The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi in the case of M/s Cords Cable Industries Limited Vs Commissioner, Central Excise, Jaipur vide Order No. 50456/2023 dated 12.04.2023, has held that service tax is not required to be paid on reverse charge mechanism by the service receiver when ‘service of renting of immovable property’ is provided by the directors in their individual capacity.

In this case, the appellant is engaged in the manufacture of instrumentation/power cable. The appellant has taken premises on rent and is used as its Registered/Corporate office. The landlords of such premises is also the directors of the appellant. An order has been issued on the appellant, demanding service tax to be paid by the appellant on a reverse charge mechanism since the rent was being collected by the directors of the appellant.

The learned counsel on behalf of the appellant submitted that the taxable service of ‘renting of immoveable of property’ has been provided in the capacity of owners/landlord of the premises and not in the capacity of Directors of the appellant.

The CESTAT observed that the premises which were let out to the appellant were owned by the directors in their individual capacity and it is not the case of the department that the properties were owned by them as Directors of the appellant. In such a situation, rent was collected by them in their individual capacity and merely because they also happen to be the Directors of the appellant would not mean that they had collected rent as Directors of the appellant.

However, the Commissioner (Appeal) had errored in its findings that the two directors of the appellant are providing the service of renting of immovable property in the capacity of directors, whereas they are providing the said service in their individual capacity as owners of the premises. Thus, incorrect 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 CESTAT held that the appellant could not be asked to pay service tax on a reverse charge mechanism in this case.