Case Law Details
Adithya Builders and Developers Vs Commissioner of Central Tax (CESTAT Bangalore)
In a major relief to the Adithya Builders and Developers, the Banglore Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that Service Tax Levy depends on services rendered, not on basis of agreements where no payment received by service provider.
The appellant, M/s. Adithya Builders and Developers has been engaged in selling of land, upon providing adequate infrastructure facilities; in this case, the appellant had entered into an agreement with the Government Employees House Building Co-operative Society Ltd., Mysore for carrying out various activities namely, procurement for land from farmers, getting land thus procured converted from agricultural land to non-agricultural land, seeking various government permissions and approvals, necessary till formation of residential layouts etc.
The appellant submitted that during the period from April 2011 to March 2016 (period in dispute), the appellant had only received the amount from the society, which pertains to the phase – I activities and that the entire amount received was spent by them for the purchase of land and payment of government fees. He further submitted that during the disputed period, the appellant did not provide any service nor did any physical activity on the agricultural land either before or after conversion into non-agricultural land.
The coram of Judicial Member, S.K. Mohanty and Technical Member, P. Anjani Kumar held that the activities undertaken by the appellant pursuant to the agreements entered into with the society will not fall under the taxing net for levy of service tax up to the period 01.07.2012. Similarly, the services provided by the appellant would also not fall under the purview and scope of the definition of “service” as per Section 65B (44) ibid for the period post 01.07.2012, onwards inasmuch as such definition clause has specifically excluded the activity of transfer of title in goods or immoveable property by way of sale etc. Hence, mere procurement of land from the farmers and getting necessary approval from the government authorities will not create a tax liability under the taxable category of “service”.
“No evidence whatsoever has been also adduced for the same. It is a settled legal position that levy of service tax depends on the service rendered, but not on the basis of agreements which were never fulfilled and no payment was received by the service provider,” the CESTAT said.
FULL TEXT OF THE CESTAT BANGALORE ORDER
Briefly stated, the facts of the case are that the appellant herein is engaged in selling of land, upon providing adequate infrastructure facilities; in this case, the appellant had entered into an agreement dated 28.03.2007 with the Government Employees House Building Co-operative Society Ltd., Mysore for carrying out various activities namely, procurement for land from farmers, getting land thus procured converted from agricultural land to non-agricultural land, seeking various government permissions and approvals, necessary till formation of residential layouts etc. The scope of work and the time limit for completion of the project under the said agreement were further extended by two more agreements dated 27.02.2009 and 05.11.2011. The scope of work as per the agreements was distributed into three phases. For carrying out the assigned task, the appellant was paid the amount as per the norms prescribed in the agreements. The Service Tax Department gathered the information regarding the agreement entered into between the parties for carrying out the above activities. Upon investigation into the matter, the department concluded that the activities undertaken by the appellant in pursuance of the agreements, should fall under the taxable category of “site formation and clearance, excavation and earth moving and demolition” service defined under Section 65 (97a) of the Finance Act, 1994 (up to 30.06.012) and thereafter, from 01.07.2012 under the category of “Services”, as defined under Section 65 B (44) ibid. Since, the appellant did not get itself registered with the Service Tax Department and did not discharge the service tax liability on such defined categories of taxable services, the department initiated show cause proceedings against the appellant, which culminated into the adjudication order dated 30.03.2017 (for short, referred to as the “impugned order”). Vide the said order, learned Commissioner of Service Tax has confirmed service tax demand of Rs.3,92,11,460/- along with interest under Section 73 (2) ibid and 75 ibid respectively. Besides, penalties were also imposed on the appellant under Section 77 ibid and 78 ibid. Feeling aggrieved with the impugned order, the appellant has preferred this appeal before the Tribunal.
2. The learned Advocate appearing for the appellant submitted that during the period from April 2011 to March 2016 (period in dispute), the appellant had only received the amount from the society, which pertains to the phase – I activities and that the entire amount received was spent by them for the purchase of land and payment government fees. He further submitted that during the disputed period, the appellant did not provide any service nor done any physical activity on the agricultural land either before or after conversion into non-agricultural land. Learned Advocate also submitted that the activities undertaken by the appellant relate to sale and purchase of land and that since no physical activities were undertaken in relation to phase – II and phase – III, the appellant should not be liable to pay service tax under Section 68 ibid. Further, he also submitted that the amount received by the appellant from the society have been properly accounted for in the books of accounts and also reflected in the income tax returns. The learned Advocate has relied upon the decision of this Tribunal in the case of Assotech Ltd. Vs. CCE, 2020 (43) G.S.T.L 198 (Tri. – All) and Ess Gee Real Estate Developers Pvt. Ltd. Vs. CCE, 2020 (34) G.S.T.L. 486 (Tri.-Del.) to strengthen the case of the appellant that the adjudged demands confirmed on them should not stand for judicial scrutiny.
3. On the other hand, the learned AR appearing for the Revenue reiterated the findings recorded in the impugned order. He further submitted that the residential layout designed by the appellant is in ready to use condition for construction of houses and accordingly, such activities undertaken by the appellant should appropriately be categorized as a taxable service under Section 65 (97a) for the period from 01.04.2011 to 30.06.2012 and for the period from 01.07.2012 onwards, the same should termed as taxable service in the definition provided under Section 65 B (44) The learned AR has relied upon the judgment of Allahabad High Court in the case NKG Infrastructure Ltd. Vs. Commissioner of Cus., C.Ex. & Service Tax, 2017 47 S.T.R. 113 (All.) to support the case of Revenue that confirmation of the adjudged demands on the appellant is in conformity with the statutory provisions.
4. Heard both sides and examined the case records, including the written submissions filed during the course of hearing of the appeal.
5. Clause (97a), defining the term “site formation and clearance, excavation and earth moving and demolition” was inserted in Section 65 ibid vide Finance Act, 2005 dated 13.05.2005 w.e.f 16.06.2005. Such definition was in vogue till introduction of the negative list concept, effective from 01.07.2012. Under the amended provisions, Section 65B was inserted in the statute book, providing for interpretation of various clauses contained therein. Clause (44) in the said section has assigned the meaning of the phrase ‘service’ for the purpose of levy and collection of service tax. The said definitions relevant for consideration of the present dispute are quoted herein below:
Section 65(97a) : “site formation and clearance, excavation and earthmoving and demolition” includes, –
(i) drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or
(ii) soil stabilization; or
(iii) horizontal drilling for the passage of cables or drain pipes; or
(iv) land reclamation work; or
(v) contaminated top soil stripping work; or
(vi) demolition and wrecking of building, structure or road,
but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies.
65B (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 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;
6. On perusal of the above referred agreements, we find that the scope of work assigned to the appellant for performance under the Phase-I project were limited for the purpose of purchasing of land from the farmers; signing of agreements of the proposed land in favour of the members of society; processing of papers with the Government and other statutory bodies for getting the land in favour of such members and for ensuring that the in-principle approval has been obtained for the layout plan from the concerned statutory authorities. Further, it is observed from the case records that the Partner of the appellant has sworn an affidavit dated 15.11.2021, confirming inter alia, that the appellant is still in the Phase I stage and had completed only purchasing of the land, seeking various permissions and that no physical activity has been started/undertaken for carrying out the work under the Phase II and Phase III projects. We have also perused the letter dated 27.11.2013 addressed by the Secretary of the housing society to the appellant, confirming payments made for the phase I in different heads of accounts. On examination of the available records, we find that the appellant had only undertook the activities for completion of phase I of the project and did not undertake any activities concerning phase II and phase III.
7. On careful consideration of the above extracted definitions, vis a vis, the facts of the case, we find that the appellant had merely procured land, paid Government fees etc. This activity, in no way, can be considered as a taxable service under the category of “site formation and clearance, excavation and earthmoving and demolition service” inasmuch as the work assigned under the agreement for completion of the phase I project do not attract any of the clauses itemized in the definition provided under Section 65(97a) ibid. Thus, in our considered view, the activities undertaken by the appellant pursuant to the agreements entered into with the society will not fall under the taxing net for levy of service tax up to the period 01.07.2012. Similarly, the services provided by the appellant would also not fall under the purview and scope of the definition of “service” as per Section 65B (44) ibid for the period post 01.07.2012, onwards inasmuch as such definition clause has specifically excluded the activity of transfer of title in goods or immoveable property by way of sale etc. Hence, mere procurement of land from the farmers and getting necessary approval from the government authorities will not create a tax liability under the taxable category of “service”, as defined (supra). We find support from the judgments relied upon by the appellant that under similar set of facts and circumstances, the provisions contained in the Service Tax statute shall not be attracted, calling for levy of service tax on activities undertaken by the appellant, which are restricted to buying land; selling of the same and payment of Government fees etc., in as much as the Phase I activity is concerned. It is not the contention of Revenue that the appellant has undertaken works as required in other phases, in terms of the agreements. No evidence whatsoever has been also adduced for the same. It is a settled legal position that levy of service tax depends on the service rendered, but not on the basis of agreements which were never fulfilled and no payment was received by the service provider. The ratio of judgments relied upon by the learned AR for revenue, were delivered in the context of entirely different set of facts than of the present case. Thus, the same cannot be relied upon for taking a contrary view.
8. In view of the foregoing discussions, we do not find any merits in the impugned order and as such, confirmation of service tax demand, interest thereon and imposition of penalties cannot be sustained. Therefore, by setting aside the impugned order, the appeal is allowed in favour of the appellant.
(Order pronounced in the open court on 16/12/2021)
