No Service tax on Consideration received for sale of Developmental Rights

CCE Vs. M/s Shri Banke Bihari Ispat Pvt. Ltd. (CESTAT Delhi)

On mere reading of the contents of the four agreements mentioned in para 7 above, it is lucid that the transactions amount received from Pa war family by M/s Shriram Hi-Tech Steel & Power Pvt Ltd, Shri Ambika Ispat (India) Pvt Ltd, Shree Banke Bihari Ispat Pvt Ltd and M/s Great Fortune Investment & Infrastructure Pvt Ltd have been with regard to sale and purchase of development rights and final sale of immovable property wherein no service from the appellant as real estate agent was involved. There is no evidence that the appellant provided any service of any development in respect of property of Mr. Pawar‟s family as is alleged in the show cause notice and held in the order-in- original. On the contrary it is evident that the appellant has always acted as purchaser and seller of [development] rights and immovable property. It is also manifest that the appellant also did not receive any consideration from Pawar family for providing any service. Instead the appellant paid the amount of Rs. 38,00,000/- to Pawar family for purchase of development rights. Had there been any taxable service from the appellant to Pawar family, the appellant would have received some consideration from the latter which is not the case here. Thus, no ingredient of taxable real estate agent service has been found available in this case and, therefore, the order passed by the Addl. Commissioner in this case is found without any legal basis.

Consideration received by the respondent is towards sale of Developmental Rights to the land and cannot be considered as commission for real estates agents services.

FULL TEXT OF THE CESTAT JUDGMENT

The present appeal is filed by Revenue against the Order-in-Appeal No. 177/2013 dated 23.10.2013. The respondent is engaged in the manufacture of iron and steel products. The dispute concerns an amount of Rs. 85,50,000/- received towards “sale consideration” during the year 2006-07, and recorded in the books of accounts of the respondent. The same was detected during the audit of the books of respondent by the department. The departmental officers procured the relevant documents relating to the above transaction and scrutinized the same. It appeared that a certain piece of land in Nashik was sold by the persons mentioned at Sr. No. 1 to 14 of the Sale Deed dated 11.10.2006 (Vendors) to M/s Great Fortune Investment & Infrastructure Pvt. Ltd. (Purchaser). However, the consideration of Rs. 3,00,00,000/- against the said sale was received from the said Purchaser by M/s Viraj Estates Pvt. Ltd. Nashik (Confirming Party) and M/s Shri Banke Bihari Ispat Pvt. Ltd. Raigarh (Respondent), M/s Shri Ambica Ispat (India) Pvt. Ltd. Surajpur and M/s Shri Ram Hi-Tech Steel & Power Pvt. Ltd. Raigarh for development of the land (Consenting Party). It further appeared that the ^„Respondent^‟ has received consideration of Rs. 85,50,000/- for providing the services of ^„real estate agent^‟ and have not paid any Service Tax on the said amount of service charges under the said taxable category. Accordingly, show cause notice was issued and after adjudication, the original authority confirmed the demand of Service Tax of Rs. 10,56,780/- along with interest and penalties under various Sections of the Finance Act, 1994. When an appeal was filed against the order of the original authority, the Commissioner (Appeals), vide the impugned order, set aside the demand and allowed the appeal. Revenue has filed the present appeal challenging the dropping of the Service Tax demand. The following main grounds were explained by learned DR:

(i) The respondent has played an important role in the entire deal finalized between owners/vendors and the buyers/purchasers. The respondent^‟s role was in the nature of developers of the bare land, making it marketable, making the land suitable for plotting and by obtaining NOCs from the different departments. Such services rendered by the respondent towards sale of immovable property are covered under the taxable category of “real estate agent service”. The consideration received by the respondent for the transaction will be liable to payment of Service Tax under the category of Real Estate Agent Service.

(ii) The expanded definition of the term “real estate agent” under Section 65(88) of the Finance Act, 1994 brings the activity undertaken by the respondent within such definition, and hence, consideration received is liable for Service Tax.

2. On behalf of the respondent, it has been submitted by learned counsel as follows:

The respondent has entered into two agreements – Development Agreement dated 19.06.2006, and subsequently, Sale Deed dated 11.10.2006. The respondent, vide the agreement, has acquired the Development Rights for the piece of land situated in Nashik. Subsequently, such Development Rights have been sold to other parties for a profit. Both the transactions involved purchase and the sale of Developmental Rights and cannot to be categorized as transactions in immovable property. The respondent has not acted as a real estate agent, and hence, is not liable for payment of any Service Tax. Reliance is placed in the following case laws:

(a) CST, Delhi vs Ansal Properties, Final Order No. 561 31/2017 dated 23.08.2017

(b) CCE, Nashik vs Viraj Estates Pvt. Ltd. [2017 (5) GSTL (Tri.-Mumbai)]

(c) Soumya Construction Pvt Ltd vs CST Ahmedabad [2016 (46) STR 723 (Tri.-Ahmd)].

(d) CCE & Service Tax vs Triveni Engineering & Industries [2015 (317) ELT 408 (All.)]

(e) NTPC Ltd vs CCE, Raipur [2017 (5) GSTL 412 (Tri.-Del.)]

3. We have heard both sides and perused the records. The dispute is with reference to the agreements entered into by the respondents. Vide the Development Agreement dated 13.06.2006, the respondent along with other parties  acquired the Development Rights to a certain piece of land situated in Nashik. Subsequently, vide the Sale Deed dated 11.10.2006, the said land was sold by the original owners to M/s Great Fortune Investment and Infrastructure Pvt. Ltd. Further, out of the consideration of Rs. 3,00,00,000/- against the said sale, a part amount of Rs. 85,50,000/- was received by the respondent. The dispute, precisely, is regarding this consideration received by the respondent. The respondent^‟s claim is that such amount is towards the sale of Developmental Rights for the piece of land in Nashik, whereas Revenue has taken the stand that such amount is towards facilitating the sale of the said piece of land, and hence, liable to payment of Service Tax under the category of “Real Estate Agent Services”.

4. We find that a similar issue was considered by the Tribunal in the case of Commissioner, Central Excise (Nashik) vs M/s Viraj Estate Pvt Ltd (supra). After perusing the said case, we note that M/s Viraj Estates Pvt Ltd was also one of the signatories to both the Development Agreement dated 06.2006, as well as Sale Deed dated 11.10.2006. Vide the Sale Deed dated 11.10.2006, M/s Viraj Estates received an amount of Rs. 1,10,00,000/-, whereas the respondent herein received an amount of Rs. 85,50,000/-. In view of the above, we note that the respondent herein is similarly situated to M/s Viraj Estates, as far as Sale Deed dated 11.10.2006 is concerned.

5. The Tribunal has examined the demand of Service Tax made by Revenue on M/s Viraj Estates, in respect of the amounts received by them and held with no Service Tax is liable to be paid by them. The Tribunal observed as under:

^“5 On careful consideration of the submissions made by both the sides, wefind that Revenue‟s appeal is devoid of merits for more than one reason.

5.1 Firstly, we find that the first appellate authority in the impugned order has gone into four agreements/transactions entered into by respondent from time to time and after analyzing the said clauses in the agreement came to a conclusion that these are in respect of sale and purchase of land and TDR. The findings of the first appellate authority are in paragraph 8.3 which are relevant and are reproduced.

^{” 8.3} On mere reading of the contents of the four agreements mentioned in para 7 above, it is lucid that the transactions amount received from Pa war family by M/s Shriram Hi-Tech Steel & Power Pvt Ltd, Shri Ambika Ispat (India) Pvt Ltd, Shree Banke Bihari Ispat Pvt Ltd and M/s Great Fortune Investment & Infrastructure Pvt Ltd have been with regard to sale and purchase of development rights and final sale of immovable property wherein no service from the appellant as real estate agent was involved. There is no evidence that the appellant provided any service of any development in respect of property of Mr. Pawar‟s family as is alleged in the show cause notice and held in the order-in- original. On the contrary it is evident that the appellant has always acted as purchaser and seller of [development] rights and immovable property. It is also manifest that the appellant also did not receive any consideration from Pawar family for providing any service. Instead the appellant paid the amount of Rs. 38,00,000/- to Pawar family for purchase of development rights. Had there been any taxable service from the appellant to Pawar family, the appellant would have received some consideration from the latter which is not the case here. Thus, no ingredient of taxable real estate agent service has been found available in this case and, therefore, the order passed by the Addl. Commissioner in this case is found without any legal basis.”

As against the above said factual findings, Revenue has not come out with contrary evidence to show that the respondent‟s services would get covered under the definition of „real estate agent‟services or „real estate consultant‟services. The first appellate authority was  correct in coming to such a conclusion that the activities as undertaken by the respondent would not fall under the category of „real estate agent‟services or „real estate consultant‟services.”

6. By following the decision of the Tribunal in the Viraj Estates case, we conclude that the consideration received by the respondent is towards sale of Developmental Rights to the land and cannot be considered as commission for real estates agents services.

7. In view of the above discussions, we find no infirmity in the impugned order which is sustained for the reasons mentioned therein. In the result, the appeal filed by the Revenue is dismissed.

[Pronounced in open court on 03.04.2018]