2026-VIL-1707-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Taxability of amount claimed on premature cancellation of lease agreement - Appellant, owner of a hotel, leased it to a lessee for eleven years on monthly rent with a condition that either party cancelling the agreement could recover the rent for the entire period. The lessee vacated the premises well before the term. The Appellant served a legal notice claiming the rent for the remaining period. The matter was finally settled by a compromise agreement under which no compensation, claim or damages were payable by either party. The Revenue demanded service tax on the claimed amount and contended that agreeing to tolerate an act or situation is a declared service under Section 66E(e) of the Finance Act, 1994 - Whether service tax is leviable on the amount claimed on premature cancellation - HELD - The amount was never received, and a compromise agreement was reached under which neither party was to pay any damages to the other. An amount received for default of a contract is in the nature of compensation for breach of contract and is not in the nature of rent. The nature of the payment cannot be rent because the premises would have already been vacated when the agreement was breached. The amount is, in essence, compensation for reneging on the contract. At any rate, when the amount has not been paid, service tax cannot be demanded on such amount - The demand on the legal claim is set aside - Service Tax - Taxability of rent accrued from lessee who vacated premises - Threshold exemption - The Appellant had paid service tax on rent actually received for part of the period after claiming the threshold exemption available to small service providers. For the month in which the lessee vacated, no rent was paid. The Revenue contended that non-recovery of consideration does not negate taxability once the rent has accrued - Whether service tax is payable on rent not received and whether the threshold exemption is to be reckoned - HELD - There is no evidence that rent was paid for the month in which the premises were vacated. Service tax cannot be charged on rent not paid. If the Appellant is entitled to the exemption available to small service providers, it cannot be denied. The service tax payable, after considering the rent actually received and the exemption available, needs to be re-computed, subject to verification - The demand for the month in which no rent was received is set aside, the threshold exemption is to be reckoned and any service tax already deposited is to be appropriated towards the confirmed demand - Service Tax - Undervaluation of rent under rival agreements with second lessee - The Revenue relied on an agreement providing a higher monthly rent and the statement of the lessee's director confirming it. The Appellant relied on a subsequent agreement showing a much lower rent and contended that the higher rent agreement was not enforceable - Whether service tax is payable on the higher rent - HELD - Both agreements are on stamp papers and bear the signatures of the parties. The lessee confirmed in his statement that the higher rent was correct. The rent was substantially higher when the hotel was let to the first lessee. After the premises were vacated, the rent could have been reduced to attract another tenant. A rent nowhere comparable to the previous rent is not realistic, while the higher rent appears more realistic - The demand on the higher rent paid by the second lessee is upheld - Service Tax - Extended period of limitation - Revenue alleged that the Appellant suppressed the actual lease agreements, filed incorrect returns and created agreements to undervalue the services - Whether extended period of limitation is invocable and whether interest and penalty are sustainable - HELD - In the factual matrix of the case, there are sufficient grounds to invoke the extended period of limitation. As the demand stands reduced, the interest and penalty under Section 78 shall be reduced proportionally - The extended period is upheld and the appeals are partly allowed.
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