No Service Tax Under RCM On Railway Space Licence Fees For Ads: CESTAT Hyderabad

On 3 June, the Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that service tax cannot be demanded under the reverse charge mechanism (RCM) from Prakash Arts Pvt. Ltd. for licence fees paid to Railways for use of space to display advertisements, as the arrangement amounted to renting of immovable property and not “support service”.

Technical Member A.K. Jyotishi and Judicial Member Angad Prasad dismissed the Revenue's appeal and upheld the Order-in-Original in favour of the taxpayer. The Bench held:

“The reliance placed under section 66A for payment of service tax under RCM is only applicable to the extent that in respect of specified services, instead of service provider, the service recipient will be required to discharge the service tax in accordance with notification issued in this regard. It does not mean that for specified service, the service recipient will be required to provide the service and treated as service provider, rather, it is only for the limited purpose of payment of service tax that he is deemed to be the service provider.”

The dispute arose after the Department alleged that licence fees paid by Prakash Arts Pvt. Ltd. to South Central and South Western Railways for displaying hoardings and illuminated signboards constituted consideration for “support services” provided by the Railways, attracting service tax under RCM.

The Department contended that since support services provided by Government entities were taxable under RCM during the relevant period, tax liability arose on the taxpayer.

Rejecting this contention, the Tribunal held that Railways had only permitted use of demarcated spaces within railway premises for installation of hoardings and signboards and had not provided any advertisement or promotional support services.

The Bench observed that “the activities claimed to have been performed in relation to the advertisement and promotion by the Railways is also not tenable as they have not performed those functions.”

It further noted that “support services” under Section 65B(49) of the Finance Act, 1994 contemplate outsourcing of functions ordinarily performed by an entity itself, which was not present in the case.

It held that the transaction was properly classifiable as renting of immovable property service, as the Railways had allotted specific spaces for hoardings and signboards in return for licence fees and security deposits. The Bench observed:

“The term 'licence fee', on its own, cannot be construed to mean that it is for transfer of right to advertise within Railway premises. The licence can be even for the rent for taking certain specified space for specified period for any particular use. In this case, respondents have taken space for putting up of hoardings, billboards, etc., and for renting out that space, they are paying licence fee.”

It further held that Railways did not provide any support services, and therefore the foundational requirement for invoking RCM did not arise.

The Bench also upheld the finding that the extended period of limitation could not be invoked, noting that Prakash Arts Pvt. Ltd. was registered with the Service Tax Department and there was no suppression of facts with intent to evade tax.

Accordingly, the CESTAT dismissed the Revenue's appeal in entirety.

For Appellant: V.R. Pavan Kumar, AR

For Respondent: Lalit Mohan Chandna, Advocate