Settlement Amount Paid Towards Outstanding Rent Not Taxable as ‘Declared Service’: CESTAT Set asides...
CESTAT ruled that a settlement for outstanding rent isn't a 'Declared Service,' overturning a service tax demand under reverse charge mechanism.Summary
The Ahmedabad Bench of CESTAT ruled in favor of Charotar Gas Sahkari Mandli Ltd, finding that a settlement paid to Vallabh Vidhyanagar Nagarpalika for outstanding rent was not taxable as a “Declared Service.” The dispute arose from rent owed for laying underground pipelines, totaling approximately ₹98.89 lakhs, which was settled for ₹60 lakhs. The Revenue Department argued that writing off the remaining ₹39 lakhs constituted an agreement to refrain from an act, triggering service tax under Section 66E(e) on a reverse charge basis. However, CESTAT determined that the payment was for the use of land (rent) and not for tolerating an act, especially since service tax had already been paid on the ₹60 lakh settlement amount under the “Renting of Immovable Property Service” category. The tribunal emphasized that the elements required for Section 66E(e) – an agreement to refrain from or tolerate an act for consideration – were absent. Furthermore, as there was no intent to evade tax, penalties were deemed unsustainable. Consequently, the demand for service tax on a reverse charge basis was set aside.
(Source：Taxscan)