The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that IRCTC’s (Indian Railway Catering & Tourism Corporation Ltd.) licensing for the operation of food plazas is not liable to service tax under ‘renting of immovable property’.
The Tribunal observed that the agreement was purely related to the transaction of business whereby the assessee was actually performing the activity of operation of catering and was not providing any service of renting of immovable property. The terms of the agreement make it abundantly clear as to what is the true and actual purpose of the agreement and the relationship between the parties.
Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) were addressing the issue of whether the activity performed by IRCTC to award lisensees for setting-up and operation of Food Plaza and other stalls by the licensees amounts to “Renting of Immovable Property” as defined under section 65(90a) read with the definition of taxable service as per section 65(105)(zzzz) of the Finance Act.
In this case, the appellant/assessee has leased out the Food Plaza, Fast Food units to other catering/vending contractors and for which they have received the license fees but they have not discharged the service tax under the category of “Renting of Immovable Property”, which is taxable.
The allegation in the show cause notice was that under the MOU and the Policy, the properties belonging to Indian Railways were handed over to IRCTC for further licensing these properties to a private contractor, for which IRCTC received an amount from the private contractor in the form of User Charges and License Fee.
Therefore, the amount collected by IRCTC in respect of renting/leasing/licensing of the property for the period 1.06.2007 to 31.03.2012 is to be treated as taxable value under Section 67 of the Finance Act, and liable to service tax.
The Adjudicating Authority vide impugned order confirmed the allegations made in the show cause notice.
The assessee submitted that the agreement is basically for the licensing of the activity of operation and management of Food Plaza at various Railway stations and not for the renting of immovable property.
It was further argued that the consideration for the permission to operate and manage the Food Plaza cannot be considered as taxable under the category of “renting of a property” under Section 65 (105)(zzzz) as it is not in the nature of rent earned for the immovable property, which is normally fixed amount whereas the license fee charged by the appellant from the licensee operating the food Plaza was a percentage of the sales turnover of the licenses, which means the amount could vary.
The Tribunal opined that in the absence of any consideration, no service can be said to have been provided. Merely because the parties arrive at an understanding by way of an agreement to share the expenditure for availing certain facilities or for performing any activity does not amount to rendering “services” and in the course of it, just because some amount is being charged by one party to another, it cannot be treated as “consideration”.
The bench, after reading the documents, noted that the essential character of the agreement is discerned, which is the operation and management of Food Plazas, and the space provided at the railway stations was merely ancillary and incidental to the implementation of the primary activity. The object is not to give any free land to the licensee for selling the items like a normal restaurant, as neither the title of the agreement nor its contents reflects that the main intention of the parties was to rent out the property/land/building.
The transaction is purely on business terms on revenue revenue-sharing basis, the demand for service tax is not sustainable either on merits or on the grounds of limitation, added the Tribunal.
In view of the above, the Tribunal allowed the appeal.
Case Title: M/s. Indian Railway Catering & Tourism Corporation Ltd., v. Commissioner of Service Tax, Delhi-I
Case Number: Service Tax Appeal No.52667 of 2015
Counsel for Appellant/ Assessee: Shri Sanjeev Sachdeva, Shri Nikhil Kapoor, Ms. Anagha, and Shri S.C. Kamra, Advocate
Counsel for Respondent/ Department: Shri V.K. Jain