2014 (8) TMI 103 - AT - Service Tax

Renting of immovable property - lease agreement - levy of service tax on amounts collected by way of premium and rental - job of development of Navi Mumbai under the Maharashtra Regional Town Planning Authority under the said Act for developing certain town - Held that - The expressions other similar arrangements used in Section 65(90a) and any other service in relation to such renting used in Section 65 (105) (zzzz) are expressions of width and amplitude. It would include not only the actual leasing or renting but also any other activity in relation to such leasing/renting. Therefore, the agreement to lease which is entered into prior to the actual leasing and which is in relation to the lease undertaken subsequently subject to construction of building, etc. would also come within the purview of service tax levy with effect from 01/07/2010, if not before. The distinction sought to be made by the appellant in respect of agreement to lease and the lease agreement would not matter and the levy would apply, in both the situations. Performance of sovereign function - Held that - As regards the argument that the appellant was an agent of Government of Maharashtra and was performing a statutory function and therefore, the levy of service tax would not apply, this argument is completely misplaced. - The law does not distinguish between the Government and non-Governmental agencies. It merely says that the activities of rendering of services (as defined in law) would be leviable to tax. Regarding vacant land - Held that - Prior to 01/07/2010, there was no provision for levy of service tax on vacant land given on lease. Considering the fact that the appellant does not have a prima facie case, especially for the period post 01/07/2010 and also taking into account the financial hardship pleaded, we direct the appellant to make a pre-deposit of ₹ 20 Crore (Rupees Twenty Crore only), which is approximately the demand for the normal period of limitation - stay granted partly.

Issues Involved:
1. Classification of services under "renting of immovable property service."
2. Liability of premium collected under "agreement to lease" to service tax.
3. Inclusion of vacant land under service tax prior to 01/07/2010.
4. Applicability of service tax on statutory functions performed by government undertakings.
5. Invocation of extended period for demand and imposition of penalties.
6. Financial hardship and stay of recovery.

Detailed Analysis:

1. Classification of Services:
The primary issue revolves around the classification of services rendered by CIDCO under "renting of immovable property service" as defined under Section 65 (90a) read with Section 65 (105) (zzzz) of the Finance Act, 1994. The adjudicating authority confirmed a service tax demand of Rs. 136,56,00,263/- on CIDCO for the period 01/06/2007 to 31/03/2012. The appellant argued that only the rental payable under the lease agreement should be subject to service tax, not the premium collected under the "agreement to lease."

2. Liability of Premium Collected under "Agreement to Lease":
The appellant contended that the premium collected under the "agreement to lease" is not liable to service tax. They relied on the Apex Court's decision in Panbari Tea Co. [AIR 1965 SC 1871], which distinguished premium from rent, stating that premium is a capital receipt and not a recurring payment like rent. The Tribunal, however, noted that the expressions "other similar arrangements" and "any other service in relation to such renting" in Sections 65(90a) and 65(105)(zzzz) are broad and include activities related to leasing, thus bringing the "agreement to lease" within the purview of service tax post 01/07/2010.

3. Inclusion of Vacant Land under Service Tax Prior to 01/07/2010:
The appellant argued that prior to 01/07/2010, Section 65 (105) (zzzz) did not include vacant land within its scope. The Tribunal acknowledged this argument, stating that the levy on vacant land given on lease for construction was introduced only with effect from 01/07/2010. Therefore, the demand for service tax on vacant land prior to this date was not sustainable.

4. Applicability of Service Tax on Statutory Functions Performed by Government Undertakings:
The appellant, being a government undertaking, claimed exemption from service tax, arguing that their activities were statutory functions. The Tribunal dismissed this argument, referencing the Supreme Court's decisions that indirect taxes like service tax apply to government undertakings performing trading activities. The Tribunal emphasized that the law does not distinguish between government and non-government agencies in terms of service tax liability.

5. Invocation of Extended Period for Demand and Imposition of Penalties:
The appellant argued against the invocation of the extended period for demand and the imposition of penalties, citing no suppression of facts. The Tribunal deferred this issue to the final hearing, considering it both a question of fact and law.

6. Financial Hardship and Stay of Recovery:
The appellant pleaded financial hardship and requested a stay on recovery. The Tribunal, citing the Supreme Court's stance on interim orders affecting public revenue, directed the appellant to make a pre-deposit of Rs. 20 Crore, approximately covering the demand for the normal period of limitation. Subject to this compliance, the pre-deposit of the balance dues was waived, and recovery was stayed during the appeal's pendency.

Conclusion:
The Tribunal upheld the service tax demand on the rental component and the premium collected under the "agreement to lease" post 01/07/2010. It provided relief for the period prior to 01/07/2010 concerning vacant land. The appellant's claim of performing statutory functions exempt from service tax was rejected. A pre-deposit of Rs. 20 Crore was ordered to stay recovery during the appeal.

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