2013 (1) TMI 272 - AT - Service Tax

Whether long term lease of 90 years will be covered by the meaning of renting or leasing used in section 65 (105) (91a) - Held that - The ordinary meaning of renting will not cover long term leasing. The inclusive definition given in section 65 (105) (zzzz) including renting, letting, leasing and licensing in the same type of services would suggest that the word leasing used in the said section does not cover long term leasing where a property is given to a person with rights to transfer, assign and mortgage the rights. Such transfers are more akin to sale and less to renting of property. Such view is supported by the decision of Delhi High Court in the case of Krishak Bharati Co-operative Ltd Vs. Dy. CIT 2012 (7) TMI 526 - DELHI HIGH COURT holding that payments made to GNIDC is an expenditure in the nature of capital expenditure and not a revenue expenditure. The question whether the functions carried out by the appellant is a service also needs to be examined. A government authority doing an activity as per a mandate in an Act of the legislature by itself cannot take away the character of service from the activity. If that is not the case transportation functions done by Indian Railways would not amount to service. Considering such legal aspects and also in view of the fact that the appellant is an Authority set up by a State Government, which should not be put to hardship that may be caused by ordering pre-deposit in such a matter involving basic legal issues, it is proper to grant waiver of pre-deposit of dues for admission of appeal. Further there shall be stay on collection of dues arising from the impugned order during the pendency of the appeal.

Summary

Issues Involved:
1. Whether the long-term lease transactions by Greater Noida Industrial Development Authority (GNIDA) are subject to service tax.
2. Whether the activities of GNIDA constitute sovereign functions exempt from service tax.
3. Whether the one-time and annual lease charges collected by GNIDA are taxable under the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Taxability of Long-Term Lease Transactions:

The appellant, GNIDA, established under the Uttar Pradesh Industrial Development Act, 1976, allocates and transfers plots of land for various purposes, charging one-time and annual lease fees. The Revenue contended that these lease charges are subject to service tax under section 65 (105) (zzzz) read with section 65 (90a) of the Finance Act, 1994. The appellant argued that long-term leases (90 years) are akin to sales rather than rentals and should not be taxed as renting services. The Tribunal noted that the ordinary meaning of "renting" does not cover long-term leasing. The inclusive definition in section 65 (105) (zzzz) suggests that long-term leases, which grant rights to transfer, assign, and mortgage, are more akin to sales. This view aligns with the Delhi High Court's decision in Krishak Bharati Co-operative Ltd Vs. Dy. CIT, which treated payments to GNIDC as capital expenditure, not revenue expenditure.

2. Sovereign Functions and Service Tax Exemption:

The appellant claimed that its activities under the UP Industrial Area Development Act, 1976, are sovereign functions and not taxable services. The Tribunal acknowledged that while government activities mandated by legislation do not inherently exempt them from being classified as services, sovereign functions like township development and municipal maintenance should be considered non-commercial and thus exempt. The Tribunal highlighted that functions such as transportation by Indian Railways or insurance by LIC are services, but certifications under the Weights and Measures Act or passport issuance are sovereign functions. GNIDA's role in developing and maintaining a township is prima facie a sovereign function.

3. Taxability of One-Time and Annual Lease Charges:

The appellant argued that one-time charges are akin to the sale price of land, and annual charges are for municipal services, neither of which should be taxed as rent. The Revenue countered that GNIDA retains ownership and collects annual rent, indicating a rental nature. The Tribunal noted that the adjudication lacked clarity on the conditions of land transfer and the nature of transactions. The Tribunal accepted the appellant's submissions, as the adjudication order did not contradict them. The Tribunal referred to section 65 (105) (zzzz), which includes renting, letting, leasing, and licensing of immovable property for business or commerce. However, long-term leases with rights to transfer and mortgage are more akin to sales, not rentals.

Conclusion:

The Tribunal concluded that the adjudication did not adequately address the actual conditions of land transfer by GNIDA. The Tribunal granted waiver of pre-deposit of dues for the appeal's admission and stayed the collection of dues during the appeal's pendency, recognizing the legal complexity and the appellant's status as a government authority. The Tribunal emphasized the need to consider the nature of long-term leases and sovereign functions in determining taxability.

Order Pronounced in the Court.