Case Law Details
Omaxe Limited Vs Commissioner of Central Goods And Service Tax and Central Excise (CESTAT Delhi)
Service Tax Demand Quashed as Development Rights Treated as Benefits Arising From Land; CESTAT Delhi Sets Aside Service Tax on Development Rights Due to Transfer of Land Interest; No Service Tax on Transfer of Development Rights Because Rights in Land Are Conveyed: CESTAT; Development Rights Transaction Outside Scope of ‘Service’ Under Finance Act: CESTAT Delhi; Service Tax Cannot Be Levied on Development Rights Transfer Linked to Immovable Property; CESTAT Allows Appeal After Holding Development Rights Are Not Taxable Services; Transfer of Undivided Interest in Land Removes Development Rights From Service Tax Net
The appeal was filed against Order-in-Original dated 06.11.2018, by which a service tax demand of ₹4,48,59,134/- along with interest and penalty was confirmed against the appellant.
The appellant is a real estate developer engaged in developing integrated townships. For acquiring land development rights, the appellant entered into Memorandums of Understanding with land-owning companies, including M/s Lavanya Builders Pvt. Ltd. and M/s Source Developers Pvt. Ltd. Under these arrangements, the land-owning companies transferred development rights to the appellant.
The Directorate General of GST Intelligence (DGGI) gathered information regarding these arrangements and alleged that the appellant had not paid service tax on such transactions. A show cause notice dated 10.04.2017 was issued alleging that transfer of development rights for consideration amounted to a taxable service under Section 66B of the Finance Act, 1994, because it did not involve transfer of title in immovable property. The extended period under Section 73(1) of the Finance Act was also invoked. The adjudicating authority confirmed the demand and imposed penalty, leading to the present appeal before the Tribunal.
Counsel for the appellant submitted that the issue was already decided in favour of the assessee by the Tribunal in DLF Commercial Projects Corporation vs. Commissioner of Service Tax, Gurugram. It was argued that transfer of land development rights amounts to transfer of immovable property under Section 3(26) of the General Clauses Act, 1897 and therefore falls outside the definition of “service” under Section 65B(44) of the Finance Act, 1994. Reliance was also placed on other Tribunal decisions on the same issue.
The Department reiterated the findings of the impugned order but conceded that the issue was covered by several Tribunal decisions.
The Tribunal examined whether transfer of development rights constitutes a taxable service liable to service tax. Referring to the decision in DLF Commercial Projects, and relying on judgments of the Allahabad High Court in Bahadur & Ors vs. Sikander & Ors and the Bombay High Court in Sadoday Builders vs. Joint Charity Commissioner, Nagpur, the Tribunal observed that transfer of development rights effectively transfers rights and interests in land. It noted that once development rights are transferred, the developer acquires rights to develop the property, sell developed units along with undivided interest in land, and receive consideration from buyers. The Tribunal further observed that the transfer involved not only possession and development rights but also undivided right, title, and interest in land, evidenced through registered conveyance deeds on which stamp duty was paid.
The Tribunal held that once the transaction relates to land or benefits arising out of land, it falls outside the scope of “service” under Section 65B(44) of the Finance Act, 1994. Respectfully following earlier Tribunal decisions, the Tribunal set aside the impugned order and allowed the appeal.
FULL TEXT OF THE CESTAT DELHI ORDER
The present appeal has been filed by M/s Omaxe Ltd1 to assail the impugned Order-in-Original No. 30/PK/GST/DE/2018-19 dated 06.11.2018 wherein the demand of ₹4,48,59,134/- was confirmed along with interest and penalty.
2. The brief facts of the case are that the appellant is a real estate developer engaged in the development of integrated townships. For this purpose, the appellant enters into MoU with land owning companies for acquiring land developing rights. The appellant entered into such understanding with M/s Lavanya builders Pvt Ltd., and M/s Source Developers Pvt Ltd., whereby they transferred the land development rights to the appellant. The DGGI gathered information that the appellant had entered into such arrangements with the companies and had not paid any service tax on such activities. Show cause notice dated 10.4.2017 was issued alleging that transfer of development rights for consideration is covered under the definition of „service‟ as it did not involve transfer of title of immovable property. Hence, it was a taxable service under section 66B of the Finance Act, 1994. The notice also invoked the extended period under section 73(1) of the act. Vide the impugned order, the demand was confirmed and penalty was also imposed. Hence, the present appeal has been filed by the appellant before this Tribunal.
3. Ld counsel for the appellant submitted that the present dispute had been authoritatively concluded in favour of the appellant by the Tribunal in the case of DLF Commercial Projects Corporation vs. Commissioner of Service Tax, Gurugram2 wherein it was held that the transfer of such land development rights is transfer of immovable property in terms of Section 3(26) of the General Clauses Act, 1897 and no service tax is payable as per the exclusion in terms of Section 65B(44) of the Finance Act. He relied on other similar decisions of this Tribunal on this issue. Hence, he prayed that the impugned order is set aside and appeal be allowed.
4. Ld Authorized Representative for the Department reiterated the findings of the impugned order. However, he conceded that this matter was squarely covered by several decisions of the tribunal.
5. We have heard the Learned Counsel for the appellant and the Learned Authorized Representative for the department and perused the records.
6. The issue before us for consideration is whether the transfer of development rights amounts to rendering of service on which service tax is liable to be paid.
7. We find that is issue stands squarely covered by several decisions of this Tribunal. In DLF Commercial Projects (supra), the Chandigarh Bench of this Tribunal following the decisions of Allahabad High Court in Bahadur & Ors versus Sikander & Ors.3 and the Bombay High Court in Sadoday Builders versus Joint Charity Commissioner, Nagpur4, it was held that transfer of such development rights was transfer of the immovable property, held as follows:
“10. We further find that in this case, when the landowning company transfers land development rights to the developers, the developers gets the right to not only to develop project on such land but also the right to sell such developed property along with undivided interest in the land underneath and to receive payments for such transfers from the buyers. Once the land-owning companies transfers the land development rights to developer for a consideration, it is obligated to transfer the undivided interest in the land in favour of developer’s buyers for which no separate consideration is paid for it. In other words, such transfer of undivided interest in the land by the land-owning company is in return of the initial consideration paid by the developer to it for transfer of land development rights only. Thus, it is the ownership of the land, which stands transferred effectively by the land-owning company in return of consideration payable by the developers. The moment it is either land or “benefits arise out of land”, it goes outside the purview of “Service” as defined in Section 658 (44) of Finance Act, 1994, Under the Development Agreement dated 05.12.2006, it is stated that there would be transfer of Development Rights in future and the Developer were permitted to carry out the developmental activities as per clause 2.2 of the Development Agreement, wherein the developer is permitted to enter the scheduled property for carrying out developmental activities, After the developmental activities have been carried out, sale deed is executed among the three parties namely Landowner. Developer and the Purchaser sunder which the title to the undivided portion of the land is transferred to the various vendees/purchasers from time to time as and when the Conveyance Deed/Sale Deed is executed in future. We further observe that it is not only the possession, which stood transferred with the right to use, enjoy and construct building/super structure, but, at the same time, undivided right, title and interest in the land also stand transferred under the Deed of Conveyance on which stamp duty has been paid and the Deed of Conveyance has been registered before the Sub-Registrar.”
8. Respectfully following the aforesaid decisions, we set aside the impugned order and allow the appeal.
(Order pronounced in the open Court on 29.01.2026)
Notes:
1 the appellant
2 (2019 -27-GSTL 712-Tri-Chan)
3 MANU/UP/0016/1905
4 MANU/MH/07912011
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