[2014] CESTAT) CESTAT, NEW DELHI BENCH

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1 Service Tax : Contention that 'assessee was not service-provider but was service-recipient' is not 'a piece of evidence', it is a 'pleading, a ground of appeal' and goes to root of jurisdiction; hence, same can be raised for first time before Commissioner (Appeals) and he cannot reject it citing Rule 5 of Central Excise (Appeals) Rules, 2001 [2014] 52 taxmann.com 372 (New Delhi - CESTAT) CESTAT, NEW DELHI BENCH Astron Polymers (P.) Ltd. v. Commissioner of Central Excise,Delhi-IV JUSTICE G. RAGHURAM, PRESIDENT AND RAKESH KUMAR, TECHNICAL MEMBER FINAL ORDER NO. ST/A/50279/2014-CU(DB) APPLICATION NO. ST/STAY/56033/2013 APPEAL NO. ST/55764/2013 JANUARY 28, 2014 Section 85, of the Finance Act, 1994, read with rule 5, of the Central Excise (Appeals) Rules, 2001, Sections 35 and 35A, of the Central Excise Act, 1944 and Sections 128, and 128A, of the Customs Act, Appeals - Orders of - Commissioner (Appeals) - Assessee-company paid factory rent to its directors - Department demanded service tax from assessee treating it as landlord - Assessee failed to submit before adjudicating authority that it was not landlord but tenant, but, raised said argument before Commissioner (Appeals) - Commissioner (Appeals) opined that as per Rule 5, of Central Excise (Appeals) Rules, 2001, a new ground could not be raised for first time in appeal - HELD : Rule 5 has no application herein because a contention that 'assessee-company was not provider of service but was recipient of service' is not 'a piece of evidence', it is a 'pleading, a ground of appeal' and goes to root of jurisdiction - Such an additional ground is admissible and ought to be entertained and assessee must be called upon to substantiate this plea - Hence, rejection of this contention is fatal to appellate order and same was set aside on this ground alone [Paras 5 & 6] [In favour of assessee] Section 73, of the Finance Act, 1994, read with Sections 11A and 33A, of the Central Excise Act, 1944 and Section 28, of the Customs Act, Recovery - Of duty or tax not levied/paid or short-levied/paid or erroneously refunded - Adjudication of Demand - Assessee-company paid factory rent to its directors - Prior to issuance of notice, departmental letter addressed to assessee stated that one of its Directors was receiving rent - However, later department issued notice and confirmed demand of service tax from assessee treating it as service provider/landlord - Assessee failed to submit in adjudication that it was not landlord but tenant - HELD : Assessee was remiss in not pleading exact nature of transaction and in furnishing evidence that it was not service-provider/landlord but was only recipient - But, in present case and many such cases, adjudicating authorities are seen to be avoiding fundamental adjudicatory discipline, namely in requisitioning relevant transactional documents to identify nature of transaction - Such negligence was compounded in this case, as even departmental letter stated that one of Directors was receiving

2 rent - Hence, matter was remanded back for adjudication afresh [Paras 8 & 9] [In favour of assessee] FACTS Facts Vide audit and consequent show-cause notice dated , department demanded service tax for the periods to on Rs. 14,40,000/- paid by assessee-company towards factory rent to one of its director. Assessee denied liability to service tax citing that levy was unconstitutional. The assessee failed to submit that it was not service provider; but was merely recipient of services from one of its directors. The Department confirmed demand along with interest and penalty. Against the adjudication order, the assessee preferred an appeal specifically contending that rent was being charged by Directors of the assessee-company individually and not by the assessee. The Commissioner (Appeals), relying upon Rule 5 of Central Excise (Appeals) Rules, 2001, rejected assessee's contention on the ground that this was a new ground raised for the first time in the appeal and was not raised either in reply to the show-cause notice or during course of the adjudication proceedings. Issue Involved HELD Whether ground raised by assessee before Commissioner (Appeals) was admissible? Rule 5 of the Central Excise (Appeals) Rules, 2001 has no application to the facts and circumstances of the case. A contention that the assessee-company was not the provider but was the recipient of renting immovable property service is not a piece of evidence, it is a pleading, a ground of appeal. It was pleaded, and this plea goes to the root of the jurisdiction. Such an additional ground is admissible and ought to have been entertained and the assessee called upon to substantiate this plea. [Para 5] Receipt of a taxable service does not give rise to a liability to remit service tax. Inherence of the liability to tax is on the provider of the service; not the recipient. The assessee's plea that it was only the recipient of the taxable service is therefore a plea that goes to the jurisdictional of the proceedings. The rejection of this contention by the Commissioner (Appeals) is therefore fatal to the appellate order and invites invalidation on this singular ground. [Para 6] The rental agreements purport to create a landlord and tenant relationship between directors on the one hand (the landlords) and the assessee-company, on the other (the tenant). Under these agreements, the assessee is clearly a lessee of the immovable property and not provider of the said taxable service. Consequently, there would be no liability to service tax on the assessee. These rental agreements do not however present a coherent picture as to whether the tenant is the assessee or the other director of the assessee who is a party to each of the agreements. The

3 directors are referred to as the landlord and the tenant alternatively in the two agreements. Towards the end of the respective agreements, the tenant signatory is however described as having subscribed the signature for or on behalf of the assessee Astron Polymers Pvt. Ltd. Be that as it may, in any event, the copies of these agreements do not reveal the assessee-company as the landlord and to have executed the tenancy agreement in favour of others. Therefore, if at all, the assessee is the recipient but not the provider of the taxable service. [Para 7] While the assessee company was remiss in not pleading the exact nature of the transaction and in furnishing evidence that it was neither the landlord nor the provider of the taxable service but was only the recipient, the fact remains that, in the present case, as in many such cases, adjudicating authorities are seen to be avoiding the fundamental adjudicatory discipline, namely in requisitioning the relevant transactional documents to identify the nature of the transaction. Such negligence is compounded, in the facts and circumstances of the case, by the fact that as per the letter dated (preceding the show-cause notice) addressed by the Assistant Commissioner, Service Tax to the assessee-company, it is clearly stated that one of the Directors was receiving rent. [Para 8] On the aforesaid analysis, demand was set aside. The matter was remanded to the primary authority for de novo consideration. The appellant shall submit a fresh response to the show-cause notice dated along with originals of the transactional documents, namely, copies of the agreements and extended agreements in relation to the property in question. The adjudicating authority shall thereafter pass a fresh adjudication order, after affording the assessee, an opportunity of personal hearing. [Para 9] CASES REFERRED TO Home Solution Retail India Ltd. v. Union of India [2009] 20 STT 129 (Delhi) (para 4). R.P. Jindal, Advocate for the Appellant. Ms. Ranjan Jha, AR (Jt. CDR) for the Respondent. ORDER Justice G. Raghuram, President - The appeal is preferred against the order of the Commissioner (Appeals), Delhi IV, dated The assessee is the appellant. The Appellate Commissioner partly allowed the appeal and deleted the penalty imposed under Sections 76, 77 and 78 while upholding demand of service tax and interest, confirmed by the primary authority.. 3. A show-cause notice was issued on alleging that audit of the assessee from to for the period to revealed that the assessee-company had received Rs.14,40,000/- on renting of immovable property for commercial purpose and was liable to remit service tax along with the appropriate interest thereon. Liability to penalty was also indicated in the show-cause notice. 4. The Assistant Commissioner, Service Tax, Faridabad IV passed the adjudication order dated confirming a service tax demand of Rs.1,77,984/- apart from interest under section 75 and

4 penalties under sections 76, 77 and 78 of the Finance Act, It requires to be noticed that in response to the show-cause notice the assessee merely denied the liability to tax on the ground that levy of service tax on renting of immovable property is constitutionally impermissible in view of the 2009 judgment of the Division Bench of the Delhi High Court in Home Solution Retail India Ltd. v. Union of India [2009] 20 STT 129 In response to the show-cause notice, the petitioner failed to assert that it was not the provider but was only the recipient of renting of immovable property service nor that the joint property of its Directors was leased in favour of the assessee; or that it was remitting rents to the landlords and had not sent the show-cause notice dated , by a letter dated the Assistant Commissioner of Service Tax, Faridabad IV addressed the assessee intimating that audit verification of the assessee's balance sheet revealed that it had incurred factory rent of Rs.14,40,000/- and enquiry revealed that one of the Directors of the assessee was receiving rent and therefore service tax was leviable under Section 68 of the Finance Act, 1994 along with interest. This perception of the Revenue should have put it on notice that the assessee was perhaps not the provider but the leasee immovable property. However the adjudication order proceeded to react to submissions of the assessee (in response to the show-cause notice) without a primary analysis of the transactional documents or of the balance sheet to identify whether the assessee had disclosed the amount of Rs.14,40,000/- as expenditure or receipt; this would have revealed whether the assessee was a recipient or the provider, of the taxable service' of renting of immovable property. 5. Against the adjudication order, the assessee preferred an appeal specifically contending that rent was being charged by Directors of the appellant company Shri N.D. Ahuja and Shri Yogesh Ahuja individually and not by the appellant. This contention was not rejected by the Appellate authority on the ground that this was a new ground raised for the first time in the appeal and was not raised either in reply to the show-cause notice or during course of the adjudication proceedings. The Appellate authority merely referred to Rule 5 of Central Excise (Appeals) Rules, 2001 which disentitles an appellant to produce before Appellate authority evidence not produced before the adjudicating authority, unless the adjudicating authority had refused to admit any defence evidence which was admissible or the appellant was prevented by sufficient causes from producing such evidence before the adjudicating authority or for like circumstances. This rule has no application to the facts and circumstances of the case. A contention that the assessee-commpany was not the provider but was the recipient of renting immovable property service is not a piece of evidence, it is a pleading, a ground of appeal. It was pleaded, and this plea goes to the root to the jurisdiction. Such an additional ground is admissible and ought to have been entertained and the assessee called upon to substantiate this plea. 6. Receipt of a taxable service, in the factual setting of this case, does not give rise to a liability to remit service tax. Inherence of the liability to tax is on the provider of the service; not the recipient. The appellant's plea that it was only the recipient of the taxable service, is therefore a plea that goes to the jurisdictional of the proceedings. The rejection of this contention by the Appellate authority is therefore fatal to the Appellate order which therefore invites invalidation on this singular ground. 7. Copies of two rental agreements purporting to be 'extended agreements' dated and are filed with Miscellaneous Application No.57247/201. These agreements purport to create a landlord and tenant relationship between N.D. Ahuja and Yogesh Ahuja on the one hand (the landlords) and the assessee company Astron Polymers Pvt. Ltd., on the other (the tenant). Under these agreements, the appellant Astron Polymers Pvt. Ltd. is clearly a lease of the immovable property and not provider of the said taxable service. Consequently, there would be no liability to service tax on the appellant. These rental agreements do not however present a coherent picture as to whether the tenant is the appellant or the other director of the appellant who is a party to each of the agreements. N.D. Ahuja

5 and Yogesh Ahuja are referred to as the landlord and the tenant alternatively in the two agreements. Towards the end of the respective agreements, the tenant signatory is however described as having subscribed the signature for or on behalf of the assessee Astron Polymers Pvt. Ltd. Be that as it may. In any event, the copies of these agreements do not reveal the appellant company be the landlord and to have executed the tenancy agreement in favour of others. Therefore, if at all, the appellant is the recipient but not the provider of the taxable service. 8. While the appellant company was remiss in not pleading the exact nature of the transaction and in furnishing evidence that it was neither the landlord nor the provider of the taxable service but was only the recipient, the fact remains that in the present case as in many such cases, adjudicating authorities are seen to be avoiding the fundamental adjudicatory discipline, namely in requisitioning the relevant transactional documents to identify the nature of the transaction. Such negligence is compounded, in the facts and circumstances of the case, by the fact that as per the letter dated (preceding the show-cause notice) addressed by the Assistant Commissioner, Service Tax, Faridabad to the assessee-company, it is clearly stated that one of the Directors was receiving rent. 9. On the aforesaid analysis, we are unable to sustain either the adjudication order dated or the Appellate Authority order dated 19/11/2012 which has confirmed the liability to service tax and interest while deleting the penalty imposed by the primary authority. Both the orders are accordingly set aside. The matter is remanded to the primary authority for de novo consideration. The appellant shall submit a fresh response to the show-cause notice dated along with originals of the transactional documents namely, copies of the agreements and extended agreements in relation to the property in question, within two weeks from the date of receipt of this order. The adjudicating authority shall thereafter pass a fresh adjudication order, after affording the appellant opportunity of personal hearing. The appeal is allowed as above with no order as to costs. VINEET In favour of assessee.