Site formation activity before sell of land is taxable under ‘Site formation and clearance service’

Green House Promoters Pvt Ltd Vs Commissioner of GST & Central Excise (CESTAT Chennai)

CESTAT Chennai held that site formation activity done after obtaining General Power of Attorney (GPA) but before selling the land is leviable to service tax under the category of ‘Site formation and clearance service’.

Facts- The appellants are registered with the Service Tax Department for providing construction services in respect of commercial or Industrial buildings and civil structures.

On verification and scrutiny of records of the appellant, it was noticed that the appellant was engaged in promotion of layouts! projects which are then marketed as plot! land for residential construction for individual customers! commercial customers. They collected development charges from the buyers. However, the appellant neither paid service tax nor filed periodical ST-3 returns. Hence a Show Cause Notice as issued to the appellant proposing to demand service tax to the tune of Rs.5,30,04,265/- under the taxable service ‘Site Formation and Clearance’ service as per section 65(105)(zzza) of the Finance Act, 1994, under proviso to section 73(1) of the Finance Act, 1994. Further demand of interest and imposition of penalties were also proposed.

Adjudicating authority confirmed the said demand. Being aggrieved, appellant has preferred the present appeal.

Conclusion- Hence the averment of the appellant that Section 53A of Transfer of Property Act envisages situations where under the contract of transfer of immovable property the transferee has paid the consideration and taken possession of the property even without the execution of the sale deed the transfer takes place and the transaction is recognized as a valid transfer of property, is incorrect and not sustainable in law. Their entire argument of self-service hence falls through. The activity of land development as rendered by them for a consideration is hence liable to Service Tax as per the taxable service ‘Site Formation and Clearance Service’ under section 65(105)(zzza) of the Finance Act, 1994.

Held that, even on the land sold by the appellant as per the General Power of Attorney (GPA) obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land, service tax is payable under the classification heading ‘Site formation and clearance’ service.

FULL TEXT OF THE CESTAT CHENNAI ORDER

This appeal is filed by the appellant against Order in Original No. CHN-SVTAX-000-COM-047-13-14 dated 22.1.2014 passed by the Commissioner of Service Tax, Chennai who vide the impugned order has confirmed the service tax demand of Rs.5,30,04,265/- along with appropriate interest and also imposed penalties.

2. Brief facts of the case are that the appellants who are registered with the Service Tax Department for providing construction services in respect of commercial or Industrial buildings and civil structures. On intelligence that the appellant is not paying service tax on land development charges, the Survey, Intelligence and Research (SIR) Unit, Chennai took up investigation of the case. On verification and scrutiny of records of the appellant, it was noticed that the appellant was engaged in promotion of layouts! projects which are then marketed as plot! land for residential construction for individual customers! commercial customers. They collected development charges from the buyers. However, the appellant neither paid service tax nor filed periodical ST-3 returns. Hence a Show Cause Notice dated 17.10.2012 was issued to the appellant proposing to demand service tax to the tune of Rs.5,30,04,265!- for the period from 2007^–08 to 2011^–12 under the taxable service ‘Site Formation and Clearance’ service as per section 65(105)(zzza) of the Finance Act, 1994, under proviso to section 73(1) of the Finance Act, 1994. Further demand of interest and imposition of penalties were also proposed. After due process of law, the adjudicating authority confirmed the service tax demand as proposed in the Show Cause Notice. He held that the appellants have rendered ‘Site Formation and Clearance’ service to the buyers of the lands for which consideration towards the said activity has also been received from the buyers. He stated that it proves beyond doubt that there is a service provider and service receiver and there is a consideration for the service which is liable for service tax. The adjudicating authority has also imposed a penalty under sec. 78 of the Finance Act, 1994. Aggrieved by the impugned order, the appellants are now before the Tribunal.

3. No cross-objection has been filed by the respondent-department.

4. We have heard learned counsel Smt. Radhika Chandrasekar for the appellant and learned AR Shri N. Satyanarayanan, Assistant Commissioner for the Revenue.

5. The learned counsel Smt. Radhika Chandrasekar submitted that the appellant is engaged in construction services and real estate The appellant is not engaged in providing site formation and clearance services. They purchase lands from various individuals by executing valid sale deeds or by way of Irrevocable General Power of Attorney (GPA). The transaction is recognized as a valid transfer of property under Section 53A of the Transfer of Property Act. Appellant has the absolute possession and right of enjoyment over the land so purchased. Hence anything done on this land is only a self-service. The appellant developed these lands by putting layout, clearing unwanted vegetation etc. before selling the land in order to enhance the sale value of land. These activities are activities which are incidental to sale and cannot be considered as a different activity. The nature of transaction is nothing but sale of immovable property which is outside the ambit of Service Tax and development is only incidental to the sale of land. A similar pattern was followed in the sale of land to MRF Ltd (MRF). MRF entered into an agreement with the appellant for purchasing land for their new projects in Tamil Nadu. The total price was inclusive of cost of land plus development charges and this price was fixed by the parties and any amount beyond this would be borne by the Appellant. The Appellant has paid the consideration to the land owner which is indicated in the power of attorney agreement and has also discharged stamp duty. This indicates that the Appellant is not an agent but an independent party purchasing the land and selling the land to MRF and the appellant has offered the amount to Income tax. The invocation of extended period is not justified as the Appellant has not suppressed any facts. The Appellant has been filling ST-3 returns regularly and the law mandates only to inform the taxable revenue in the ST-3 returns and the appellant was under a was a bonafide belief that development charges are not liable to be taxed as the agreement is for sale of land and the development is being carried out prior to registration. She hence prayed that the impugned order be set aside.

6. The learned AR Shri N. Satyanarayana reiterated the findings in the impugned order.

7. Heard both sides.

8. We find that on merits, this is a case in which the appellant has stated to be carrying out two types of transactions. One is an outright purchase of land that is further sold reportedly after developing it, before selling the land in order to enhance the sale value of land. Secondly, they sell the land to buyers on the strength of the GPA executed in their favour by landowners. After the execution of GPA and prior to the sale of the land to buyers they develop the land to enhance the land value. These activities according to them are activities which are incidental to sale and cannot be considered as a different activity. In both the cases they are of the opinion that since the land is in their possession anything done on this land is only self-service. The appellant is not an agent but an independent party purchasing the land and selling the land. The nature of the transaction is nothing but sale of immovable property which is outside the ambit of Service Tax. Hence two issues arise for consideration.

A) Whether on the land purchased outright by the appellant from the landowners and where site formation etc. is done after purchasing the land but before selling it, service tax is payable under the classification heading ‘Site formation and clearance’ service.

B) Whether on the land sold by the appellant as per the GPA obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land, service tax is payable under the classification heading ‘Site formation and clearance’ service. 1 The issue of time bar will be examined separately, if need be, after examining the issue on merits.

8.2 Before examining the above issues it would be beneficial to extract the relevant provisions of the Finance Act 1994 and also the activities of ‘site formation’ performed by the appellant, which is under dispute.

8.2.1 Section 65(97a) defines ‘site formation and clearance, excavation and earthmoving and demolition’ as under –

“site formation and clearance, excavation and earthmoving and demolition” includes ²

(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”.

The definition is an ‘inclusive’ one with specific ‘exclusions’. The Taxable service as per Section 65(105)(zzza) of the Finance Act, 1994 is defined as under;

“to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities”

It is relevant to note that the taxable activity is service in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities rendered ‘to any person, by any other person’. Ownership of the land where the service is rendered is not mentioned and is hence not a relevant condition for determining the taxable service.

8.2.2 The relevant portions of Agreement dated 27/06/2007 between M/s MRF Ltd and Green House Promoters (Pvt) Ltd. is reproduced below:-

AND WHEREAS the Second party has further represented to the First Party that they have entered into negotiations and have obtained the authority to negotiate on behalf of the owners / occupiers of the land in the “SCHEDULE PROPERTY” hereunder and is in a position to arrange for the purchase / registration of the entire ‘SCHEDULE PROPERTY’ in favour of the First Party at a sale price of Rs.4,35,000/- (Rupees four lakhs thirty five thousand only) per acre inclusive of land cost and development charges etc. if any. The Second Party shall also do the development of the land post sale or simultaneously for which there shall be a fixed priced of Rs.2,90,000/- (Rupees two lakhs and ninety thousand only), thus making the total consideration per acre under this agreement at Rs.7,25,000/- (Rupees seven lakhs twenty five thousand only). The land will be conveyed to the First Party within a period of 180 days from the date of execution of this agreement. The development charges include, charges towards land approvals if any, brokerage, legal expenses, ground leveling, earth filling and fixing of boundary stones etc.

(emphasis added)

Shri R.P. Paramesh Kumar, Director of the appellants company who was jointly looking after the entire affairs of the company, has in his statement dated 21/09/2012 stated that, “they use machines if required to level the ground, laying of roads” etc. We now examine the two issues listed above.

9. Whether on the land purchased outright by the appellant from the landowners and where site formation etc. is done after purchasing the land but before selling it, service tax is payable under the classification heading ‘Site formation and clearance’ service.

9.1 The appellant has stated that they are not engaged in providing site formation and clearance services, they have, in certain cases, purchased lands directly from landowners and developed the same to enhance its value before re-sale to customers. They have also produced some agreements! sale deeds before us for perusal. It is their view that since the activity of site development in this case is self-service, no tax is payable. How site formation and clearance services is different from developing the land is not explained. They further state that the issue is squarely covered by the decision in the case of Hallmark Infrastructure Pvt Ltd Vs Commr. of GST & CE Final Order No. 43116 of 2018 wherein it was held that the activity of land development which took place prior to the sale of land cannot be liable for Service Tax demand as the service was a self-service and there is no service provider and service receiver relationship. We have perused the sample agreements! sale deeds produced by the appellant and mentioned above, in furtherance of their claim, relating to the purchase of land by them from individual landowners and its subsequent sale to different buyers as part of the layout ‘Bharath Nagar’. No land development agreement clause! charges have been shown in either of the agreements! sale deeds. Neither was any document showing receipt of development charges paid by the buyer pertaining to the said agreements shown to us. This is not unusual as self-service would not result in income generation to be reflected in account books. It may only add to the cost of developing land which would generally be reflected/ subsumed in the sale price of land. If any land developer collects development charges separately from customers without any receipt it is perhaps illegal, with implications on taxability under various laws. Hence it appears that these lands purchased by the appellant and sold as plots to any person were not among those which have generated income from development charges as recorded in their book of accounts and mentioned in the calculations at para 4 of the SCN 319/2012 dated 17/10/2012. They are hence not the subject of the impugned order.

9.2 However, on principle it is agreed that if a landowner does site preparation/ development work on self-owned land, which work is not done on behalf of or for any person involving a consideration, then it would be self-service. The landowner would not be liable to pay service tax for such self-development of land as there is no service provider and service receiver relationship. It is also relevant to state that if the taxable service is performed for any person, by any other person, in relation to site formation and clearance etc, even on self-owned land of the service provider, then there is a service provider and service receiver relationship along with consideration involved and service tax will be payable. The ownership of land is not an issue as discussed at para 8.2.1 above. In other words, self-owned land developed as per the requirements of any person who may be a prospective buyer, whether as per an agreement written or oral, expressed or implied, for which consideration is received from any person will be a taxable activity as it is a service performed ‘to any person, by any other person’ and not a self-service. It is also seen that land developers and promoters are a dominant party and dictates their own terms, leaving it upon the buyers, either to take it or leave it. These contracts ! sale deeds signed at the time of sale to buyers may apart from the sale value of land, include a consideration for land development or the charge may be paid separately under a receipt. Such contracts! agreements involving the said separate consideration, although obviously one sided and perhaps grossly in favour of the land developer! promoter due to the weak bargaining power of the land buyer, continue to be a document with a service provider – service receiver relationship. The development charges in the present case is paid by the buyer of land for site formation done by the seller by way of levelling, plotting, boundary marking, road layout, clearance of the area etc done by the seller so that the buyer can enjoy a vacant land which is ready for use. The land development charge paid for such site formation carried out when such land was owned by the developer! promoter will be liable to service tax. This aspect was not a part of the discussion in the Hallmark Infrastructure Pvt Ltd judgment (supra). The said judgment referred to a case where the site formation and clearance activity was done by the landowners themselves for themselves in such a situation payment of development charges do not arise secondly no buyer would pay development charges done by a landowner for himself. Yes they would pay a higher price for the developed land . In the instant case the site formation activity was done by the appellant but for any other person from whom they have collected a separate consideration for this activity at the time of sale of land and is hence distinguished.

9.3 Hence, when land is purchased outright by the appellant from the landowners and where it is self-developed by site formation etc. after purchasing the land but before selling it, and the development work is not done for or on behalf of any person involving a consideration being collected, service tax is not payable by the landowner. The judgements cited by the appellant are in accordance with the views stated above.

10. Whether on the land sold by the appellant as per the GPA obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land, service tax is payable under the classification heading ‘Site formation and clearance’ service.

10.1 This issue is examined in the context of the ‘development charges’ pertaining to various projects recorded in the appellants books of account and the MRF agreement which is a matter of dispute in the present appeal. The main contention of the appellant is that they are not liable to pay any service tax as being Power of Attorney holders of the said land, they are its owners and the activity is only self-service and secondly, in the case of MRF, they have not done any development activity at all. Based on the averments made by the appellant and during the hearing a few sub-issues have come up for consideration. Whether,

• the Appellant is not an agent but an independent party purchasing the land and selling the land to MRF.
• once the possession of the land is granted to the Appellant by landowners who execute a ‘General Power of Attorney’ (GPA) in the appellants favour, then for all legal purposes the transaction is recognized as purchase of immovable property.
• the transaction without the execution of the sale deed is recognized as a valid transfer of property under Section 53A of the Transfer of Property Act.
• these activities are activities which are incidental to sale and cannot be considered as a different activity.
• even though there is a clause in the agreement for development, with MRF the Appellant has sold the land as it is and they have not done any development work.
• the activity done by the appellant does not amount to ‘Site Formation and Clearance’ service.

10.2 A plain reading of the Agreement entered into by the appellant with MRF will show that the appellant is engaged in the procurement and development of land. There is no reference to the appellant selling land as a principle to MRF. Relevant portions are extracted below;

AND WHEREAS the Second Party has represented that it is a Private Limited Company formed in 2004 which is engaged in procurement and development of land, construction of commercial, residential and industrial land / property in the State of Tamil Nadu, Karnataka and Andhra Pradesh and has the necessary expertise and infrastructure for the performance of its obligations under this Agreement.

***** ******* *******

AND WHEREAS the Second party has further represented to the First Party that they have entered into negotiations and have obtained the authority to negotiate on behalf of the owners / occupiers of the land in the “SCHEDULE PROPERTY” hereunder and is in a position to arrange for the purchase / registration of the entire ‘SCHEDULE PROPERTY’ in favour of the First Party at a sale price of Rs.4,35,000/- (Rupees four lakhs thirty five thousand only) per acre inclusive of land cost and development charges etc. if any. The Second Party shall also do the development of the land post sale or simultaneously for which there shall be a fixed priced of Rs.2,90,000/- (Rupees two lakhs and ninety thousand only), thus making the total consideration per acre under this agreement at Rs.7,25,000/- (Rupees seven lakhs twenty five thousand only). The land will be conveyed to the First Party within a period of 180 days from the date of execution of this agreement. The development charges include, charges towards land approvals if any, brokerage, legal expenses, ground leveling, earth filling and fixing of boundary stones etc.

***** ******* *******

That after being satisfied about the marketability / legality of the title / ownership of the “SCHEDULE PROPERTY” and the Registered Power of Attorney, the First Party shall call upon the Second Party to arrange for the transfer and registration of the “SCHEDULE PROPERTY” hereunder in favour of the First Party and the Second Party shall on receipt of such intimation in writing, arrange for the same for and on behalf of the owner(s) forthwith, as provided in this agreement within 180 days from the date of execution of this agreement.

***** ******* *******

The fixed consideration / amount of Rs.7,25,000/- (Rupees seven lakhs twenty five thousand only) per acre represents the total consideration under this agreement which includes the sale price of Rs.4,35,000/- (Rupees four lakhs thirty five thousand only) of the land and the development charges of Rs.2,90,000/- (Rupees two lakhs ninety thousand only) and the difference in the actual purchase price to the Second Party shall be an adequate consideration for negotiating, fixing of price, dealing with owners and ensuring the registration of the sale deed(s) in favour of the First Party etc.

All actions in the Agreement are done by the appellant on ‘behalf of the owners’ only. Hence the appellant is only an agent of the landowners and not an independent party who has purchased land from the landowners and sold it to MRF.

10.3 The appellant has referred to Section 53A of the Transfer of Property Act, to assert that once the possession of the land is granted to the Appellant by landowners who execute a GPA in the appellants favour, then for all legal purposes the transaction is recognized as purchase of immovable property. The transaction without the execution of the sale deed is recognized as a valid transfer of property under the Transfer of Property Act. To examine this view it is necessary to extract Section 53A of the Transfer of Property Act, which is done below;

Section 53A of the Transfer of Property Act

Part performance.— Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.

(emphasis supplied)

It is noted that the section does not deal with the transfer of title from the seller (transferor) to the prospective buyer (transferee). It only protects the transferee from certain actions by the transferor once he has taken possession of the property. Taking possession of property does not amount to ownership of property. Hence by virtue of this section the appellant cannot claim to possess transferable tile to the land and become its actual owner. It is for this reason that the Agreement also only recognizes the appellant for performing certain actions on behalf of the landowners for which it provides for a ‘brokerage’. The appellant has also signed the sale agreement with MRF only as the “power agent of the landowner” and not as the landowner. Hence, in the instant case the appellant is not even the owner of the land when they carry out site formation / development activities on the land as GPA holders. Hence, self-service is ruled out and they have to pay service tax on the site formation / development activities done by them.

10.4 The appellant has further claimed that land development activities are incidental to sale and cannot be considered as a different activity. The Appellant relies upon the decision of the Tribunal in the case of Ess Gee Real Estate Developers Pvt Ltd Vs CCE 2020 (34) GSTL 486 wherein the Hon’ble Tribunal has set aside the demand under Site Formation Services on the ground that the contract is for construction and development by the Appellant therein. The said decision has relied upon the decision in the case of Radius Corporation Ltd Vs CCE 2014 (33) STR 416. The Appellant also relied upon the following decisions wherein it has been held that the Site Formation and Clearance, Excavation and Earth Moving services done before mining of ores is incidental to the mining activity. The essential character of work under taken is mining and the same is classifiable under mining services and not under Site Formation.

a) CCE Vs Vijay Leasing Company 2011 (22) STR 553

b) Associated Soap Stone Distributing Company Pvt Ltd Vs CST 2014 (34) STR 865

c) Ramakrishna Reddy Vs CCE 2009 (13) STR 661

All these decisions are based on a bundle of similar services of the service provider and not between an activity of service and sale. Further the appellants are only service providers and not the owners of land. Sale and service are two distinct activities. In the instant case too sale of land is by the landowners and the service of land development is an independent action performed by the appellant. To cite a similar example, it cannot be said that manufacture of goods is an activity incidental to the sale of goods and hence there cannot be a separate tax on manufacture and on sale of goods. The Hon’ble Supreme Court In Re, Sea Customs Act, [AIR 1963 SC 1760] has contrasted sales tax with excise duty and observed that in case of sales tax, the taxable event is an act of sale. Therefore, though both excise duty and sales-tax are levied with reference to goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In the present case the imposition of service tax is on service rendered for site formation etc of land, while sale tax is on the act of sale of the land. The Appellant has relied upon the following two decisions wherein the demand of service tax was under renting of immovable property services with respect to an agreement entered into for granting license to a hotel company to run a hotel. This Hon’ble Tribunal has held that the main object of the agreement is to exploit the commercial potential of the hotel business and the use of the immovable property is only incidental and the same cannot be considered as letting of immovable property. It is submitted by the appellant that the agreement entered into with MRF is for procurement of land but not for development of land. Development is only incidental to make the land more suitable for sale.

(a) Spencer International Hotels Ltd. – O.No.40461 -40462/2023 dt.22.06.2023

(b) Hotel Shreelekha Regency Ltd. – F.O. No. 40554 / 2023 dt.14.07.2023

We have examined the said judgements on the accepted principle that it is neither desirable nor permissible to pick out a word or a sentence from a judgment divorced from the context of the question under consideration and treat it to be complete law. Each contract has to be understood in the terms set out therein. No general principle can be evolved on the facts of the said judgments other than to say that that the main object of the agreement has to be examined for each contract or agreement and to see its objectives and to examine whether these are severable or not. When a contract is an amalgam of two or more distinct activities they are not to be understood by clubbing the same. In this case if the appellant did not carry out any development activity on the land within the time schedule provided in the Agreement, they will not have been entitled to the development charges fixed there under and may also be liable to a claim of damages by MRF, but the Agreement for sale would remain valid on its own terms. Hence the land development activities are independent and not incidental to sale. The appellant is liable to pay service tax on the development activity undertaken on the land belonging to other landowners and for which activity he has received a consideration.

10.5 The appellant states that even though there is a clause in the agreement for development, the Appellant has sold the land as it is and they have not done any development work and this is evident from the statement of their Director which is referred to in the SCN. We find that this assertion is contrary to the agreement entered into with MRF for which a sizeable amount has been fixed as development charge per acre. Further MRF vide their letter date 12/10.2011, reproduced in the impugned order, have accepted to having paid development charges in furtherance of the Agreement and also submitted the details of the debit note raised by the appellant on MRF towards development charges. On the face of it huge payments made by a company to another for no work done fails the test of something which a prudent and reasonable man would do. In the light of the wordings of the contract and it being acted upon by the appellant by claiming the amount from MRF the statement made by the Director of the appellants co can only be taken as being false and meant to wriggle out of tax liability.

10.6 To examine whether the activity carried out by the appellant amounts to ‘Site Formation and Clearance’ service it would be beneficial to examine the relevant provisions of the Finance Act 1994 as extracted at para 8.2.1 above. The activities of development of land carried out by the appellant as per the Agreement is also extracted at para 8.2.2 above. It is seen from the agreement and the statement of the Director that the development charges include, charges towards ground leveling, earth filling, fixing of boundary stones and laying of roads on the land etc. The appellant has received a development charge of Rs.2,90,000/- per acre. The sale price of the land has been fixed separately at Rs 4,35,000/- per acre. Ground leveling, earth filling, laying roads on the land, fixing of boundary stones etc. are part of site formation and clearance which are clearly covered by the inclusive definition of Section 65(97a) that defines ‘site formation and clearance, excavation and earthmoving and demolition’. The appellants activities do not fall under any of the exclusions of the said definition. The amount received by the appellant is shown as ‘development charges’ in the Agreement. If any part of this charge was towards any other expenses they should have bifurcated it with the help of documents and informed the department. When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Hence the service has been correctly classified and the value correctly determined in the impugned order.

10.7 We find that the validity and legality relating to the sale of land by use of GPA transactions was examined by a three judge bench of the Apex Court in Suraj Lamp & Industries Pvt. Ltd. vs. State of Haryana & Anr., [Special Leave Petition (C) NO.13917 of 2009/ (2012) 1 SCC 656], and is very relevant to the legal issues involved in this case. The relevant portions are reproduced below.

“ 6. In this background, we will examine the validity and legality of SA/G PA/WILL transactions. . . .

Relevant Legal Provisions

7. Section 5 of the Transfer of Property Act, 1882 (`TP Act’ for short) defines `transfer of property’ as under:

¹‘5. Transfer of Property defined : In the following sections ¹‘transfer of property¹‘ means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself [or to himself] and one or more other living persons; and ¹‘to transfer property¹‘ is to perform such act.¹‘ xxx xxx Section 54 of the TP Act defines `sales’ thus:

^“Sale“ is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made. Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.

In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.

Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Contract for sale.-A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties.

It does not, of itself, create any interest in or charge on such property.¹‘

Section 53A of the TP Act defines `part performance’ thus :

¹‘Part Performance. – Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract : Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.¹‘

8. We may next refer to the relevant provisions of the Indian Stamp Act, 1999 (Note : Stamp Laws may vary from state to state, though generally the provisions may be similar). Section 27 of the Indian Stamp Act, 1899 casts upon the party, liable to pay stamp duty, an obligation to set forth in the instrument all facts and circumstances which affect the chargeability of duty on that instrument. Article 23 prescribes stamp duty on `Conveyance’. In many States appropriate amendments have been made whereby agreements of sale acknowledging delivery of possession or power of Attorney authorizes the attorney to `sell any immovable property are charged with the same duty as leviable on conveyance.

9. Section 17 of the Registration Act, 1908 which makes a deed of conveyance compulsorily registrable. We extract below the relevant portions of section 17.

“Section 17 – Documents of which registration is compulsory- (1) The following documents shall be registered, namely:–

xxxxx

(b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property.

xxxxx

(1A) The documents containing contracts to transfer for consideration, any immovable property for the purpose of section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then, they shall have no effect for the purposes of the said section 53A.

Advantages of Registration

10. In the earlier order dated 15.5.2009, the objects and benefits of registration were explained and we extract them for ready reference :

^“The Registration Act, 1908, was enacted with the intention of providing orderliness, discipline and public notice in regard to transactions relating to immovable property and protection from fraud and forgery of documents of transfer. This is achieved by requiring compulsory registration of certain types of documents and providing for consequences of non-registration.

Section 17 of the Registration Act clearly provides that any document (other than testamentary instruments) which purports or operates to create, declare, assign, limit or extinguish whether in present or in future ¹¹any right, title or interest¹¹ whether vested or contingent of the value of Rs. 100 and upwards to or in immovable property.

Section 49 of the said Act provides that no document required by Section 17 to be registered shall, affect any immovable property comprised therein or received as evidence of any transaction affected such property, unless it has been registered. Registration of a document gives notice to the world that such a document has been executed. Registration provides safety and security to transactions relating to immovable property, even if the document is lost or destroyed. It gives publicity and public exposure to documents thereby preventing forgeries and frauds in regard to transactions and execution of documents. Registration provides information to people who may deal with a property, as to the nature and extent of the rights which persons may have, affecting that property. In other words, it enables people to find out whether any particular property with which they are concerned, has been subjected to any legal obligation or liability and who is or are the person/s presently having right, title, and interest in the property. It gives solemnity of form and perpetuate documents which are of legal importance or relevance by recording them, where people may see the record and enquire and ascertain what the particulars are and as far as land is concerned what obligations exist with regard to them. It ensures that every person dealing with immovable property can rely with confidence upon the statements contained in the registers (maintained under the said Act) as a full and complete account of all transactions by which the title to the property may be affected and secure extracts/copies duly certified.“

Registration of documents makes the process of verification and certification of title easier and simpler. It reduces disputes and litigations to a large extent.

Scope of an Agreement of sale

11. Section 54 of TP Act makes it clear that a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. This Court in Narandas Karsondas v. S.A. Kamtam and Anr. (1977) 3 SCC 247, observed:

A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act. See Rambaran Prosad v. Ram Mohit Hazra [1967]1 SCR

293. The fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of sale is described in Section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the ownership of property, but not amounting to an interest or easement therein.¹‘ In India, the word `transfer’ is defined with reference to the word `convey’. The word `conveys’ in section 5 of Transfer of Property Act is used in the wider sense of conveying ownership… …that only on execution of conveyance ownership passes from one party to another….¹‘

In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [2004 (8) SCC 614] this Court held:

“Protection provided under Section 53A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party.”

It is thus clear that a transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred.

12. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter.

Scope of Power of Attorney

13. A power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him (see section 1A and section 2 of the Powers of Attorney Act, 1882). It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee. In State of Rajasthan vs. Basant Nehata – 2005 (12) SCC 77, this Court held :

“A grant of power of attorney is essentially governed by Chapter X of the Contract Act. By reason of a deed of power of attorney, an agent is formally appointed to act for the principal in one transaction or a series of transactions or to manage the affairs of the principal generally conferring necessary authority upon another person. A deed of power of attorney is executed by the principal in favour of the agent. The agent derives a right to use his name and all acts, deeds and things done by him and subject to the limitations contained in the said deed, the same shall be read as if done by the donor. A power of attorney is, as is well known, a document of convenience.

Execution of a power of attorney in terms of the provisions of the Contract Act as also the Powers-of-Attorney Act is valid. A power of attorney, we have noticed hereinbefore, is executed by the donor so as to enable the donee to act on his behalf. Except in cases where power of attorney is coupled with interest, it is revocable. The donee in exercise of his power under such power of attorney only acts in place of the donor subject of course to the powers granted to him by reason thereof. He cannot use the power of attorney for his own benefit. He acts in a fiduciary capacity. Any act of infidelity or breach of trust is a matter between the donor and the donee.¹‘

An attorney holder may however execute a deed of conveyance in exercise of the power granted under the power of attorney and convey title on behalf of the grantor.

Scope of Will

14. . . . .

Conclusion

15. Therefore, a SA/G PA/WILL transaction does not convey any title nor create any interest in an immovable property. The observations by the Delhi High Court, in Asha M. Jain v. Canara Bank – 94 (2001) DLT 841, that the ¹‘concept of power of attorney sales have been recognized as a mode of transaction¹‘ when dealing with transactions by way of SA/GPA/WILL are unwarranted and not justified, unintendedly misleading the general public into thinking that SA/GPA/WILL transactions are some kind of a recognized or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognize or accept SA/GPA/WILL transactions as concluded transfers, as contrasted from an agreement to transfer, are not good law.”

(emphasis added)

The appellant, being engaged in procurement and development of land under a GPA, could not have missed out on the above significant Supreme Court judgement to continue to take a stand on GPA sale, quite contrary to it. In this context in D.P. Chadha vs Triyugi Narain Mishra, [Appeal (civil) 1124 1998/ (2001) 2 SCC 221], the Hon’ble Supreme Court, held as follows;

“26. A lawyer must not hesitate in telling the court the correct position of law when it is undisputed and admits of no exception. A view of the law settled by the ruling of a superior court or a binding precedent even if it does not serve the cause of his client, must be brought to the notice of court unhesitatingly. This obligation of a counsel flows from the confidence reposed by the court in the counsel appearing for any of the two sides. A counsel, being an officer of court, shall apprise the Judge with the correct position of law whether for or against either party.”

The judgement in ‘Suraj Lamp & Industries Pvt. Ltd.’ (supra) makes it very clear that a power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is only a creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him. Even an irrevocable attorney does not have the effect of transferring title to the grantee. Hence the averment of the appellant that Section 53A of Transfer of Property Act envisages situations where under the contract of transfer of immovable property the transferee has paid the consideration and taken possession of the property even without the execution of the sale deed the transfer takes place and the transaction is recognized as a valid transfer of property, is incorrect and not sustainable in law. Their entire argument of self-service hence falls through. The activity of land development as rendered by them for a consideration is hence liable to Service Tax as per the taxable service ‘Site Formation and Clearance Service’ under section 65(105)(zzza) of the Finance Act, 1994.

10.8 Based on the discussions above it is held that, even on the land sold by the appellant as per the GPA obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land, service tax is payable under the classification heading ‘Site formation and clearance’ service.

11. The appellant states that the invocation of extended period is not justified as the appellant has not suppressed any facts. The Appellant has been filling ST-3 returns regularly and the law mandates only to inform the taxable revenue in the ST-3 returns and the appellant was under a was a bonafide belief that development charges are not liable to be taxed as the agreement is for sale of land and the development is being carried out prior to registration. The activity conducted by the Appellant and their non-payment of Service Tax on it were known to the Department from 2009. This itself shows that the Appellant had not suppressed any facts with an intention to evade payment of Service Tax. The transfer of land is also recognized under Income Tax Act. The averment of the appellant cannot be accepted. Firstly, under Income Tax laws, illegal gains can be taxed at the hands of those who financially gained from these illegal actions. Hence this fact does not come to their rescue. The development of land by site formation was done by the appellant as per a registered agreement. The Agreement states that taxes like service tax and income tax etc. are to be paid by the appellant. This should have made them verify their obligations under the Finance Act 1994. What prompted them to believe that service tax on the development charges were not tenable is not forth coming from their pleadings. Hence their bonafide’s cannot be accepted since as per the Agreement they have collected service tax from MRF. The Agreement clearly mentions the land development activity to be performed and the renumeration per acre that they are to receive as a consideration for this activity. They have also on completion of the activity raised debit notes and received the consideration. The income received towards development charges has been entered in their ledger account pertaining to Income Tax. But with regard to MRF they have even suppressed the fact of receiving development charges clearly mentioned in the Agreement and paid for by MRF. The development charges received are inclusive of service tax as stated at para 11 of the Agreement and in the letter of MRF dated 12/10/2011 mentioned in the impugned order. They have shown the amounts thus collected as ‘sale value’, although they have not paid any stamp duty, registration charges for this value of ‘sale’. Further in spite of such documentary evidence they are brazen enough to claim that no development was done on the land, just to escape from the levy of Service Tax. There is no complication in the definition of the service or the taxability of the activity as per the Finance Act 1994. It was clearly a suppression of fact from the department with the intention to fraudulently evade payment of duty. These facts would not have come to light without the investigation done by the Survey, Intelligence and Research Unit of the Service Tax Commissionerate, Chennai. In Commissioner of Customs, Kandla Vs M/s Essar Oil Limited & Ors. [2004 (172) E.L.T. 433 (S.C.)] it was held;

“Fraud” in relation to statute must be a colourable transaction to evade the provisions of a statute. If a statute has been passed for some one particular purpose, a court of law will not countenance any attempt which may be made to extend the operation of the Act to something else which is quite foreign to its object and beyond its scope.”

It is now well settled that fraud vitiates all solemn acts. Any advantage obtained by practicing fraud is a nullity. Hence the extended period of time has been rightly invoked in this case. Moreso the very process of using GPA to claim principle-to-principle sale is a fraudulent act as highlighted in the Apex Court’s judgment above. The ill effects of these transactions as held by the Apex court in Suraj Lamp & Industries Pvt. Ltd. (supra) is extracted below;

“3. The earlier order dated 15.5.2009, noted the ill-effects of such SA/GPA/WILL transactions (that is generation of black money, growth of land mafia and criminalization of civil disputes) as under: “Recourse to `SA/GPA/WILL’ transactions is taken in regard to freehold properties, even when there is no bar or prohibition regarding transfer or conveyance of such property, by the following categories of persons:

(a) Vendors with imperfect title who cannot or do not want to execute registered deeds of conveyance.

(b) Purchasers who want to invest undisclosed wealth/income in immovable properties without any public record of the transactions. The process enables them to hold any number of properties without disclosing them as assets held.

(c) Purchasers who want to avoid the payment of stamp duty and registration charges either deliberately or on wrong advice. Persons who deal in real estate resort to these methods to avoid multiple stamp duties/registration fees so as to increase their profit margin.

Whatever be the intention, the consequences are disturbing and far reaching, adversely affecting the economy, civil society and law and order. Firstly, it enables large scale evasion of income tax, wealth tax, stamp duty and registration fees thereby denying the benefit of such revenue to the government and the public. Secondly, such transactions enable persons with undisclosed wealth/income to invest their black money and also earn profit/income, thereby encouraging circulation of black money and corruption.

This kind of transactions has disastrous collateral effects also. For example, when the market value increases, many vendors (who effected power of attorney sales without registration) are tempted to resell the property taking advantage of the fact that there is no registered instrument or record in any public office thereby cheating the purchaser. When the purchaser under such `power of attorney sales’ comes to know about the vendors action, he invariably tries to take the help of musclemen to `sort out’ the issue and protect his rights. On the other hand, real estate mafia many a time purchase property which are already subject to power of attorney sale and then threaten the previous `Power of Attorney Sale’ purchasers from asserting their rights. Either way, such power of attorney sales indirectly lead to growth of real estate mafia and criminalization of real estate transactions.

It also makes title verification and certification of title, which is an integral part of orderly conduct of transactions relating to immovable property, difficult, if not impossible, giving nightmares to bonafide purchasers wanting to own a property with an assurance of good and marketable title.”

(emphasis added)

Hence not only has the extended period been correctly invoked so also has penalty been correctly imposed. In an apt quotation which also applies to this case, the Patna High Court in Syed Askari Hadi Ali Augustine vs Union Of India And Ors. [1994 (42) BLJR 1389] at para 20 mentioned the following quote with approval;

“20. In Howard De Walden (Lord) v. IRC [1942] 1 All ER 287 (CA) at page 289, Lord Greene observed : “For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow-subjects. In that battle, the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present appellant has not been the least successful. It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers.”

(emphasis added)

In the circumstances the imposition of penalty is justified as per law.

12. With regard to the discussions above, we hereby reject the appeal filed by the appellant and uphold the impugned order. The appeal is disposed of accordingly.

(Pronounced in open court on 08.08.2023)