By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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Pre-deposit waiver – Whether lease rental received from letting of property acquired from defaulting borrower under the provisions of SARFAESI Act is liable to service tax as renting of immovable property service or is regarded as recovery of outstanding loan? Held, since the appellent is the lessor, it is liable to Service Tax.
Facts:
The appellant is a co-operative bank rendering banking and financial services. It took possession of the Borrower’s factories’ plant and machinery in terms of section 13(4)(a) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, for the default in repayment of loan. Thereafter, the bank leased out the factory and received lease rent from lessee which it adjusted against the loan amount. As per the terms of the lease agreement, the lessee was required to maintain the plant and machinery in good condition at the lessee’s own cost and accordingly the lessee incurred certain expenditure. The department was of the view that the Appellant-bank is liable to discharge service tax liability not only on the amounts received towards rent for the lease of the factories but also on the expenditure incurred by the lessees towards maintenance and repair on the grounds that such activities are undertaken by the lessees on behalf and on account of the appellant.
The appellant contended that the action of letting of the factories cannot be construed as renting of immovable property per se but should be considered as recovery of outstanding loans. As regards, maintenance expenses incurred by the lessee, it submitted that, this cost has been incurred by the lessees and the service provider is the person who actually undertook the maintenance and repair services and not the bank, therefore the appellant is not rendering any service towards management, maintenance or repair.
Held:
The Tribunal observed that, in the lease rental agreements, the appellant is treated as a lessor and therefore, lease rentals received by bank are prima facie liable to service tax. As regards the maintenance and repair costs incurred by the lessee, the Tribunal expressed a prima facie view that the Appellant is not the service provider and there is no liability on the appellant in respect of those transactions. Considering the fact that, the appellant had already discharged entire liability of rental income under protest, the waiver from pre-deposit of balance taxes was granted by the Tribunal.
