No Service Tax On Reimbursement Of Expenses From Customers On Account Of Water, Electricity And Diesel Expenses Incurred: CESTAT

The two-member bench of P.K. Chaudhary (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that cenvat credit can be availed on work contract services and other services for the construction of immovable property. The Cenvat credit can be availed for event management services for the promotion of business.

The appellant/assessee is in the business of developing IT parks and other industrial and commercial places, which are subsequently given on rent to a wide spectrum of industries.

The Service Tax Audit was conducted by the audit team led by the Superintendent, Service Tax, Group-VII, Hyderabad-IV Commissionerate, covering the transactions of the Appellant.

The demand and the confirmation of the service tax liability are confined to the five issues. Firstly, security deposits received by the appellant from their tenants are held to be liable under "Renting of Immovable Property Services". Secondly, service tax has been demanded on the amount received towards the reimbursement of expenditure in respect of water, electricity and diesel charges under the category of "Management, Maintenance, or Repair Services". Thirdly, the denial of cenvat credit on the input services used for the construction of immovable property. Fourthly, denial of Cenvat credit on the input services used for promoting their premises for better lease opportunities. Lastly, service tax has been demanded on the termination charges collected from the tenants for premature termination of the lease deed.

The appellant submitted that the security deposits are collected by them, which are refundable deposits and are returned to the respective tenants at the time of termination of the lease. No service is rendered in relation to the receipt of the security deposit. No taxable service is being rendered with relation to the refundable security deposit collected. There can be no question of construing the security deposits from the tenants as being includible in the gross value of the services provided by the appellant under the taxable service category of "Renting of Immovable Property Services".

The appellant submitted that the reimbursable expenditure received towards diesel charges by the appellant from their tenants is on account of actual charges incurred by the appellant (landlord) and cross charged to the tenants on actuals based on the floor ratio. The cost of diesel, which is a good used in the DG Set, cannot be qualified as a service to be included for the purpose of 'Management, Maintenance or Repair Services'.

The applicant submitted that the appellant is merely collecting the charges on actuals as a landlord from the tenants and making payments to service providers. It is clear that the amounts cannot form part of the value of the service.

The CESTAT held that the expenses are mere reimbursement based on the total cost incurred by the appellant and the total floor area of the customers is not in dispute. There is no profit element involved in the reimbursements.

The tribunal allowed the Cenvat credit of input services as availed by the appellant for the construction of immovable property, which was further let out to various customers.

"As regards the eligibility of Cenvat credit on event management services, we find that Rule 2(l) of the Cenvat Credit Rules, 2004 doesn't exclude any such service from the eligibility of availment of Cenvat credit as these expenses have

Case Title: M/s. VITP Private Limited Versus Commissioner of Central Tax, Hyderabad-IV

Citation: Service Tax Appeal No.27964 of 2013

Dated: 08.07.2022

Counsel For Appellant: Advocate S.Tirumalai

Counsel For Respondent: Authorised Representatives A. Rangadham & C. Mallikarjun Reddy

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