No wilful mis-statement or suppression of facts in case capital gains tax was paid on profit/compensation received

Bhaskar Steel and Ferro Alloys Pvt. Ltd. Vs Commissioner of CGST & Excise (CESTAT Kolkata)

Conclusion: Since the whole case of Revenue was based on the balance sheets of assessee who had declared all the transactions in their records and had even paid capital gains tax on the profit/compensation received, therefore,  it could not be said that assessee had resorted to wilful mis-statement or suppression of facts or had contravened of any of the provisions of service tax law with intent to evade payment of service tax.

Held: In the instant case the show cause notice was dated 28.09.2018 whereas the period involved was 01.04.2013 to 31.03.2015. The demand had been raised by invoking the extended time limit under the proviso to section 73(1) of the Finance Act, 1994. The only ground for invoking the extended period was that the amounts were not reflected in the Service Tax returns filed by the appellants and that had the DGGI not intervened and unearthed the facts the activities of the appellants would not have come to surface. This was not a case where service tax returns were not filed at all. The case of the department was that the amounts recovered from the 11 companies listed above were not reflected in the said returns. The whole case was based on the balance sheets of the appellants. The appellants had declared all the transactions in their records and had even paid capital gains tax on the profit/compensation received.

Hence, it could not be said that the appellants had resorted to wilful mis-statement or suppression of facts or had contravened of any of the provisions of service tax law with intent to evade payment of service tax. Courts have consistently held that the extended time limit can be invoked only if there is a positive act on the part of an assessee to conceal anything from the department. There must be a deliberate attempt to suppress information for invoking the extended period. Therefore, it was held that no ground had been made out to justify invoking the extended time limit. The demand was, therefore, barred by limitation.

FULL TEXT OF THE CESTAT KOLKATA ORDER

This is an appeal against the Order-in-Original No.3/CCE/S.Tax/RKL/2019-20 dated 19.07.2019 passed by the Principal Commissioner of GST & Central Excise, Rourkela.

2. The brief facts of the case are that M/s Bhaskar Steel and Ferro Alloy Pvt Ltd ( hereinafter referred to as ‘the appellants’ or ‘ the appellant company’) having their registered office in Kolkata are engaged in the manufacture of Sponge Iron and M. S. billets for which they were having central excise registration during the relevant period. They were also duly registered with service tax having registration number AACCB2809FST001.

3. Shri Nikunj Beriwal ( the other appellant) is a Director in the company.

4. Based on the balance sheets filed by the appellants before the income tax authorities for the financial years 2013-14 and 2014-15 the department came to the view that entries shown under the head ‘Compensation/Short term capital gains’ for the two years was nothing but consideration received for rendering service and was, therefore, liable to service tax .

5. Show cause notice dated 28.09.2018 was , accordingly, issued invoking the extended period and demanding Rs.3,09,55,655/- from the appellants along with interest. Penalty was proposed on the appellant company as well as the Director, Shri Nikunj Beriwal.

6. The appellants submitted detailed reply dated 21.03.2019 giving factual and legal submissions as to why no service tax was payable on the above receipts.

7. However, the Pr. Commissioner of GST & CX, Rourkela, rejected the submissions of the appellants and, vide his Order-in-Original No 3/CCE/S.Tax/RKL/2019-20 dated 19.07.2019 (the impugned order), confirmed the full demand along with interest and imposed equivalent penalty plus Rs 10,000/-on the company and penalty of Rs 1 lakh on the Director, Shri Nikunj Beriwal. Hence, these 2 appeals.

8. We have heard both sides and perused the appeal records.

9.1 Shri A.K.Prasad, the learned advocate of the appellant company as well as the appellant director, has made the following submissions.

9.2 The issue involved is whether payments received by the appellants from 11 different companies/firms are liable to service tax or not. These are discussed below serially as also why they not liable to service tax.

A. BGB Spintex Pvt Ltd and CFM Infratex Ltd [ para 13.34.1 of the impugned order]

(1). The appellants had entered into an agreement on 16.05.2013 with two land owners for purchase of agricultural land at the price of Rs 35,00,000/- and had also paid earnest money of Rs 3,50,000/-. A company by the name CFM Infratex Ltd wanted to purchase the said agricultural land already booked by the appellants. Accordingly, they negotiated a deal with the appellants and agreed to buy the appellants rights in the properties for Rs 3,68,50,000/- inclusive of the earnest money already paid.

(2). It is the view of the department that the amount received by the appellants was an agreement for refraining from an act or for tolerating an act or situation and was, therefore, liable to service tax under clause (e) of Section 66E of the Finance Act 1994.

(3). It is submitted that as per definition of ‘service’ under section 65B(44) of the Finance Act, 1994, the following will not amount to service, namely, an activity which constitutes merely a transfer of title in goods or immovable property by way of sale, gift or in any other manner

(4) As per the Service Tax Education Guide issued by the CBEC the words ‘immovable property’ would have the same meaning as given in clause 26 of the General Clauses Act, 1897. In other words ‘immovable property’ shall also include land benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth.

(5). The Hon’ble Allahabad High Court in the case of Kanhiya Lal & Another versus Satya Narayan Pandey (AIR1965ALL 496) has held that any benefit to arise out of an immovable property would also be included in the definition of ‘immovable property’. In the instant case the appellants had acquired a right to purchase the said agricultural piece of land and this right was a benefit arousing out of an immovable property and is, therefore, excluded from the definition of ‘service’ and, hence, not liable to service tax.

(6)(a). The Principal Commissioner has held that capital gains can be earned only against change in ownership, not otherwise. This is not legally correct since even amount earned by surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005].

(6)(b) Further, in para 6.2.8 of the Service Tax Education Guide it has been clarified that ownership is not necessary for transfer of any right in an immovable property. The relevant portion is reproduced below:-

6.2.8 If the person who has entered into a contract with the builder for a flat for which payments are to be made in 12 installments depending on the stage of construction and the person transfers his interest in the flat to a buyer after paying 7 installments, would such transfer be an activity chargeable to service tax?

Ans: Such transfer does not fall in this declared service entry as the said person is not providing any construction service. In any case transfer of such an interest would be transfer of a benefit to arise out of land which as per the definition of immoveable property given in the General Clauses Act, 1897 is part of immoveable property. Such transfer would therefore be outside the ambit of ^„service‟ being a transfer of title in immoveable property. Needless to say that service tax would be chargeable on the seven instalments paid by the first allottee and also on subsequent instalments paid by the transferee.

(7). Further, by the surrender of the agreement rights in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation. The Principal Commissioner has not clarified how these clauses are applicable in the case of the appellants.

B. Shivshankar Logitex Pvt Ltd.

(1) Similarly, in another case of purchase of agricultural land at the price of Rs 15,00,000/- earnest money was paid to the owner. In this case too another company by the name Shivshankar Logitex Pvt Ltd wanted to purchase the said land and after mutual discussion the appellants released their agreement rights to the property for Rs 36,50,000/-. In this case also, since the rights or benefits of the appellants arose out of an immovable property the same was outside the scope of ‘ service’ and, therefore, outside the scope of service tax.

(2) Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation. The Pr Commissioner has not clarified how these clauses are applicable in the case of the appellants.

C. M/s Shanti Enterprise

(1). In this case the appellants entered into an agreement with another buyer for purchase of non-agricultural land @ Rs.1,51,00,000/- and an advance payment was also made. Subsequently another company, M/s Shanti Enterprise wanted to purchase the said land for developing it and, accordingly, the appellants surrendered their agreement rights at a mutually agreed price of Rs.2,08,00,000/-. On the same lines, in this case also, the transaction did not relate to any ‘service’ and, therefore, no service tax was leviable on the same.

(2). Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation. The Principal Commissioner has not clarified how these clauses are applicable in the case of the appellants.

D. Excelsior Services Pvt Ltd.

(1). In this case the appellants entered into an agreement with M/s Excelsior Services Pvt Ltd ,to purchase a built-up area of a building in Kolkata for Rs 25,10,00,000/- and advance money was also paid for the same. As per the agreement the possession of the said building, along with the car parking, was to be handed over to the appellants by September 2014. However, subsequently, M/s Excelsior Services Pvt Ltd expressed their inability to perform their agreement and a deal of cancellation was executed with the appellants on payment of Rs 8,78,50,000/- as compensation.

(2). On the same lines, in this case also, the transaction did not relate to any ‘service’ and, therefore, no service tax was leviable on the same.

(3). Further, it is now established law that such compensation cannot be considered as the appellants agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act. The Pr. Commissioner has not clarified how these clauses are applicable in the case of the appellants.

E. M/s Autocare Services

(1). Autocare Services owned a property in Vadodara which they developed and started construction of commercial office space. The appellants entered into 14 separate agreements for purchase of 14 office premises in the said building and advance amounts were also paid. Subsequently, it was mutually agreed between the appellants and M/s Autocare Services to cancel the sale agreements and relinquish the appellants rights on payment of consideration/profit of Rs.3,38, 24,939/-. Since this amount was also received in connection with surrender of rights or benefits relating to immovable property the same is outside the scope of ‘service’ and, hence, not liable to service tax.

(2). Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situation or did an act. The Principal Commissioner has not clarified how these clauses are applicable in the case of the appellants.

F. Vijay Kumar Dalmia and STB Exports Pvt Ltd.

(1). In this case the appellants had purchased 204.75 satak of land from one Vijay Kumar Dalmia. Subsequently, out of this area of land 82 satak land was sold by the appellants to M/s STB Exports Pvt Ltd. In the whole transaction of sale/purchase of immovable property the appellants earned profit of Rs 64,31,000/-. This is a clear case of outright sale and purchase of immovable and is outside the scope of ‘service’ and’ hence, not liable to service tax.

(2). The Principal Commissioner has not even discussed the factual submissions made by the appellants on this point.

G. M/s Thermax Ltd.

(1). The appellants entered into an agreement with M/s Thermax Ltd for supply of manpower to the appellants plant . M/s Thermax Ltd, in turn, entrusted this job to M/s Ensol Power Pvt Ltd, their sub-vendor. M/s Ensol Power Pvt Ltd then supplied the manpower on behalf of M/s Thermax to the appellants. For this work the appellants booked the payment on the account of M/s Thermax. But since M/s Thermax had not released payments to M/s Ensol Power Pvt Ltd the appellants made payment to M/s Ensol Power Pvt Ltd and, in turn, booked the amount paid on M/s Thermax account. Hence, the appellants issued a debit note on Thermax for Rs.2,00,000/-. Thus, it is seen that this Rs.2,00,000/- is nothing but the reimbursement by M/s Thermax for the amount paid by the appellants on their behalf to M/s Ensol Power Pvt Ltd. This, by no stretch of imagination can be considered as a ‘service’ provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd.

(2) The appellants had given the correct position in their reply to the SCN but the Principal Commissioner has simply ignored these submissions.

(3) Even if it is held that this amount was paid by Thermax for non-fulfilment of agreement to supply manpower ( though there are no documents to support this), as held by the Principal Commissioner, then also this amount is not liable to service tax as it would then be in the nature of liquidated damages.

(4) The law is well settled that no Service Tax is payable on liquidated damages.

H. Nilu Construction Pvt Ltd.

(1). The appellants were occupying a portion of godown space, as tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu Constructions Pvt Ltd wanted to erect a new building on the said premises. The appellants agreed to vacate the said premises on payment of Rs.90,00,000/- as compensation for surrender of their tenancy rights. As per the decision of the Allahabad High Court in the case of Kanhiya Lal and Anr ( supra) this cannot be considered as ‘service’ and, hence, no tax is payable.

(2). Further, surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005].

(3). Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situation or did an act. The Principal Commissioner has not clarified how these clauses are applicable in the case of the appellants.

I. M/s Siddhartha Land and Building Pvt Ltd.

(1). The appellants were in occupation, as a tenant, of 4,000 sq ft of space in a building in Kolkata, owned by M/s Siddhartha Land and Building Pvt Ltd. M/s Siddhartha Land and Building Pvt Ltd wanted to re-develop the land and construct a multi-storeyed building. They requested the appellants to vacate the premises. The appellants surrendered their tenancy rights on receipt of compensation of Rs.3,25,00,000.

(2). It is established law that surrender of tenancy rights is not covered under clause (e) of Section 66E of the Finance Act 1994.

(3). Further, as per the decision of the Hon’ble Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of ‘service’ and, therefore, cannot be subjected to Service Tax .

(4). Surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005].

J. M/s Madanlal Brijlal Pvt Ltd.

(1). The appellants were in occupation, as tenant, of a portion of the building owned by M/s Madanlal Brijlal Pvt Ltd. The owner wanted to construct a building at the said premises and entered into a rehabilitation agreement with the appellants to vacate the premises on the condition that the appellants would be provided a larger area in the new building. However, subsequently the appellants surrendered their tenancy rights on payment of Rs.2.40 crores as compensation.

(2) It is established law that surrender of tenancy rights is not covered under clause (e) of Section 66E of the Finance Act 1994.

(3) Further, as per the decision of the Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of ‘service’ and, therefore, cannot be subjected to Service Tax .

(4) Surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005].

K. Jasmine Commercials Pvt Ltd.

(1). Jasmine Commercials Pvt Ltd. was the owner of a building in Kolkata. The appellants entered into agreement with Jasmine Commercials Pvt Ltd to buy a portion of the ground floor subject to the condition that the car parking space in the building would be converted for commercial use of the appellants. Out of Rs 4,00,00,000 being the price or the said property the appellants paid an advance of Rs 2.25 crores. However, since Jasmine Commercials Pvt Ltd failed to get permission from the Municipal Corporation to convert the seven car parking space for commercial use, the matter was referred for arbitration and an award of Rs 3.19 crores, as damages, was passed in favour of the appellants.

(2). These damages cannot be considered as agreeing ‘to the obligation to refrain from an act or to tolerate an act or a situation or to do an act‟ as per clause (e) of section 66E of the Finance Act, 1994.

9.3 In this regard the learned advocate for the appellants relied on the following decisions:-

(1). Amit Metaliks Limited Vs. Commissioner of CGST, Bolpur 2020(41)GSTL325(Tri-Kol) confirmed by the Supreme Court as reported in 2022(56)GSTLJ53(SC)

(2). N. Industries Pvt. Ltd. Vs. Commissioner of CGST & C.EX., Kanpur 2020 ( 38) GSTL 60 ( Tri- All)

(3). GE T & D India Ltd. Vs. Deputy Commissioner of C.Ex., Chennai 2020(35)GSTL89(Mad)

(4). M P Poorva Kshetra Vidyut Vitran Co. Ltd. vs. Principal Commr., CGST & C.Ex., Bhopal 2021(46)GSTL409(Tri-Del)

(5). Societe Thermale d’Eugenic-les-Brains v. Ministere de I’Economie, des Finances et de I’Industrie — Case No. C­277/2005 of European Court

(6). M/s. South Eastern Coalfields Ltd. Vs. CCE AND ST 2020-TIOL-1711-CESTAT-DEL

(7). Lemon Tree Hotel vs Commissioner, Goods and Service Tax Central Excise & Custom Indore [ 2020-TIOL-1114-CESTAT]

(8). Tirupati Balaji Furnaces Pvt Ltd vs Commissioner of Central Goods & Services Tax, Jaipur [2022-TIOL-77-CESTAT-DEL]

(9). Rajasthan Rajya Vidyut Prasaran Nigam Ltd vs Commissioner of CGST, Customs and Central Excise, Jodhpur-1 [2022-TIOL-134-CESTAT-DEL]

(9). MNH Shakti Ltd vs Commissioner CGST AND Central Excise, Rourkela [2021-TIOL-732-CESTAT-KOL]

(10). Jindal Steel and Power Ltd vs Principal Commissioner of CGST & Central Excise, Ranchi [2022-TIOL-408-CESTAT-KOL]

9.4 Limitation

(1). In the instant case the show cause notice is dated 28.09.2018 whereas the period covered 01.04.2013 to 31.03.2015. The demand has been raised by invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act 1994. The only ground for invoking the extended period is that the above amounts were not reflected in the Service Tax returns filed by the appellants and that had the DGGI not intervened and unearthed the facts the activities of the appellants would not have come to surface. These allegations have been made in para 7 of the show cause notice. This is the same ground on which the Principal Commissioner has upheld the invoking of the extended period. In this regard it is submitted that it is not the case of the department that service tax returns were not filed at all. The case of the department is that the amounts recovered from the 11 companies listed above were not reflected in the said returns. It is submitted that there was no intention on the part of the appellants to conceal anything. Had that been the case they would not have declared these receipts in their balance sheet and also paid capital gains tax on them. It is clear that the appellants were under a bona fide belief that the amount received by them from the 11 companies were not consideration for any service provided by them and, therefore, not liable to service tax.

(2). Courts have consistently held that the extended time limit can be invoked only if there is a positive act on the part of an assessee to conceal anything from the department. There must be a deliberate attempt to suppress information for invoking the extended period.

(3) In this regard the appellants have rely on the following judgments:-

(i) Compark E Services Pvt. Ltd. Cs. Commr. Of C.Ex & ST., Ghaziabad [2019(24)GSTL634(Tri-All)]

(ii) Uniworth Textlines Ltd. Vs. Commissioner of Central Excise, Raipur 2013(288)ELT161(SC)

(iii) Nestle India Ltd. Cs. Commissioner of Central Excise, Chandigarh [2009(235)ELT577(SC)]

(iv) Continental Foundation Jt. Venture Vs. Commr. Of C.Ex., Chandigarh [2007(216)ELT177(SC)]

(v) Sarralle Equipments India P. Ltd. Vs. Commr. Of C.Ex & ST., Haldia [2019(22)GSTL196(Tri-Kol)]

(vi) Ford India Pvt Limited Vs. Commissioner LTU, Chennai [2018-TIOL-943-CESTAT-MAD]

(vii) Hindalco Industries Ltd. Vs. Commissioner of C.Ex. Allahabad [2003(161)ELT346(Tri-Del)]

(viii) Pahwa Chemicals Private limited vs. C.of C.ex., Delhi [2005(189)ELT257(SC)]

(ix) CCE, Jalandhar vs. Royal Enterprises [2016 ( 337) ELT 482 (SC)]

(x) Pushpam Pharmaceuticals Company Vs. Collector of C.ex. Bombay [1995(78)ELT401(SC).

9.5. Interest &Penalty

(1) In view of the above, the demand cannot stand. If the demand does not stand there is no question of charging an interest or imposing any penalty on the appellant company

(2) As regards imposition of penalty on the other appellant, Shri Nikunj Beriwal, Director, the Pr Commissioner has relied on section 9AA(1) of the Central Excise Act, 1944, as applicable to Service Tax. In this regard it is submitted that this provision is applicable only in respect of prosecution proceedings before a court of law and not in departmental adjudication.

(3) Even otherwise, there is nothing in the show cause notice to show that Shri Nikunj Beriwal knowingly and deliberately abetted the evasion of service tax. Therefore, no penalty is imposable on him also.

10. The learned authorised representative for the Revenue reiterated the findings of the impugned order.

11. We have examined the rival submissions and also perused the records. In each case the facts are different. These are discussed below serially.

A. BGB Spintex Pvt Ltd and CFM Infratex Ltd

(1). The appellants had entered into an agreement on 16.05.2013 with two land owners for purchase of agricultural land at the price of Rs 35,00,000/- and had also paid earnest money of Rs 3,50,000/-. A company by the name CFM Infratex Ltd wanted to purchase the said agricultural land already booked by the appellants. Accordingly, they negotiated a deal with the appellants and agreed to buy the appellants rights in the properties for Rs 3,68,50,000/- inclusive of the earnest money already paid.

(2). It is the view of the department that the amount received by the appellants was an agreement for refraining from an act or for tolerating an act or situation and was, therefore, liable to service tax under clause (e) of section 66E of the Finance Act 1994 .

(3). We find that ‘service’ has been defined under section 65B(44) of the Finance Act, 1994, 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,—

(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;

(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

……….‟

(4) ‘Immovable property’ has not been defined in the Finance Act, 1994, or the Rules made thereunder. As per the Service Tax Education Guide ( para 2.6 refers) issued by the CBEC the words ‘immovable property’ would have the same meaning as given in section 3(26) of the General Clauses Act, 1897, which reads 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;

(5). As rightly pointed out by the learned advocate of the appellants the issue as to what would constitute ‘ benefits arising out of land’ came to be deliberated upon by the Allahabad High Court in the case of Kanhiya Lal & Another versus Satya Narayan Pandey (AIR1965ALL 496). It was held as under:-

5. The term “immovable property” has not been defined in the Act, and unless there is anything in the subject or the context to suggest to the contrary, it can be given the same meaning as contained in the definition clause of the General Clauses Act. In Section 3(26) of the Central General Clauses Act, “immovable property” is defined to include “land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.” A similar definition is contained in Section 4 (23) ot the U. P. General Clauses Act with the modification that ‘immovable property’ shall not include standing timber, growing crops or grass. The definition is clearly illustrative and not exhaustive, and can cover buildings and benefits to arise out of buildings. Building is a thing attached to the earth and is by itself an immovable property. In the case of land, benefits to arise out of land are also “immovable property”, and consequently, in the case of buildings, benefits to arise out of buildings can be deemed to be “immovable property.”

6. Benefits to arise out of building can be of various kinds depending upon the rights which can be enjoyed by the person. Owner of a building not in occupation thereof can exercise his proprietary rights by letting the accommodation to tenants and collecting rent from them. An owner in occupation of the building enjoys not only the proprietary rights but also the right of occupation. A lessee including tenant also enjoys benefits arising out of the building. He has the right to occupy the building on payment of the lease money till the tenancy is determined by the lessor or lessee. When the lessee (tenant) enjoys certain rights in the building, he is a person who is in enjoyment of benefits arising out of the building and the tenancy right shall by itself be an “immovable property”.

(6) In the present case the appellants had acquired a right to purchase the said agricultural piece of land and this right was a benefit arising out of an immovable property and was, therefore, an immovable property itself. The instant case is nothing but transfer of the title of immovable property in any other manner ( not by way of sale or gift). Such a transaction is excluded from the definition of ‘service’ and, hence, not liable to service tax.

(7) We do not agree with the adjudicating authority that ‘capital gains’ can be earned only against change in ownership, not otherwise. It is now established law that any amount received on account of surrender of tenancy rights is also liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005].

(8) Further, in para 6.2.8 of the Service Tax Education Guide of the CBEC it has been clarified that ownership is not necessary for transfer of any right in an immovable property. The relevant portion is reproduced below:-

6.2.8 If the person who has entered into a contract with the builder for a flat for which payments are to be made in 12 installments depending on the stage of construction and the person transfers his interest in the flat to a buyer after paying 7 installments, would such transfer be an activity chargeable to service tax?

Ans: Such transfer does not fall in this declared service entry as the said person is not providing any construction service. In any case transfer of such an interest would be transfer of a benefit to arise out of land which as per the definition of immoveable property given in the General Clauses Act, 1897 is part of immoveable property. Such transfer would therefore be outside the ambit of ^„service‟ being a transfer of title in immoveable property. Needless to say that service tax would be chargeable on the seven instalments paid by the first allottee and also on subsequent instalments paid by the transferee.

(9) The learned advocate for the appellants has also rightly relied on the decision of the Chandigarh Bench of this Tribunal in the case of DLF Commercial Projects Corporations Vs Commr. Of S.T., Gurugram [ 2019 (27) G.S.T.L. 712 (Tri. – Chan.)] wherein it has been held that any right relating to immovable property is a benefit arising out of immovable property and, therefore, is immovable property itself. The relevant part of the judgment is extracted below:-

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 v. 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 v. Bibijan Shaikh Farid, the Hon‟ble High Court 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 judgments for that purpose. In Sikandar and Ors. v. 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. Flanuman 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. v. 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 v. Bibijan Shaikh Farid and ors. Para no. 15 of the said judgment is material and is reproduced hereunder.

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. v. 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. v. 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 v. 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 v. 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.

(10) Section 66E(e) of the Finance Act, 1994, reads as under:-

“Section 66E. Declared services. — The following shall constitute declared services, namely :—

(a) renting of immovable property

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.

…………

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

(d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

…………………………..”

(11) By the surrender of the agreement rights in the property by the appellants it cannot be said that the appellants agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any act or situation.

(12) The issue as to what types of case would be covered in clause (e) of section 66E of the Finance Act, 1994, came to be discussed in the case of South Eastern Coalfields Ltd vs CCE &ST [ 2020-TIOL-1711-CESTAT-DEL]. It was held as under:-

“28. It also needs to be noted that section 65B(44) defines “service” to mean any activity carried out by a person for another for consideration. Explanation (a) to section 67 provides that “consideration” includes any amount that is payable for the taxable services provided or to be provided.

The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the defaulting act is not undertaken or repeated and the same cannot be said to be towards toleration of the defaulting party. The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance.

29. The situation would have been different if the party purchasing coal had an option to purchase coal from ‘A’ or from ‘B’ and if in such a situation ‘A’ and ‘B’ enter into an agreement that ‘A’ would not supply coal to the appellant provided ‘B’ paid some amount to it, then in such a case, it can be said that the activity may result in a deemed service contemplated under section 66E (e).

30. The activities, therefore, that are contemplated under section 66E (e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity.”

(13). Similar views have been taken in the decisions relied upon by the Appellants.

B. Shivshankar Logitex Pvt Ltd

(1). In this case of purchase of agricultural land by the appellants at the price of Rs 15,00,000/- earnest money was paid to the owner. In this case too another company by the name Shivshankar Logitex Pvt Ltd wanted to purchase the said land and after mutual discussion the appellants released their agreement rights to the property for Rs 36,50,000/-. In this case also, we hold that since the rights or benefits of the appellants arose out of an immovable property the same was outside the scope of ‘ service’ and, therefore, outside the scope of service tax.

(2). Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of another person or tolerated any act or situation.

C. M/s Shanti Enterprise

(1). In this case the appellants entered into an agreement with another buyer for purchase of non-agricultural land @ Rs.1,51,00,000/- and an advance payment was also made. Subsequently another company, M/s Shanti Enterprise wanted to purchase the said land for developing it and, accordingly, the appellants surrendered their agreement rights at a mutually agreed price of Rs 2,08,00,000/. On the same lines, we hold that in this case also, the transaction did not relate to any ‘service’ and, therefore, no service tax was leviable on the same.

(2). Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation.

D. Excelsior Services Pvt Ltd

(1). In this case the appellants entered into an agreement with M/s Excelsior Services Pvt Ltd to purchase a built-up area of a building in Kolkata for Rs 25,10,00,000/- and advance money was also paid for the same. As per the agreement the possession of the said building, along with the car parking, was to be handed over to the appellants by September 2014. However, subsequently, M/s Excelsior Services Pvt Ltd expressed their inability to perform their agreement and a deal of cancellation was executed with the appellants on payment of Rs 8,78,50,000/- as compensation.

(2) In the case of Amit Metalics Limited vs Commissioner of CGST, Bolpur (supra) it was held as under:-

“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 materialize 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. 23,18,09,200/-from the land owners. Accordingly, the appellant got a total amount of Rs. 45,08,09,200/- 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. 1,97,50,000/- 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 sub­heading 65B(44)(a)(iii) at the hand of appellant.

………..

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 66E(e) of the Act, which is for obligation to refrain from the Act or to tolerate [an] act [or] 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 paragraphs 13 to 23 are held as under;”

(3). The above decision has been upheld by the Hon’ble Supreme Court as reported in 2022(56)GSTLJ53(SC).

(4). We, therefore, hold that the compensation cannot be considered as the appellants agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act.

E. M/s Autocare Services

(1). Autocare Services owned a property in Vadodara which they developed and started construction of commercial office space. The appellants entered into 14 separate agreements for purchase of 14 office premises in the said building and advance amounts were also paid. Subsequently, it was mutually agreed between the appellants and M/s Autocare Services to cancel the sale agreements and relinquish the appellants rights on payment of consideration/profit of Rs 3,38, 24,939/-.

(2) Since this amount was also received in connection with surrender of rights or benefits arising out of immovable property the same is outside the scope of ‘service’ and, hence, not liable to service tax.

(3). Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situation or did an act.

F. Vijay Kumar Dalmia and STB Exports Pvt Ltd

(1). In this case the appellants had purchased 204.75 satak of land from one Vijay Kumar Dalmia. Subsequently, out of this area of land 82 satak land was sold by the appellants to M/s STB Exports Pvt Ltd. In the whole transaction of sale/purchase of immovable property the appellants earned profit of Rs 64,31,000/-. This is a clear case of outright sale and purchase of immovable and is outside the scope of ‘service’ and hence, not liable to service tax.

G. M/s Thermax Ltd

(1). The appellants entered into an agreement with M/s Thermax Ltd for supply of manpower to the appellants’ plant . M/s Thermax Ltd, in turn, entrusted this job to M/s Ensol Power Pvt Ltd, their sub-vendor. M/s Ensol Power Pvt Ltd then supplied the manpower on behalf of M/s Thermax to the appellants. But since M/s Thermax had not released payments to M/s Ensol Power Pvt Ltd the appellants made payment to M/s Ensol Power Pvt Ltd and, in turn, booked the amount paid on M/s Thermax account. Hence, the appellants issued a debit note on Thermax for Rs 2,00,000/-. Thus, it is seen that this Rs 2,00,000/- is nothing but the reimbursement by M/s Thermax for the amount paid by the appellants on their behalf to M/s Ensol Power Pvt Ltd.

(2) This cannot be considered as a ‘service’ provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd.

H. Nilu Construction Pvt Ltd

(1) The appellants were occupying a portion of godown space, as tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu Constructions Pvt Ltd wanted to erect a new building on the said premises. The appellants agreed to vacate the said premises on payment of Rs 90,00,000/- as compensation for surrender of their tenancy rights.

(2) As per the decision of the Hon’ble Allahabad High Court in the case of Kanhiya Lal and Anr ( supra) the surrender of tenancy rights cannot be considered as ‘service’ and, hence, no tax is payable.

(3) As already discussed above, the surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005 ( supra)].

(4). Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situation or did an act.

I. M/s Siddhartha Land and Building Pvt Ltd

(1). The appellants were in occupation, as a tenant, of 4,100 sq ft of space in a building in Kolkata, owned by M/s Siddhartha Land and Building Pvt Ltd. M/s Siddhartha Land and Building Pvt Ltd wanted to re-develop the land and construct a multi-storeyed building. They requested the appellants to vacate the premises. The appellants surrendered their tenancy rights on receipt of compensation of Rs 3,25,00,000.

(2). As already discussed above surrender of tenancy rights on receipt of some compensation is subject to capital gains tax and is not covered under clause (e) of section 66E of the Finance Act 1994.

(3). Further, as per the decision of the Hon’ble Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of ‘service’ and, therefore, cannot be subjected to Service Tax .

J. M/s Madanlal Brijlal Pvt Ltd

(1). The appellants were in occupation, as tenant, of a portion of the building owned by M/s Madanlal Brijlal Pvt Ltd. The owner wanted to construct a building at the said premises and entered into a rehabilitation agreement with the appellants to vacate the premises on the condition that the appellants would be provided a larger area in the new building. However, subsequently the appellants surrendered their tenancy rights on payment of Rs 2.40 crores as compensation.

(2). As already discussed above surrender of tenancy rights on receipt of some compensation is subject to capital gains tax and is not covered under clause (e) of Section 66E of the Finance Act 1994.

(3). Further, as per the decision of the Hon’ble Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of ‘service’ and, therefore, cannot be subjected to Service Tax .

K. Jasmine Commercials Pvt Ltd

(1). Jasmine Commercials Pvt Ltd was the owner of a building in Kolkata. The appellants entered into agreement with Jasmine Commercials Pvt Ltd to buy a portion of the ground floor subject to the condition that the car parking space in the building would be converted for commercial use of the appellants. Out of Rs.4,00,00,000 being the price or the said property the appellants paid an advance of Rs 2.25 crores. However, since Jasmine Commercials Pvt Ltd failed to get permission from the Municipal Corporation to convert the seven car parking space for commercial use, the matter was referred for arbitration and an award of Rs 3.19 crores, as damages, was passed in favour of the appellants.

(2). This is nothing but receipt of compensation on account of the other party not being able to fulfil its obligations under a contract. These damages cannot be considered as agreeing ‘to the obligation to refrain from an act or to tolerate an act or a situation or to do an act‟ as per clause (e) of section 66E of the Finance Act, 1994.

(3) The matter is clearly covered by the decisions in the case of Amit Metalics Limited vs Commissioner of CGST, Bolpur (supra) and M/s. South Eastern Coalfields Ltd. Vs. CCE and ST 2020-TIOL-1711-CESTAT-DEL( supra) discussed above.

12. In view of the above we hold that the appellants were not required to pay service tax on any of the amounts received by them in the above enumerated cases.

13. We also find that in the instant case the show cause notice is dated 28.09.2018 whereas the period involved is 01.04.2013 to 31.03.2015. The demand has been raised by invoking the extended time limit under the proviso to section 73(1) of the Finance Act, 1994. The only ground for invoking the extended period is that the above amounts were not reflected in the Service Tax returns filed by the appellants and that had the DGGI not intervened and unearthed the facts the activities of the appellants would not have come to surface.

14. We find that this is not a case where service tax returns were not filed at all. The case of the department is that the amounts recovered from the 11 companies listed above were not reflected in the said returns. We note that the whole case is based on the balance sheets of the appellants. The appellants had declared all the transactions in their records and had even paid capital gains tax on the profit/compensation received. Hence, it cannot be said that the appellants had resorted to wilful mis-statement or suppression of facts or had contravened of any of the provisions of service tax law with intent to evade payment of service tax. Courts have consistently held that the extended time limit can be invoked only if there is a positive act on the part of an assessee to conceal anything from the department. There must be a deliberate attempt to suppress information for invoking the extended period. We, therefore, hold that no ground has been made out to justify invoking the extended time limit. The demand is, therefore, barred by limitation.

15. In view of the above, both the appeals are allowed, on merits as well as on limitation.

(Pronounced in the open Court on 10.08.2022)