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,
