provisions of Section 75 of the Finance Act 1994;

iii I impose a penalty upon the AOP at the rate of Rs.200/- (Rupees Two Hundreds only) per day or at the rate of 2% of the service tax amount per month, whichever is higher, under the provisions of Section 76 of the Act, as amended, for failure to pay Service Tax and Education Cess within the stipulated period as required under the provisions of Section 68(1) of the Act read with Rule 6 of the Service Tax Rules, 1944, as amended. The penalty under the Section 76 should be calculated upto 10.05.2008 in view of amendment under Finance Act, 2008. As the actual amount of penalty could be depending on actual date of payment of service tax, however, as per Section 76 of the Act, penalty will be restricted to the above confirmed amount of service tax liability.

iv. (a) I impose penalty of Rs. 10,000/- (Rupees ten thousand only) or @

Rs. 200/- per day till the dated of obtaining of registration whichever is higher, upon the AOP under Section 77(1)(a) of the Act, for failing to take registration in accordance with the said provisions or rules made there under;

(b) I impose penalty of Rs. 5,000/- (Rupees five thousand only) upon the AOP under Section 77(1)(b) of the Act for failure to keep, maintain books of accounts and other documents as required under the provisions of the Finance Act, 1994 or rules made thereunder;

(c) I impose penalty of Rs. 5,000/- (Rupees five thousand only) upon the AOP under Section 77(1)(e) of the Act for and failure to issue invoice in accordance with the provisions of the Act or rules made there under, with incorrect or incomplete details or fails to account for an invoice in his books of account;(d) I also direct to the AOP to pay late fee under Rule 7C of the Rules read with Section 70 of the Act, at the time of filing service tax return for late filing of the returns.


v. I impose penalty of Rs. 5,000/- (Rupees five thousand only) upon the AOP under Section 77 (2) of the Act, upon the AOP for the contravention the provisions of Section 70 of the Act for failure to self assess the tax due on the services provided by him;

vi. I also impose a penalty of Rs. 19,68,972/- (Rupees nineteen lakh sixty eight thousand nine hundred seventy two only) upon the AOP under Section 78 of the Act for suppressing the value of taxable services provided by them before the department with intent to evade payment of service tax. If the service tax amount is paid along with appropriate interest as applicable, within 30 days from the date of receipt of this order, then the amount of penalty under Section 78 shall be reduced to 25% of the service tax amount, provided if such penalty is also paid within such period of 30 days.

The Show Cause Notice bearing F. No. STC-11/O&A/SCN/Mandalia/JC/D-III/ 2012-13 dated 18.06.2012 is disposed off accordingly.

( Amarjeet Singh ) Additional Commissoner

Service Tax, Ahmedabad

F. No. STC-11/O&A/SCN/Mandalia/JC/D-III/2012-13 Date: 15.03.2013

By Regd. Post A.D.

1. Shri Zaverilal Virjibhai Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad.

2. Shri Chandreshbhai Zaverilal Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad.

3. Shri Vipulkumar Zaverilal Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad.

4. Shri Bharatbhai Pranjivandas Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad.

5. Shri Kishorbhai Pranjivandas Mandalia, Ground Floor, Swagat Building, C. G. Road, Navrnagpura, Ahmedabad.


Copy to:

1. The Commissioner of Service Tax, Ahmedabad. (Attn. RRA Section)2. The Deputy Commissioner, Service Tax Division: III, Ahmedabad.3. The Superintendent, Service Tax, Range: XV, Division: III, Ahmedabad. 4. Guard File.

Documents

sevakarahmedabad.nic.insevakarahmedabad.nic.in/doc/ADDL/56-2012-13.doc · Web viewBRIEF FACTS OF THE CASE: It was noticed that the following persons (herein after referred to as