IRCTC's Food Plaza Licensing Not Taxable as 'Renting of Immovable Property': CESTAT

IRCTC's Food Plaza Licensing Not Taxable as 'Renting of Immovable Property': CESTAT

Introduction

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that IRCTC's licensing for the operation of food plazas is not liable to service tax under 'renting of immovable property'.

Factual Background

IRCTC had leased out food plazas and fast food units to other catering/vending contractors and received license fees, but did not discharge service tax under the category of "Renting of Immovable Property".

Procedural Background

The Adjudicating Authority confirmed the allegations made in the show cause notice, holding that the amount collected by IRCTC is liable to service tax. IRCTC appealed against the order.

Contentions of the Parties

IRCTC: Contended that the agreement is for the licensing of the activity of operation and management of Food Plaza, not for renting of immovable property. The consideration for permission to operate and manage the Food Plaza cannot be considered as taxable under the category of "renting of a property".

Department: Alleged that IRCTC received an amount from private contractors in the form of User Charges and License Fee, which is liable to service tax.

Reasoning and Analysis

The Tribunal observed that the essential character of the agreement is the operation and management of Food Plazas, and the space provided is merely ancillary and incidental to the implementation of the primary activity. The transaction is purely on business terms on a revenue-sharing basis.

Decision

The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) held that the demand for service tax is not sustainable either on merits or on the grounds of limitation and allowed the appeal.

Implications

The decision clarifies that licensing agreements for operation and management of food plazas may not be subject to service tax under 'renting of immovable property' if the primary activity is not renting of property.

In this case the appellant was represented by Shri Bharat Bhushan and Shri Pratik Kumar, Advocates. Meanwhile the respondent was represented by Shri Nikhil Mohan Goyal and Shri Rakesh Kumar, Advocates.