Retrospective Service Tax on Renting of Immovable Property: CESTAT Chennai Disallows Extended Limitation in Super Electricals Case

1. Background and Context

The Chennai Bench of the CESTAT, in Super Electricals Vs Commissioner of GST & Central Excise, has examined whether the Department can invoke the extended period of limitation to demand service tax on “renting of immovable property” when the very taxability of the service was unsettled and later validated through a retrospective amendment.

The appeal arose from Order-in-Appeal No. 372/2015 (CXA-II) dated 28.10.2015, which had affirmed an earlier Order-in-Original dated 01.12.2014 confirming service tax, interest and penalty under the Finance Act, 1994.

Key factual matrix

  • The appellant, M/s Super Electricals, is engaged in manufacture of Electrical Steel Transformer laminations.
  • They obtained registration as a provider of “renting of immovable property” service with effect from 28.05.2009.
  • For FY 2008-09, they leased their premises to M/s Anmod Stamping Pvt. Ltd., receiving rent aggregating to Rs.1,02,00,000/-.
  • The Department viewed this rental activity as a taxable “renting of immovable property” service and initiated proceedings to recover service tax.
  • A show cause notice bearing No. 96/2013 dated 04.10.2013 was issued, invoking the extended period of limitation and demanding service tax of Rs.12,43,210/- for April 2008–March 2009, along with interest and penalties.

The central controversy before the Tribunal was not on merits of taxability after retrospective amendment, but on whether the extended limitation period could validly be invoked for a period when the legal position was debatable and under challenge.

2. Procedural History

2.1 Departmental action

  1. During scrutiny of the appellant’s accounts, the Department noticed rental income of Rs.1,02,00,000/- from leasing the premises in FY 2008-09.
  2. The jurisdictional range officer issued advisory letters dated 21.11.2011 and 16.12.2011, asking the appellant to pay service tax on such rent.
  3. As there was no compliance, Show Cause Notice dated 04.10.2013 was issued, demanding:
    • Service tax of Rs.12,43,210/- on renting of immovable property for April 2008–March 2009;
    • Interest at applicable rates;
    • Penalty under Section 77 and Section 78 of the Finance Act, 1994.
  4. The adjudicating authority, vide Order-in-Original dated 01.12.2014, confirmed the entire demand, interest and imposed penalties.

2.2 First appellate stage

The assessee carried the matter to the Commissioner (Appeals). The appellate authority:

  • Upheld the demand of service tax and interest;
  • Sustained penalty under Section 78;
  • Set aside penalty under Section 77.

Aggrieved, the assessee preferred Service Tax Appeal No. 40125 of 2016 before the CESTAT, Chennai.

3. Assessee’s Contentions before CESTAT

3.1 Limitation as the sole issue

The assessee confined its challenge primarily to limitation. The thrust of their argument was that the show cause notice dated 04.10.2013 sought to cover a period in 2008-09, and that, in the absence of any elements such as suppression or mis-statement, the extended period under the proviso to Section 73(1) could not be invoked.

The assessee pointed to the legal landscape at the relevant time:

  • The Delhi High Court in Home Solution Retail India Ltd., 2009 (14) STR 433 (Del) (order dated 18.04.2009) had held that Section 65(105)(zzzz) did not make mere renting of immovable property for business or commerce a taxable service.
  • This created a clear judicial view that “renting per se” was not exigible to service tax.

According to the assessee, this judicial pronouncement rendered the levy itself doubtful and unsettled during the period in dispute.

3.3 Effect of retrospective amendment and TRU clarification

The assessee highlighted that:

  • The position was later altered by the Finance Act, 2010, which retrospectively amended the charging provisions relating to renting of immovable property with effect from 01.06.2007.
  • The TRU clarification DOF No.334/1/2010-TRU dated 26.02.2010, at para 9.2, expressly recorded that:
    • The retrospective amendment was intended “to clarify the legislative intent”; and
    • To “bring in certainty in tax liability” on renting of immovable property.

This, according to the assessee, was an implicit acknowledgment that uncertainty and confusion existed regarding the levy prior to the amendment.

3.4 Extended period not available where law is debatable

On the strength of this background, counsel for the assessee argued: