As far as the compensation received from M/s Amit Mines is concerned, the Show Cause Notice mentions the leviablity of Service tax on the amount received towards the compensation for non supply of the agreed quantity of manganese ore under Section 64E(e) of Finance Act which is even otherwise is purely the transaction sale of the iron ore to the Appellant by M/s Amit Mines. Thus, the compensation amount is towards default on the sale of the goods. The sale could not be effected and, therefore, Appellant received the liquidated damage by way of raising the debit note which was honoured by M/s AML. Thus, this amount of compensation/ liquidated damage cannot be treated as service under Section 64 E(e) of the Act. The demand is thus not sustainable on this aspect also.
FULL TEXT OF THE CESTAT JUDGMENT
1. This appeal is filed by M/s Amit Metalics Limited (hereinafter referred to as the Appellant/AML) Durgapur, West Bengal against the Order-in-Original No. 29/Commr./ ST/BOL/17-18 dated 31/01/2018 passed by the Commissioner of Central Goods and Service Tax, Bolpur (for short “ the Adjudicating Authority”) by which the demand of service tax amounting to Rs. 51,17,63,188/- along with equivalent penalty and applicable interest has been confirmed under the provisions of Finance Act, 1994 ( for short “the Finance Act”). This demand has been raised in terms of Show Cause Notice, F No. 99/KZU/KOL/GR.C/14 dated 28/12/2016, issued by the Directorate General of Central Excise Intelligence for the period 2012-13.
2. The issue involved in this appeal is as to whether the amount of Rs. 45,08,09,200/- paid to the Appellant as per ‘Settlement Agreement’ and the compensation received by the Appellant from M/s Amit Mines Limited (hereinafter referred to as ‘Amit Mines/AML’) to the extent of Rs. 1,97,50,000/- for non supply of manganese ore on account of rate difference are liable for service tax under ‘Declared Service’ under Section 66 E(e) of the Finance Act or otherwise. The Appellant is engaged in the business of manufacture and sale of M.S. Billets and M.S. Rods, TMT bars etc., classifiable under tariff item 72 to the First schedule of Central Excise Tariff Act, 1985, for which they are duely registered with the Central Excise authorities under the provisions of Central Excise Act, 1944 (for short “the Act”) and Rules made thereunder. The appellant is also registered with the service tax department in accordance with provisions of Finance Act and the Rules made thereunder for the services being rendered by them.
3. The Appellant entered into a ‘Development Agreement’ dated May 21, 2010 with 31 different companies for the development of land and construction of premises thereon. The said 31 company was the owners of the land specified in the said agreement and the Appellant had entered into the said agreement as the developer of the land. The land owned by these companies was not contiguous parcel of the land and were as such not fit for the proper development. The owners of the land had given an assurance to the Appellant that remaining intermittent pieces of land would be acquired and handed over to the Appellant within a specific time frame so that the entire land becomes contiguous parcel of land which would fit for the development. As per the Development Agreement the Appellant was to be provided by the companies a contiguous piece of land for the development, however, the same could not materialise and hence as per the Development Agreement. The Appellant could not get the land as agreed upon and as per the agreements were entitled for a liquidated damage or
compensation. The owners of the land has terminated
Development Agreement, dated May 21, 2019 due to some other technical reasons also and confirmed that they were not in a position to meet the ‘Development Agreements’ and agreed for the settlement with the Appellant. Ultimately, the Development Agreement with the Appellant was cancelled and the land owners agreed to pay the Appellant a sum of Rs. 21,90,00,000/-towards full and final settlement amount for terminating the said Development Agreement. In addition to this Development Agreement, four separate Development Agreements dated April 5, 2012, were entered into between various land owners and the Appellant. This ‘Development Agreement’ also could not materialise because of the similar difficulties. In these cases also the Appellant got the settlement amount of Rs. 231809200/- from the land owners. Accordingly, the Appellant got a total amount of Rs 450809200/- as the full and final settlement for the termination of Development Agreement from the various land owners. In addition to this, the Appellant also received an amount of Rs. 19750000/- as compensation from M/s Amit Mines Limited towards the non supply of agreed manganese ore. It is these settlement amounts, which the Department is trying to tax under the Finance Act in terms of provisions of Section 65B (44) of the Act under sub-heading 65 b(44)(A)(iii) at the hand of Appellant. The details of the Development Agreements and Settlement Agreements are tabulated as under which is reproduced as under;
|Particulars||Development Agreement||Settlement Agreement||Amount(Rs.)|
|Amit Metaliks & 31 Companies||21.05.2010||11.04.2012||21,90,00,000/-|
|Amit Metaliks & 11 companies||05.04.2012||20.06.2012||2,75,20,000|
|Amit Metaliks & 17 companies||04.05.2012||20.06.2012||1,60,11,200|
|Amit Metaliks & 1 company||05.04.2012||20.06.2012||62,78,000|
|Amit Metaliks & 43 companies||05.04.2012||20.06.2012||18,20,00,000|
These payments were received during January 2013 to March, 2013.
4. Learned Advocate, on behalf of the appellant, submits that the amount received pursuant to the settlement agreement is not a consideration towards rendition of any taxable services and hence not liable for service tax. The Section 65B(44) of the Finance Act defines “service”, which is reproduced as under;
“(44) ‘service’ means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include
(a) An activity which constitutes merely-
(i) A transfer of the title in goods or immovable property, by way of sale, gift or in any other manner, or
(ii) Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause(29A) of Article 366 of the Constitution, or’
(iii) A transaction in money or actionable claim,”
5. As per Section 65 B(44) (a) (iii) the transaction in money or actionable claim are not falling in the category of service. The ‘actionable claim’ in the Finance Act has the meaning as assigned in Section 3 of the Transfer of Property Act, 1982. The Transfer of Properties Act defines the actionable claim as under;
“ Actionable claim” means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent;
6. The actionable claim means the ‘debt’ is also settled by the decision of Hon’ble Supreme Court in case of M/s Kesoram Industries & Cotton Mills Ltd. vs CWT reported in AIR 1966 SC 1370.
7. The reliance was also placed on the decision of Sunrise Associates vs. Govt. of NCT of Delhi reported in (2006) 5 SCC 603. The decision dealt with the nature and scope of actionable claim by the Constitution Bench.
8. The relevant clauses of the Settlement Agreement which was stated by the learned Advocate are as under;
A careful analysis of the aforesaid Settlement Agreement would indicate that the same cannot be construed as agreeing to refrain from an act, as alleged or at all. There is no specific condition in the said settlement agreement under which are obligated to refrain from initiating any proceedings. At best, what is stated is that we will not have any ‘intention to proceed’. The said phrase only indicates an “intention” and the same should be read in the context of the parties arriving at a compromise to settle a dispute. It is submitted that the said agreement cannot be construed to have a negative covenant so as to attract the provisions of Section 66E(e) of the 1994 Act.
9. It is further submitted that the amount received in terms of Settlement Agreement is not “declared service” under Section 66 E(e) of the Act. The settlement agreement indicates that the amount received is towards the damage or breach of contract towards full and final settlement of all disputes arising under the Development Agreement. This Settlement Agreement cannot be construed as agreement entered into by the appellant to refrain from initiating proceedings against the other companies.
10. In the Development Agreement it is clearly stated that the developer (Appellant) will not have any intention to proceed with the dispute in any manner in the court of law. It was thus submitted that the Appellant has not rendered any taxable service as the said Section 66E of the Act has been inserted in the statue with effect from July 01, 2012, Clause (e) thereof, (Agreeing to obligation to refrain from an Act, or to tolerate and act or a situation, or to do an act”). The period involved is prior to the incorporation of Sec 66 E(e) of the Finance Act. This fact is also acknowledged in the Show Cause Notice issued to the Appellant. The Appellant had entered into five Development Agreements, one of which was dated May 21, 2010 and four were dated April 5, 2012. Subsequently, the Appellant entered into five Settlement Agreements, one of which was dated April 11, 2012 and four remaining were dated June, 2012. It is, therefore, submitted that the entire activity of Development Agreement and subsequent Settlement Agreement was entered into by the Appellant before the introduction of new levy. Placing reliance on the following judgments;
a. 2013 (31) STR 129 (Del) (para 7 to 12)(Vistar Construction (P) Ltd. vs UOI)
b. 2009 (14) STR 146 (Guj) (Para 4) (CCE & CE vs. Schott Glass India Pvt ltd
c. 2009 (14) STR 289 (Bom) (Para 38) (India National Shipowner’s Associations vs. UOI)
11. It was submitted that the service tax is not leviable for the amount received in terms of Settlement Agreement. It is also submitted that Rule 5 of the Point of Taxation Rules, 2011 (for short ‘POTR’) has no application in this case as the agreements were undisputedly entered into prior to the July 1, 2012. It is also submission of the learned Advocate that the Rules 5 of POTR relied upon by the Adjudicating Authority cannot go beyond the Act.
12. It is held by the Adjudicating Authority that the Settlement Agreement and Development Agreement were not registered by the Appellant and hence no reliance can be placed on them. But in terms of Registration Act, 1908, the Development Agreement and Settlement Agreement are not compulsorily registerable. In fact, both the parties i.e. the Appellant and the other companies have mutually negotiated the agreeable solution and compromised in the dispute in question, there is no reason to peruse any arbitration to end the litigation.
13. The demand relating to sum of Rs. 19,75,00,000/-, which was received by the Appellant from one M/s Amit Mines Private Limited, also held to be liable for service tax under Section 66E(e). It is also the submission of the learned Counsel, that the Appellant had entered into an agreement with M/s Amit Mines Private Limited for purchase of manganese ore and issued purchase order also. M/s Amit Mines Private Limited failed to supply manganese ore to the Appellant. Therefore, the Appellant debited an amount of Rs. 1,95,50,000/- to M/s Amit Mines Private Limited which was accepted by them also. This debit was on account of compensation on the rate difference due no non-execution of purchase order by M/s Amit Mines Private Limited. It is also submitted that no specific allegation or averment have been made in the Show Cause Notice about the nature and category of service rendered and where the transaction is required to fall for the purpose of payment of service tax under the Finance Act. It is also submitted that in any case the compensation received is not towards any activity liable for service tax but for compensation for non-execution of contract for supply of manganese ore.
14. Learned Advocate further pleaded that the Show Cause Notice is barred by limitation as there has been no fraud or collision or wilful mis-statement or suppression of any fact or contravention any of the provisions of the Act or the Rules made thereunder with intention to evade any tax as alleged. The Appellant has conducted the business in a bonafide manner in absence of any mens rea. It is also submitted that the Appellant has not contravened any of the provisions of Section 68 (1) of the Act read with Rule 6 of the Rules and also not violated Section 70 (1) of the Act read with Rule 7(1) of the Rules or Rule 4(A) of the Rules. It is also submitted that the Appellant has been regularly filing returns and other statutory documents with the Department. The Department has also scrutinised accounts of the Appellant during audit/ scrutiny. Entire activity of Development Agreement, Settlement Agreement and Compensation have been reflected in the books of account of the appellant and nothing has been suppressed from the Department. In such circumstances, the penalty is not imposable under Section 78(1) of the Act or Section of other provisions as alleged in the Show Cause Notice, as per learned Advocate.
15. The learned Authorised Representative, however, has supported the impugned order and relied upon the decision of Appellate Authority for advance ruling in GST, Maharashtra State power Generation Company Limited [2018 (70) G.S.T.L. 451(APP. AA.R-GST), wherein it is held that the liquidated damage by a contractor is to be treated as supply under the provisions of Section 14 of Central Goods and Service Tax Act, 2017. The learned Authorised Representative also relied upon the Point of Taxation Rules, 2011 stating that as per Rule 5 thereof Point of Taxation in the case of new service the provisions of service shall be the date of issue of invoice and receipt of payment against such invoice. The reliance was also placed on Section 2(e) of the Rule, wherein it is defined that “Point of Taxation” means the point of time when a service the provisions of services shall be deemed to have been provided. The learned Authorised Representative also relied upon the Section 5 of the Point of Taxation Rules, 2011 regard the payment of tax in case of new services. As the payment has been received during January to March, 2013, that date will be date of provisions of service and hence the demand is correctly confirmed in the impugned order.
16. We have considered the rival submissions and also peruse the appeal records.
17. The issue to be decided in this Appeal are twofold. The first one is as to whether the cancellation of the Development Agreement in terms of the Settlement Agreement would be liable to service tax under Section 66E (e) of the Finance Act and the other one is regarding non supply of iron ore from M/s Amit Mines, which resulted into payment of compensation would be chargeable to service tax within the said Section 66E(e) of the Finance Act. It is not in dispute that the Development Agreement and Settlement Agreement has been concluded before the introduction of Section 66E (e) of the Act which deals with declared service. The declared service has been defined as “agreeing to obligation or to refrain from the act or to tolerate and act and situation or to do an act”. Learned Adjudicating Authority has concluded that the amount received by way of Settlement Agreement is agreeing to refrain from an act and thus chargeable to service tax. We find that these two activities have been rendered prior to introduction of declared service under the statue, and therefore, the same cannot be made applicable to the event that as concluded before the introduction of the new levy. This issue has been decided in case of CCE & C vs. Schott Glass India Private Limited [2009 (14) STR (Guj.) and wherein paragraph 4 has held as under;
“ 4. The Service Tax, which has been imposed by way of Finance Act, 1994 (the Act), levies Service Tax as provided in Section 64(3) of the Act to all taxable services provided on or after commencement of Chapter 97 (sic) (Chapter V) of the Act. Thus, the taxable event is providing all taxable services which has been defined by Section 65(105) of the Act. Similarly, the Rules, which have been incorporated as Chapter 98 (sic) define “person liable for paying the service tax” under Rule 2(d) to mean in clause(iv), in relation to any taxable services provided by a person who is a non-resident or is from outside India, does not have any office in India, the person receiving taxable service in India. The taxable event in relation to Service Tax is admittedly the rendering of taxable service. The said taxable services were rendered between November, 2001 and March, 2002. In the circumstances, merely because the invoice is raised and payment made subsequently viz. after 16-5-2002 the liability cannot be fastened on the recipient of the services as the taxable event had already occurred paste (sic) and raising of invoices and/or making of payment cannot be considered to be a taxable event. Nor is it possible to hold that the provision of Rule 2(1)(d)(iv) of the Rules is retrospectively applicable to services rendered prior to 16-82002. Thus, neither the Section nor the Rule even suggest that the taxable event is the raising of an invoice for making of payment. It is well settled in law that a taxing statute has to be read and plain meaning assigned to the provisions without importing any extraneous consideration on a presumption.”
18. This issue has also been decided held in case of Vistar Construction Pvt Ltd vs. Union of India[2013(31) STR 129(Del)], wherein it is held that taxable event is rendition of service and hence the rate of tax applicable would be one on the date on which services were rendered but not on the date when payment is received.
Thus, there is no justification in imposition of service tax liability on the Appellant, has been held in the impugned order.
19. The declared service under 66E(e) was first introduced from 01.07.2012 while the agreements are prior to the said date. The rules cannot go beyond Act since the charge under Finance Act was not available on the date of agreements in question. The Rule 5 of the Point of Taxation Rule has thus no application in this case to create a change in an indirect way.
20. Further, we also find that the all payments have been received towards the compensation for non performance of contract and the same will not be within the definition of Section 66 E (e) of the Act, which is for obligation to refrain from the Act or to tolerate and act of situation by the service provider. The Appellant has not provided any service as the Development Agreement itself has been cancelled. So, there is no question of any liability towards the service tax on the payment. The compensation that was received by the appellant is more of an actionable claim placing reliance in the case of Kesoram Industries wherein paragraph 13 to 23 are held as under;
13. If we ascertain the meaning of the word “debt”, the expression “owed” does not cause any difficulty. The verb “owe” means “to be under an obligation to pay”. It does not really add to the meaning of the word “debt”. What does the word “debt” mean ? A simple but a clear definition of the word is found in Webb v. Stenton(1) wherein Lindley, L.J., said:
“………….. a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro.”
This view was accepted by the other Lord Justices. The Court of Appeal in O’Driscoll v. Manchester Insurance Committee (2 ) considered the word “debt” in the context of fees payable by National Insurance Committee to Panel Doctor. The Insurance Committee entered into agreements with the panel doctors of their ,district by which the whole amounts received by the committee from the National Insurance Commissioners were to be pooled and distributed among the panel doctors in accordance with a scale of fees. The Court held that where a panel doctor had done work under his agreement with the insurance committee, and the committee had received funds in respect of medical benefit from the National Insurance Commissioners, there was a debt owing or accruing from the insurance committee to the panel doctor which might be attached, though the exact share payable to him was not yet ascertained. It was argued there that there could not be a debt until the amount had been ascertained and in support of that contention cases relating to unliquidated damages were cited. Distinguishing those cases on the ground that there was no debt until the verdict of the jury was pronounced assessing the damages and judgment was given, Swinfen Eady, L.J., observed:
“Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore, there was a “debt” at the material date, though it was not presently payable and the amount was not ascertained.”
Phillimore, L.J., dealing with the argument based on the fact that the sums were not ascertained at the time they were sought to be attached, observed:
“No doubt these debts were not presently payable, and the amounts were not, on April 9, 1914, ascertained in the sense that no on-, could say what the result of the calculations would be, but it was certain on that d ate that a payment would become due from the committee to the doctors out of the balance of the moneys in the hands of the Committee for 1913………. ”
So also Bankes, L.J. observed:
“Dr. Sweeny fulfilled that condition, and a debt arose, though the amount of it was not ascertained on April 9, 1914, and was not then payable.”
14. This judgment in substance ruled that a present liability to pay an amount in future, though it was not ascertained but was ascertainable, was a debt liable to attachment.
15. The word “debt” was again considered in Inland Revenue Commissioners v. Bagnall, Ltd. (1) in connection with the excess profits tax. There, the Board of Inland Revenue accepted an offer of pound 10,000 made by the respondent company’s accountants in settlement of their earlier liability. That offer was accepted only on September 22, 1937. The company contended that the sum was a debt due from the respondent to the Inland Revenue as from January 1, 1935. As the offer was not accepted, it was held that the sum was not a debt. It was argued that even if there was a liability on January 1, 1935, that liability did not become a debt within the meaning of the Finance (No. 2) Act, 1939. Adverting to that argument, Macnaghten, J., observed:
“It is true that the word ‘debt’ may, in certain connections, be used so as to cover a mere liability, but I (1)  1 All. E.R. 204,206.
think that in this Act it is used in the proper sense of an ascertained sum and that the contention of the Attorney-General is well founded.”
This decision, while holding that in the context of the, Finance, Act of 1939 there was no debt until the liability was quantified, conceded that the expression “debt” was wide enough to take in a liability; it also did not define the scope of the expression “ascertained”, that is to say whether the said expression would take in amounts ascertainable.
16. The, King’s Bench Division in Seabrook Estate Co. Ltd. v. Ford(1) held that money in the hands of a Receiver for debentureholders was not a debt owing or accruing and therefore, was not liable to attachment. But Hallett, J., accepted the following proposition laid down by Rowlatt, J., in O’Driscoll v. Manchester Insurance Committee(2);
“……………. Where a debt is established in praesenti, it is not sufficient objection to say that the exact amount of the debt will be the subject of a calculation which has not yet been made and, it may be, cannot yet be made.” This question fell to be decided again in Dawson v. Preston (Law Society, Garnishee) (3) . The question there was whether a sum representing damages paid to legal aid fund could be attached by a creditor of a legally aided plaintiff. At the time when the garnishee order was sought to be issued a part of the decree amount was with the Law Society, subject to any charge conferred on the Law Society to cover the prescribed deductions which remained to be quantified, e.g. deduction for the taxed costs of the action. The Court held that there was an existing debt although the payment of the debt was deferred pending the ascertainment of the amount of the charge in favour of the Law Society. Ormerod, J., observed :
“….. that is merely a question of ascertaining the debt which has to be paid over to the assisted person and does not prevent that debt from being an existing debt at the material date.”
This decision also recognized that, if there was a liability in praesenti, the fact that the amount was to be ascertained did not make it any the less a debt.
17. In Dunlop & Ranken Ltd. v. Hendall Steel Structures Ltd.(Pitchers Ltd.-Garnishees) (4) it was held that the issuing of the architect’s certificate was just as much a necessity for investing a cause of action in sub-contractors as it was in the main, contracts,, and the judgment debtors had no right to be paid, and therefore there was no debt, until the architect had certified the amount to be paid for the work ordered by the gamishees. On that reasoning it was held that no garnishee order should have been made. Strong reliance was placed on this decision in support of the contention of the Revenue that there could not be a debt if the ascertainment of the debt depended upon a certificate to be issued by a third party. But a perusal of the judgment shows that in such contracts a certificate by the architect was a condition for imposing a liability and that, therefore, till such a condition was completed with there could not be any debt. This decision does not throw any light on the question that now arises before us. The principle of the matter is well put in the Annual Practice, 1950, at p. 808, thus :
“But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and a case where both the debt and its payment rest in the future. In the former case ther e is an attachable debt, in the latter case there is not. If for instance, a sum of money is payable on the happening of a contingency, there is no debt owing or accruing. But the mere fact that the amount is not ascertained does not show that there is no debt.”
In our view this is a full and accurate statement of law on thesubject and the said statement is supported by English decisions we have discussed earlier.
18. We shall now notice some of the decisions of the Indian Courts on this aspect.
19. A special Bench of the Madras High Court in Sabju Sahib v. Noordin Sahib(1) held that a claim for unliquidated sum of money was not a debt within the meaning of the Succession Certificate Act, 1889, 4(1) (a). The claim was to have an account taken of the partnership business that was carried on between the deceased and others and to have the share of the deceased paid over to him as the representative of the deceased. Shephard, Officiating C.J., said
“It is quite clear that this is not a debt, for there was at the time of the death no present obligation to pay a liquidated sum of money. The claim is one about which (1) (1899) I.L.R. 22 Mad. 139,141, there is no certainty; it may turn out that there is nothing due to the plaintiff.”
Subramania Ayyar, J., did not consider that claim as a debt for the that the liability arising from the obligation of a partner to account to the other partners could not be held to be a debt in the accepted ordinary legal sense of the term for the obvious reason that the liability was not in respect of a liquidated sum. An obligation to account does not give rise to a debt, for the liability to pay will arise only after the accounts were taken and the liability was ascertained. In the context of the Succession Certificate Act, such an obligation was rightly held not to be a debt.
20. The decision of a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee(1) throws considerable light on the connotation of the word “debt”., Jenkins, defined that word thus:
I take it to be well established that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation.”
Mookerjee, J., quoted the following passage with approval from the judgment of the Supreme Court of California in People v.Arguello 9:
“Standing alone, the word ‘debt’ is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds : solvendum in praesenti and solvendum in future…………… A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt until the contingency has happened.”
This passage brings out with clarity the essential characteristics of a debt. It also indicates that a debt owing is a debt payable in future. It also distinguishes a debt from a liability for a sum payable upon a contingency.
21. A Full Bench of the Madras High Court in Doraisami Padayachi v. Vithilinga Padayachi ruled that “a promise to pay the amount which may be found due by an arbitrator on taking accounts between the parties is not a promise to pay a ‘debt’ within the meaning of s. 25 of the Indian Contract Act, 1872, the amount not being a liquidated sum.” This was because the liability to pay the amount arose only after the arbitrator decided that a particular amount was due to one or other of the parties.
22. The Calcutta High Court in Jabed Sheikh v. Taher Mallik(1) held that “a liability for mesne profits under a preliminary decree therefor, though not a contingent liability, does not become a ‘debt’ till the amount recoverable, if any, is ascertained and a final decree for a specified sum is passed”. That conclusion was arrived at on the basis of the principle that a claim for damages does not become a debt till the judgment is actually delivered.
23. We have briefly noticed the judgments cited at the Bar. ‘Mere is no conflict on the definition of the word “debt”. All the decisions agree that the meaning of the expression “debt” may take colour from the provisions of the concerned Act: it may have different shades of meaning. But the following definition is unanimously accepted :
“a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation: debitum in praesenti, solvendum in future.”
The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in future till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of s. 2 (m) of the Wealth Tax Act can be defined as a liability to pay in praesenti or in future an ascertainable sum of money.”
21. Similarly in case of Sunrise Industries the compensation received by the appellant would fall under actionable claim; Para 35 to 40 that are relevant is as under;
35. The word ‘goods’ for the purposes of imposition of sales tax has been uniformly defined in the various sales tax laws as meaning all kinds of moveable property. The word “property” may denote the nature of the interest in goods and when used in this sense means title or ownership in a thing. The word may also be used to describe the thing itself. The two concepts are distinct, a distinction which must be kept in mind when considering the use of the word in connection with the sale of goods. In the Dictionary of Commercial law by A.H. Hudson (1983 Edn.) the difference is clearly brought out. The definition reads thus:
” ‘Property’ -In commercial law this may carry its ordinary meaning of the subject-matter of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods”. Hence, when used in the definition of ‘goods’ in the different sales tax statutes, the word ‘property’ means the subject matter of ownership. The same word in the context of a ‘sale’ means the transfer of the ownership in goods.
36. We have noted earlier that all the statutory definitions of the word ‘goods’ in the State Sales Tax Laws have uniformly excluded, inter alia, actionable claims from the definition for the purposes of the Act. Were actionable claims etc., not otherwise includible in the definition of ‘goods’ there was no need for excluding them. In other words, actionable claims are ‘goods’ but not for the purposes of the Sales Tax Acts and but for this statutory exclusion, an actionable claim would be ‘goods’ or the subject matter of ownership. Consequently an actionable claim is movable property and ‘goods’ in the wider sense of the term but a sale of an actionable claim would not be subject to the sales tax laws.
37. Distinct elements are deducible from the definition of ‘actionable claim’ in Section 3 of the Transfer of Property Act. An actionable claim is of course as its nomenclature suggests, only a claim. A claim might connote a demand, but in the context of the definition it is a right, albeit an incorporeal one. Every claim is not an actionable claim. It must be a claim either to a debt or to a beneficial interest in movable property. The beneficial interest is not the movable property itself, and may be existent, accruing, conditional or contingent. The movable property in which such beneficial interest is claimed, must not be in the possession of the claimant. An actionable claim is therefore an incorporeal right. That goods for the purposes of Sales Tax may be intangible and incorporeal has been held in Tata Consultancy Services Vs. State of Andhra Pradesh (2005) 1 SCC 308.
38. What then is the distinction between actionable claims and other goods on the sale of which sales tax may be levied? The Court in Vikas Sales (supra) said
35. “when these licenses/scrips are being bought and sold freely in the market as goods and when they have a value of their own unrelated to the goods which can be imported there under, it is idle to contend that they are in the nature of actionable claims”
It was assumed that actionable claims are not transferable for value and that that was the difference between ‘actionable claims’ and those other goods which are covered by the definition of ‘goods’ in the Sale of Goods Act, 1930 and the Sales Tax Laws. The assumption was fallacious and the conclusion in so far as it was based on this erroneous perception, equally wrong
39. The Transfer of Property Act 1882, deals with transfer of actionable claims in Chapter VIII of that Act. Section 130 of the Transfer of Property Act provides that an actionable claim may be assigned for value. A right on the fulfillment of certain conditions to call for delivery of goods mentioned in a contract is an actionable claim and assignable under Section 130. (See Jaffer Meher Ali Vs. Budge-Budge Jute Mills Co.(1906) 33 Cal.702). There may also be assignments of an actionable claim dehors Section 130 (See Bharat Nidhi Ltd. Vs. Takhatmat (1969) 1 SCR 595). Negotiable Instruments, another species of actionable claim, are transferable under the Negotiable Instruments Act Transferability is therefore not the point of distinction between actionable claims and other goods which can be sold. The distinction lies in the definition of actionable claim. Therefore if a claim to the beneficial interest in movable property not in the vendee’s possession is transferred, it is not a sale of goods for the purposes of the sales tax laws.
40. An actionable claim would include a right to recover insurance money or a partner’s right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India V. Sarada Mills (1972) 2 SCC 877, 880). A claim for arrears of rent has also been held to be an actionable claim (State of Bihar V. Maharajadhiraja Sir Kameshwar Singh 1952 SCR 889, 910). A right to the credit in a provident fund account has also been held to an actionable claim ( Official Trustee, Bengal v. L. Chippendale, AIR 1944 (Cal.) 335; Bhupati Mohan Das v. Phanindra Chandra Chakravarty & Anr. AIR 1935 (Cal.) 756). In our opinion a sale of a lottery ticket also amounts to the transfer of an actionable claim.
Thus the compensation received by the appellant towards termination of Development Agreement is to be treated as actionable claim which is not liable to service tax in terms of Section 65B(44) of the Finance Act.
22. Otherwise, also the issue regarding development right as to whether the same will not amount is service or not has been decided by this Tribunal in case of DLF Commercial Projects Corporation, Gurugram, Haryana vs. Commissioner of Service Tax, Gurgaon, Haryana [2019-TIOL-1514-CESTAT-CHD], wherein it is held that the ‘development right’ is not a service in terms of Section 65 B(44) of the Act. Therefore, we propose to examine the definition of service and also the relevant clauses of the Development Agreement which is as under;
The taxable service under Finance Act 1994 is defined as follows;
“(44) ‘ service’ means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include
(a) An activity which constitutes merely-
– A transfer of the title in goods or in any other manner, or
– Such transfer, delivery or supply or any goods which is deemed to be sale within the meaning of clause (29A) of the Article 366 of the Constitution, or
– A transaction in money or actionable claim,”
In the instant case also the impugned agreement consists of the aforesaid mandatory clause.
Therefore, we propose to examine the definition of service in the Finance Act vis-a-vis Development Agreement and also the clauses contained therein.
The Development Agreement clearly involves the following benefits,
(a) A License to enter upon the schedule property and to develop the same.
(b) Authority to enter upon the scheduled property for construction and development of the buildings.
(c) The permission is to enter upon the scheduled the property only for carrying out the development activities.
(d) In case the Developers failed to deliver possession of the entirely of the owners area within the stipulated time period, the Developer would be liable to pay to the Owner liquidated damage as may be mutually agreed upon.
As the owner of the land could not provide the Contiguous piece of land within stipulated period, the Development agreement was terminated in terms of Settlement Agreement. The salient features of which is below mentioned;
a. Each of the land owners agreed to pay a definitive sum of money to the Appellant-Developer to resolve all claims of settlement
b. Parties, i.e., the owners and the Developers released each other from all rights and claims that they might have against the other arising from the dispute.
c. This agreement was the result of a negotiated settlement.
d. The parties were mutually agreed that each of the owners would pay to the Developer the sum as full and final settlement amount to terminate the development agreement executed on 5th April, 2012.
e. On receipt of the settlement money, Developers would not have any intention to proceed with this dispute.
f. Developer had agreed and terminated the Agreements.
g. Both the parties were making these agreements (Terms of Settlement) in sound state of mind.
h. These agreements were intended to bind and benefit the parties(owners and Developers)
i. Except as provided in these Agreements(terms of settlement), each of the parties released and discharged the other from any and all claims and causes of action, whether known or unknown, that had arisen as of the date of the Development Agreements including without limiting the generality of the foregoing, any or all claims that were or could have been made by the parties. Each of the parties acknowledges and expressly waived the provisions of Code of Civil Procedure, 1908 of India.
23. From the perusal of the two agreements, we find that the Development Agreement and Settlement Agreement are arising out of the transaction pertaining to sales/development of the pieces of land between the Appellant and land owners, and the land owners failed to provide land to the Appellant, and therefore, the liquidated damage was granted as per Settlement Agreement which is the benefit that would have arisen out from the development of land. The issue arising the value of Development Right stand decided in case of DCPC(supra). The relevant portion of the order is reproduced as under;
“6. On hearing the parties, the sole issue emerges before us is whether the appellant has transferred any land development right in favour of M/s DLF Ltd. or not? To decide the issue, we have to go to the facts of the case, we find that as per the business module of M/s DLF Ltd. they are engaged in the business of Real Estate Development of integrated township and construction. As per their business module, they appointed the appellant to purchase the land on their behalf and thereafter to obtain certain permissions from various Govt. Department and to handover the land to DLF Ltd. as per agreement dated 02.08.2006 for further development and thereafter to transfer the same to the appellant for construction and sale the flats/properties developed by M/s DLF Ltd to various prospective buyers. At the time of transferring the constructed property to prospective buyers, there is a tri-pirate agreement between the land owning company, M/s DLF Ltd. and the prospective buyers and documents of transfer of title were executed at that time. It shows that in the entire transaction, the LOCs remain the owner of the land and as per the agreement, the development activities is taken place and thereafter developed property was sold by M/s DLF Ltd as per tri-pirate agreement to the prospective buyers upon execution of sale deed of land by the LOCs.
7. In this background, as per the facts, which are not in dispute that M/s DLF Ltd have given a sum of Rs. 1423.83 Crores to the appellant for purchase of land and the said amount has been paid by the appellant to various land owning company (LOCs). It is also a fact on record that the land owning company remained the owner of the land and have not transferred the land in the name of the appellant unless and until if the appellant become the owner of land, how the appellant can transferred development right in favour of the DLF Ltd.
8. Admittedly, from the facts of the case, it emerges that the advance to purchase of land given by M/s DLF Ltd to the appellant which has been further given to the LOCs to purchase the land who ultimately purchased the land. The activity of the appellant would have been started only after acquisition of land and thereafter to procure NOC from the various Govt. Authorities and thereafter development activities on the land. The agreement which is based in this case dated 02.08.2006 does not say that the appellant have actually transferred the development rights. In fact, the said agreement is futuristic in nature which says that in further on acquisition of land, the appellant shall transfer the development rights to M/s DLF Ltd, it means that when the appellant never remain the owner of the land at the time of receiving the advance from M/s DLF Ltd. against purchase of land by the appellant, how can be the appellant transfer the land development right to M/s DLF Ltd.
9. We also take a note of the fact that the Ld. AR disputed that the amount received by the appellant is paid by DLF Ltd. to the appellant for acquisition of development rights. It is a fact on record that the appellant is not the owner of the land, therefore, how can he transfer development rights to M/s DLF Ltd. and as per the records, the amount given by M/s DLF Ltd. has been transferred by the appellant to various LOCs for purchase of the land. Therefore, it is mere transaction of the sale and purchase of land or purchase of land by the appellant for DLF Ltd. for further development. As appellant did not get any ownership of the land, in that circumstances, transfer of development right does not arises. There is no such agreement placed on record that any LOCs (who are the owner of the land) has transferred any development rights to the appellant. If so, how much the consideration paid by the appellant and in that circumstances, the land owning company (LOCs) are liable to pay service tax. Admittedly, LOCs were never issued show cause notice and nor made the party to the show cause notice in question. In such a situation, the question of transfer of development right by the appellant does not arise. These findings are on the factual aspect of the case.
10. We further find that in this case, when the land-owning 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 65B (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 under 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.
11. From the above, it is a factual aspect of the case that the amount remitted by M/s DLF Ltd to the appellant is towards the acquisition of land by the LOCs which the said payment received from M/s DLF. Ltd was transferred to LOCs for acquisition of land. Further, no physical acquisition of land was taken over by the appellant. Consequently, the appellant have no right to transfer land development to M/s DLF Ltd.
12. From the above, it is clear that the appellant has not transferred any land development right to M/s DLF Ltd. or its subsidiary nominees etc.
13. We also take a note of the fact that similar facts enumerate from the case of Premium Real Estate Developers vs. CST-Service Tax, Delhi in Appeal No. ST/50103-50104/2014 wherein the facts of the case are as under:-
2. The appellant ‘Premium Real Estate Developers’, New Delhi is a partnership firm and is in the business of real estate trade. The main objective of the partnership firm is to carry on the business of purchase, sale, develop, take and exchange or otherwise, whether for investment or sale in any real estate includinglands to carry on the business of builders, contractors, dealers in land, building and any other activity in connection therewith and incidental thereto.
3. Sahara India Commercial Corporation Ltd.(‘Sahara India’ for short) was interested in acquiring large parcels of land for setting up townships. Accordingly Sahara India entered into three separate but similar memorandum of understanding with the appellant firm for acquiring three large parcels of land at three different locations as follows;
|Name of the associate||Place/Sites||Date of the MOU||Area of the land (in acre intended to acquire)||Average
|M/s Premium real estate developers||Kanpur||09.08.2003||100||8,50,000/-|
4. Under the MOU, Sahara India, had agreed to pay an average rate per acre of land to be purchased by Sahara India, which land would be identified, divided and demarcated by the appellant firm together with necessary documents and other formalities. The MOU for each site specifically provided the obligations of both the parties. It specifies that Sahara India had agreed to procure land at the aformentioned locations, at the fixed average rate per acre, which included all the cost of land, development expenses (items). The obligations of the appellant under the MOU were- (a) divide and demarcate the entire land into the blocks of 20 to 30 acres, (b) purchase the land in contiguity block wise, (c) furnish title papers and other necessary documents for the land to be purchased (d) obtain the permission and approval from the concerned authority for transfer of land and the expenses incurred in this regard, would be borne by the appellant firm, (e) bring the owners of the land for the purposes of negotiating, registration, etc , to the relevant places and bear all the expenses involved on these. The MOU further provided that the other expenses like stamp duty/registration charges, mutation charges would be borne by Sahara India. On satisfaction by Sahara India about the fitness of deal(s) for the land, appellant firm shall organise the registration in the name of Sahara India, after making the payment to the owners of land, from the advance amount given to them for the purchase of land. The difference, if any, between the amount actually paid to the owners of land and the average rate per acre settled between the parties as indicated, would be payable to the appellant firm, as their margin or profit. Further Sahara India had reserved its right to withhold 50 per cent of the amount (out of margin) to ensure that the obligations on the developer/appellant are fully discharged in terms of the MOU, and in case there was any serious default on the part of the appellant, the same could be made good by way of forfeiture of such amount, so withheld.
5. Pursuant to the MOU, the appellant firm received advance amount from Sahara India for each site. Substantial part of such amount was used by the appellant to pay to the seller or the prospective seller of the land, for agreeing to sell land to Sahara India. The details of such amount based on the payment made by Sahara India, are as follows;
|Place/Site||Amount paid under land purchase head to appellant||Area of land transferred in the name of Sahara(in acres)||Amount as per sale deeds in Rs.||Amount under development head|
6. For the purpose of reference we refer to Memorandum of Understanding (MOU) dated 15th November 1983, related to Lalitpur town, entered between Sahara India and the appellant, wherein Sahara India was interested to purchase 100 acres of land for developing residential township in and around the city of Lalitpur. The appellant assured to make available 100 acres of land situated in the village Rora, Distt. Lalitpur U.P.,with direct opening or acess of at least 1000 feet on the National highway. The salient features of the agreement are;
6.1 The process of land purchase shall be in a compact contiguous, adjacent and plot wise or block wise manner starting from the roadside.
6.2 The appellant shall furnish the title papers and all other necessary documents with reference to the land proposed, within 15 days from the date of signing of the MOU.
6.3 Thereafter the appellant shall obtain and furnish, each and every other necessary permission/ approval from the Government body/competent authority, or other regulatory authority, required for transfer of the land proposed, and further arrange for the purchase of land proposed under the MOU, at the average agreed rate per acre, within two months or within such further time at the discretion of Sahara India. 6.4 All expenses for obtaining proof of title and approval (except for ULC clearance) required for the transfer of title in the land shall be borne by second party, that is the appellant, and all the supporting documents furnished in respect thereof shall reflect the latest position of the ownership of land.
6.5 Thereafter scrutinising the papers relating to title, the first party- Sahara India shall enter into an agreement of sale with the owners of the land, after payment of advance/signing amount, in favour of the cultivators/owner of the land.
6.6 Thereafter having completed and covered the entire land(area) under the MOU through agreement(s) to sell, the appellant shall thereafter get the sale deed(s) executed by the cultivators/ownersof land in favour of Sahara India or its nominees, after payment of remaining amount towards purchase. Where there are several coowners in a ‘Khata’ (entry in the land record) the second party/appellant shall ensure that all the co owners execute the document (sale deed) at one time. In no case shall any document be executed by part co owners. That in the case the land is owned by minor, lunatic or an insane person, appellant will get appropriate guardianship certificate from the competent court/authority and agreement to sell shall be executed only with such guardian. In case any dispute is pending before any civil court or revenue Court, regarding title, share or for partition of the property, the appellant will try its best to get the settlement arrived among the co sharers/co owners and agreement to sell shall be executed accordingly.
6.7 That it is the responsibility of the appellant for bringing the cultivators/land owners to the Registrar office along with the necessary documents and photograph and to witness execution/registration of the documents.
6.8 That all payments to the Kashtkar/land owners, shall be made through pay orders/ demand drafts/account payee cheques. That the difference, if any, of the amount being actually paid to the cultivators/owner of land and the average rate, shall be payable to the appellant. Such payment of difference to the appellant shall be regulated in such amanner so as to ensure the performance of the terms and conditions of the MOU. The first party Sahara India may under discretion withhold maximum up to 10 per cent of the amount payable to the second party/appellant to ensure peaceful/proper demarcation and possession, mutation and construction of the boundary wall of the entire land. In case, the appellant fails to fulfil its obligations as stipulated in the terms of the contract/MOU, the same can be terminated by Sahara India and the withheld amount is liable to be forfeited. All expenses for registration of documents relating to the transfer or agreement of sale, etc., shall be borne by Sahara India. Further all expenses of mutation of land in the office of the concerned Revenue authority shall be borne by Sahara India and the appellant shall be required to coordinate and to do the work of Pairvi in respect thereof in the concerned offices and shall provide to Sahara India all necessary help so as to get the work of mutation completed. 7. It appeared to Revenue that the appellant was liable to pay the service tax under the classification ‘Real Estate Agent Service’ (introduced with effect from 1st October,2004) under section 65(88) of the Finance Act which defines a ‘real estate agent’ as a person who is engaged in rendering any service in relation to sale, purchase, leasing and renting, of real estate and includes a real estate consultant.
In the above stated facts which are similar to facts of this case, this Tribunal vide Final Order No. 53322-53323/2018 dated 27.11.2018 observed as under:-
28. From the perusal of Memorandum of Understanding (MoU) between the appellant and M/s Sahara India Ltd. It is very obvious that MoU is not only for providing purely service for acquisition of the land but involves many other function such as verification of the title deeds of the persons from whom the lands are to be acquired and obtaining necessary rights for development of the land from the Competent Authority. The remuneration or payment for providing this activity has actually not being quantified in the MoU. The MoU provides that “the difference, if any, of the amount being actually paid to the owner of the land and the average rate shall be payable to the second party (appellant). It is very clear from the provision of the MoU that the amount payable to the appellant is not quantified and it is more of the nature of a margin and share in the profit of the deal in purchase of land. We feel that for levy of service tax, a specific amount has to be agreed between the service recipient and the service provider. As no fixed amount has been agreed in the MoU which have been signed between the parties, the amount of the remuneration for service, if any is not clear in this case. In this regard, we also take shelter of this Tribunal’s decision in the case of Mormugao Port Trust vs. CC, CE&ST, Goa – 2017 (48) S.T.R. 69 (Tri. – Mumbai). The relevant extract is reproduced here below :-
“18. In our view, in order to render a transaction liable for service tax, the nexus between the consideration agreed and the service activity to be undertaken should be direct and clear. Unless it can be established that a specific amount has been agreed upon as a quid pro quo for undertaking any particular activity by a partner, it cannot be assumed that there was a consideration agreed upon for any specific activity so as to constitute a service. In Cricket Club of India v. Commissioner of Service Tax, reported in 2015 (40) S.T.R. 973 it was held that mere money flow from one person to another cannot be considered as a consideration for a service. The relevant observations of the Tribunal in this regard are extracted below :
“11. …Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. … The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient.
12. … Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transaction will not arise. Contributions for the discharge of liabilitiesor for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit soderived.
13. … Neither can monetary contribution of the individuals that is not attributable to an identifiable activity be deemed to be a consideration that is liable to be taxed merely because a “club or association” is the recipient of that contribution.
14. … To the extent that any of these collections are directly attributable to an identified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable.”
29. We feel that since the specific remuneration has not been fixed in the deal for acquisition of the land we are of the view that both the parties have worked more as a partner in the deal rather than as an agent and the principle, therefore we are of view that taxable value itself has not acquired finality in this case.
30. It is also seen that some of the MoUs were not fully executed at the time of the issue of the show cause notice for example, in the case of MoU dated 15/11/2003 entered between Sahara India Ltd. and the appellant, the agreement is for provisioning of 100 acres of land at Village Rora, Distt. Lalitpur, U.P. and for this purpose an amount of Rs. 6,75,00,000/- have been remitted for land cost andan amount of Rs. 1,66,50,000/- have been remitted for the purpose of stamp duty and registration. Thus, a total amount of Rs. 8,41,50,000/- have been remitted to the appellant out of which a total amount of Rs. 3,66,32,000/- have been spent by the appellant for procurement and registration of land. Thus, an amount of Rs. 4,75,18,000/- still remain unspent with the appellant. It is to be seen that out of the above amount though the MoU was for 100 acres of land till the issue of the show cause notice only 77.96 acres of land could only be acquired and thus the remaining amount still was to be used for procurement/acquisition of balance land. This indicates that firstly; the MoU has not been executed fully and therefore the actual remuneration to the appellant have not got finalized and therefore we feel that issuing the show cause notice in such a stage was premature and unwarranted.
31. As discussed above, since the exact amount of remuneration for providing any service, if any, has not been quantified at the same time since most of the MoU remained to be fully executed and therefore the exact amount of remuneration, which was the difference in amount paid to the seller of land and average price decided in MoU, could not be finalized and therefore we feel that taxable value has not reached finality and therefore demanding service tax on the entire amount paid to the appellant for acquisition of land is not sustainable in law in view of the discussion in the preceding paras.
32. Further we find that the issue relates to interpretation, and there is no malafide on the part of the appellant. The transaction is duly recorded in the books of accounts maintained by the appellant. Further there is no suppression of information from the revenue. Accordingly, we hold that the extended period of limitation is not applicable.
14. Now, we deal with the legal aspect of the case. Section 65B(44) of the Finance Act, 1994 defines the services and excluded certain activities which are as under:-
any activity which constitutes merely –
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution, or
(iii) a transaction in money or actionable claim;”
As per the said provisions, the transfer of title in goods or immovable property, by way of sale, gift or in any other manner is not a service and no service tax is payable thereon.
15. As immovable property has not been defined in the Finance Act, 1994, therefore, as per Section 3 (26) of the General Clauses Act, 1897, the immovable property means as under:-
(26) “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;
16. On going through the said definition, the immovable property includes land benefit arising out of land. In the case of transfer of development rights of the land, therefore, it is to be seen in the legal aspect whether the benefit arising out of land can be equated to transfer of development rights of land or not?
The said issue has been examined by the Hon’ble Allahabad High Court in the case of Bahadur and Others vs. Sikandar and Others wherein the Hon’ble Apex Court observed as under:-
“Therefore, the principal question we have to consider is whether the right to collect dues upon a given piece of land, the property of the alleged lessor, is a benefit to arise out of land within the purview of Section 3 of the Registration Act. In our opinion, the right to collect dues upon a given spot is such a benefit, and therefore, we are constrained to find that the document in question purported to convey that which falls within the definition of immovable property. The so-called lease being an unregistered instrument, it could not effect the transfer and could not be admissible in evidence. We are therefore of opinion that the Court of first instance was right. We set aside the order of the lower appellate Court and restore the decree of the Court of first instance with costs in all courts.”
Further, in the case of Chheda Housing Development Corporation vs. Bibijan Shaikh Farid, the Hon’ble High of Bombay observed as under:-
15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants in so far as the additional FSI is concerned, are not entitled for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under Section 3(26) has been defined as under:-
(26) “immovable property’ shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.” If, therefore, any benefit arises out of the land, then it is immovable peruperty. Considering Section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish the compensation in money would be an adequate relief.
Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgements for that purpose. In Sikandar and Ors. Vs. Bahadur and Ors. 27 ILR 462 a Division Bench of the Allahabad High court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of Section 3 of the India Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by resitered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and Anr. V. Hanuman Prasad and Ors. AIR 1940 Oud 409 also held, that bazaar dues, constitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable Allahabad High court in Smt. Dropadi Devi v. Ram Das and Ors. MANU/UP/0120/1974 : AIR1974AII473 on a consideration of Section 3 (26) of General Clauses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief. “
Further, the issue was examined by the Hon’ble High Court of Bombay again in the case of Shadoday Builders Private Ltd. and Ors. Vs. Jt. Charity Commissioner and Ors (supra) wherein the issue was in respect of sale of transferrable development right is immovable property or not?
The Hon’ble High Court observed as under:-
“5. The principal issue which arose before the learned Joint Charity Commissioner as to whether the TDR could be termed as a movable property, is concluded and is no more res integra in view of the judgment of the Division Bench of this court reported in 2007(3) Mh.L.J. 402 in the matter of Chheda Housing Development Corporation ..vs.. Bibijan Shaikh Farid and ors.Para no.15 of the said judgment is material and is reproduced here under.
15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants insofar as the additional F.S.I. is concerned, are not entitled for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under section 3(26) has been defined as under : –
(26). “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.”
If, therefore, any benefit arises out of the land, then it is immovable property. Considering section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish that compensation in money would be an adequate relief.
Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgments for that purpose. In Sikandar and ors. .vs. Bahadur and ors., XXVII Indian Law Reporter, 462, a Division Bench of the Allahabad High Court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of section 3 of the Indian Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by registered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and anr. .vs. Hanuman Prasad and ors., AIR 1940 Oudh 409 also held, that bazaar dues, constitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable property. A similar view has been taken by another Division Bench of the Allahabad High Court in Smt.Dropadi Devi vs. Ram Das and ors., AIR 1974 Allahabad 473 on a consideration of section 3(26) of General Clauses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief.”
6. The Division Bench has held that since TDR is a benefit arising from the land, the same would be immoveable property and therefore, an agreement for use of TDR can be specifically enforced. The said dictum of the Division Bench is later on followed by a learned single Judge of this court in 2009(4) Mh.L.J.533 in the matter of Jitendra Bhimshi Shah ..vs.. Mulji Narpar Dedhia HUF and Pranay Investment and ors. The learned judge relying upon the judgment of the Division Bench in Chheda Housing Development Corporation (supra) has held that the TDR being an immovable property, all the incidents of immovable property would be attached to such an agreement to use TDR. In view of the judgments of this court (supra), in my view, the order of the Charity Commissioner that no permission under Section 36 is required as TDR is a movable property cannot be sustained and therefore, the application filed by the respondent no.2 – Trust under Section 36 of the said Act would have to be considered on the touch stone of the said Section 36 and also on the touch stone of the principles applicable to such a sale by a Trust.
As the Hon’ble High Court observed in the case of Sadoday Builders Private Ltd. and Ors. (supra) that transferrable development right is immovable property, therefore, the transfer of development rights in the case in hand is termed as immovable property in terms of Section 3 (26) of General Clauses Act, 1897 and no service tax is payable as per the exclusion in terms of Section 65B(44) of the Finance Act, 1994.
17. We also take a note of the fact that from time to time the query was made to the Revenue by the trade organization as well as M/s DLF Ltd whether they are liable to pay service tax on transfer of development right of land or not and the same was not answered till yet which means revenue itself is not clear whether the said activity is taxable service or not. In that circumstances, we hold that the extended period of limitation is not invokable and it cannot be said that the appellant did not pay service tax with malafide intentions.
18. We also take a note of the fact that the land owning company have not transferred any development right in favour of the appellant form the facts before us. Therefore, it cannot be said that the appellant has transferred any development right of land to M/s DLF Ltd.”
24. Therefore, once it is held that the Development Right is not service but it is benefit arising out of immovable property there is no scope of levy of service tax on the sum received out of the Settlement claim. Thus the impugned order is not sustainable on this score.
25. We also find a considerable force in the contention raised by the learned Advocate that the compensation received by the Appellant from the cultivators and M/s AML, the debt in present and future, which as per Transfer of Property Act in the category of Actionable Claim placing reliance on the decision of Hon’ble Supreme Court in case of Kesoram Industries and Sunrise Association(Supra)
13. A careful reading of the Settlement Agreement in question clearly show that the land owners have agreed to pay a definite sum, that is, an ascertained amount to the Appellant-developer to resolve all claims of settlement. The settlement agreements have resulted in creation of a debt in favour of the Appellant. Under the said circumstances a debt is clearly created and the said amount would fall within the scope and ambit of an actionable claim within the meaning of Section 3 of the Transfer of Property Act, 1882 and hence excluded from the definition of ‘ service’ as per Section 65B(44).
14. It is submitted that the amount in question is an ‘ actionable claim’ which is not liable for any service tax under the provisions of the 1994 Act. The meaning, nature and scope of actionable claim has been dealt with in detail by the Constitution Bench of the Hon’ble Supreme Court of India in case of Sunrise Association vs. Govt. of NCT of Delhi reported in (2006) 5 SCC 603.
26. Thus, we held that the entire sum of money would be classified as Actionable Claim which otherwise is beyond the scope of service tax under Section 66B(44) (iii) of the Finance Act. If the transaction of Development Agreement, Settlement Agreement and compensation not fall under ‘Service’ under the Finance Act there is no application of Section 66 E(e) of the Act ibid.
27. As far as the compensation received from M/s Amit Mines is concerned, the Show Cause Notice mentions the leviablity of Service tax on the amount received towards the compensation for non supply of the agreed quantity of manganese ore under Section 64 E(e) of Finance Act which is even otherwise is purely the transaction sale of the iron ore to the Appellant by M/s Amit Mines. Thus, the compensation amount is towards default on the sale of the goods. The sale could not be effected and, therefore, Appellant received the liquidated damage by way of raising the debit note which was honoured by M/s AML. Thus, this amount of compensation/ liquidated damage cannot be treated as service under Section 64 E(e) of the Act. The demand is thus not sustainable on this aspect also.
28. The submissions of learned DR that the liquidated damage has been held to be liable for Central Goods and Service Tax has no relevance in this case of Maharashtra State Power General Company (supra) as the Finance Act and the CGST Act is different enactment and also the issue therein was non performance of service agreement and not with the development of land as per Development Agreement.
29. In view of above, we do not find any merit in the impugned order and the same is liable for being set aside.
30. Thus for all the above reasons, we set aside the impugned order and allow the appeal with consequential benefit as per law.
(Order pronounced on 25.10.2019)