The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has clarified that no demand of service tax can be made if the transaction involved is purely on business terms on a revenue-sharing basis. Thus, the CESTAT ruled that when the agreement for operation and management of Food Plazas and the space provided by the IRCTC at the railway stations does not provide any free land to the licensee for selling items like a normal restaurant, no service tax liability can be attached to IRCTC.
The ruling came after finding that neither the title of the agreement regarding licensing for the operation of food plazas at the railway station, nor its content, reflects that the main intention of the parties was to rent out the property.
The Division Bench comprising Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the dominant factor for determining whether activity falls within the ambit of renting of immovable property is the concept of “fixed rent”, and in the absence of any consideration, no service can be said to have been provided.
The Bench went on to observe that 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 explained that neither the appellant is providing any service nor the third-party/licensee is in receipt of any service, and as per the agreement, it is evident that the relationship is on a principal-to-principal basis. Secondly, there is no concept of fixed rent, which has been held to be a dominant factor in determining that the activity amounts to renting of Immovable property. Accordingly, the Bench set aside the service tax demand and answered in favour of IRCTC.
The Bench noted that pursuant to the introduction of the Catering Policy, Indian Railways entrusted the catering activities to IRCTC; however, to enable the implementation of this Policy, some space has to be provided within the vicinity of the railway station, which by no stretch of imagination can be termed as rendering services of renting. The sole purpose was to provide public utility facilities to the passengers.
As per the MoU, the Indian Railways has not transferred the land in any manner in favour of IRCTC except the right to implement the Catering Policy by way of creating third-party rights for setting up public utility facilities at the railway station/platforms, added the Bench.
The Bench also noted that the agreement was purely related to the transaction of business, whereby the appellant was actually performing the activity of operation of catering and was not providing any service of renting of immovable property. Reference was made to the decisions of Commissioner versus Basti Sugar Mills Ltd. [2012 (25) STR J-154 (SC)], and Indian Hotels Company Limited versus Commissioner of Service Tax, Mumbai [2016 (41) STR 913 (Tri.-Mumbai)].
Briefly, in this case, the appellant/ Indian Railway Catering and Tourism Corporation Limited (IRCTC), working under the aegis of the Ministry of Railways, is authorized to award licenses for various catering stalls, Food Plazas, and buildings belonging to Indian Railways. Based on an intelligence, an investigation was initiated against the appellant for leasing out the Food Plaza, Fast Food units to other catering/vending contractors, for which they have received the license fees, on which they have not discharged the service tax under the category of “Renting of Immovable Property”.
Opining that the amount collected by IRCTC in respect of renting/leasing/licensing of the property for the period June 01, 2007, to March 31, 2012, was to be treated as taxable value under Section 67 of the Finance Act, 1994, the Department worked out the service tax liability as Rs. 2.83 crores. Further, interest and penalties under Sections 77 and 78 of the Finance Act were also imposed by the Adjudicating Authority.
Appearances:
Advocates Sanjeev Sachdeva, Nikhil Kapoor, Anagha, and S.C. Kamra, for the Appellant
Advocate V.K. Jain, for the Respondent/ Revenue
