Service Tax Under RCM Not Payable By Company If Personal Property Rented Out By The Directors To The Company: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax under the Reverse Charge Mechanism (RCM) is not payable by the company if personal property is rented out by the directors to the company.

The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) has noted that the Commissioner (Appeals) assumed that the directors were providing the service of renting immovable property as directors of the appellant, whereas they were providing the service in their individual capacity as owners of the premises and not as directors of the appellant.

The appellant/assessee is engaged in the manufacture of instrumentation and power cables. The appellant paid an amount towards rent to Naveen Sawhney and D.K. Prashar for the premises let out by them to the appellant.

The premises were used by the appellant for its registered office and corporate office. Naveen Sawhney and D.K. Prashar also happen to be the directors of the appellant. In the invoices raised by the landlords to the appellant in respect of the properties let out, service tax aggregating to Rs. 27,14,665 was also charged and deposited as and when it fell due.

However, a show cause notice was issued alleging that the appellant had paid the rent to the landlord/owner of the premises, who happened to be, at the relevant time, the director of the appellant. Therefore, service tax was payable by the appellant on a reverse charges basis in accordance with the notification dated June 20, 2012, as amended by the notification dated August 7, 2012.

The appellant submitted that the taxable service of renting immovable property has been provided by Naveen Sawhney and D.K. Prashar as owners/landlords of the premises and not in the capacity of directors of the appellant. Therefore, the Commissioner (Appeals) committed an error in holding that the appellant was required to pay service tax under the reverse charge mechanism on the rent paid for the property taken on lease.

The appellant submitted that the appellant was required to pay service tax on a reverse charge basis since rent was being collected by the directors of the appellant.

The tribunal held that the appellant company could not have been asked to pay service tax on a reverse charge mechanism. The service tax had been deposited on the rent received by Naveen Sawhney and D.K. Prashar from the appellant.

Case Title: M/s Cords Cable Industries Limited Versus Commissioner, Central Excise

Case No.: Service Tax Appeal No. 52207 of 2018

Date: 12.04.2023

Counsel For Appellant: Anupam Goel

Counsel For Respondent: Rajeev Kapoor, P.K. Sinha

Click Here To Read The Order