2015 (4) TMI 1231 - HC - Service Tax

Renting of immovable property service - Non-payment of service tax - rent for allotment of plots of vacant land to various persons on lease for industrial and commercial purposes - Held that - the definition of expression of renting of immovable property read with Explanation will include the lease of various plots allotted by the assessee for business/commercial purposes and rent charged/collected in respect of the lease so executed would necessarily be subjected to Service Tax - the term/period of the lease whether it is for short duration or for 90 years or perpetuity makes absolutely no difference to the meaning of the expression renting of immovable property - The contention of the assessee that since long term lease of 90 years/perpetuity would virtually amounts to transfer of ownership of the land does not appeal to us especially in view of the simple meaning of the language use in the aforesaid sections. The plea of the appellant that it is performing statutory duties and is a creation of a statute and therefore cannot be subjected to Service Tax does not appeal to us - Suffice is to mention that the Finance Act, 1994 makes no distinction between a statutory body i.e. a juristic person and an individual. If a sovereign/public authority provides a services, which is not in the nature of an statutory activity and the same is undertaken for a consideration (not a statutory fee), then in such cases, Service Tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined. The statute permits such activities of letting out of immovable property for augmenting its finances but the same cannot be termed as the service in public interest nor it is a mandatory or statutory functions of the Development Authority - such activity of leasing do constitute a taxable service. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Permissibility of a second show cause notice for raising a demand of Service Tax.
2. Taxability of long-term leases of vacant land under Section 65(105)(zzzz) of the Finance Act, 1994.
3. Whether the Greater Noida Industrial Development Authority can be considered as performing sovereign functions and thus be outside the purview of Service Tax.
4. Taxability of leases granted in respect of vacant land by the appellant before 1-7-2010.

Issue-wise Detailed Analysis:

1. Permissibility of a Second Show Cause Notice:
The appellant contended that the second show cause notice dated 17th October 2012 was non-est as it overlapped with the period covered by the first show cause notice dated 22nd March 2012. The Tribunal remanded the matter to the Commissioner to examine the plea of overlapping by de novo proceedings and to give a specific finding on this issue. The appellant is allowed to raise all legal and factual issues during the remand proceedings.

2. Taxability of Long-term Leases of Vacant Land:
The court held that the definition of "renting of immovable property" under Section 65(90a) includes leasing of vacant land for commercial purposes, irrespective of the lease duration. The lease of various plots for business/commercial purposes and the rent charged thereon are subject to Service Tax. The court rejected the appellant's argument that long-term leases of 90 years or in perpetuity amount to a transfer of ownership, emphasizing that the Finance Act, 1994 does not distinguish between short-term and long-term leases for Service Tax purposes.

3. Sovereign Functions and Service Tax:
The appellant argued that it performs statutory duties and sovereign functions, thus should be exempt from Service Tax. The court rejected this argument, stating that the Finance Act, 1994 does not differentiate between a statutory body and an individual. The court referred to a government circular clarifying that services provided for consideration, even by a statutory body, are taxable if they fall within the scope of a taxable service. The court concluded that leasing immovable property for consideration is a taxable service and not a statutory function performed in public interest.

4. Taxability of Leases Before 1-7-2010:
The court noted that the Tribunal held that leasing of vacant land for commercial purposes is taxable from 1st July 2010, as per Clause (v) of Explanation 1 to Section 65(105)(zzzz) of the Finance Act, 1994. The court found no illegality in this conclusion, affirming that the lease of immovable property for business purposes is subject to Service Tax irrespective of the lease duration.

Conclusion:
The court dismissed the appeal, upholding the Tribunal's order. The questions raised were answered against the assessee and in favor of the department. The court found no error in the Tribunal's decision, confirming that the lease of vacant land for commercial purposes is taxable and that the second show cause notice issue should be resolved through remand proceedings.