2015 (9) TMI 1724 - HC - Service Tax

Valuation of service tax - real estate agent service - value of the land is not includible in the assessable value for the purpose of computing the service tax or not - HELD THAT - The AA has in the order dated 30th September 2013 come to the conclusion, on an analysis of the three MOUs entered into between the Appellant and SI, that the Appellant was working as an agent for SICCL and further that it had rendered two kinds of taxable services one as a real estate agent/real estate consultant under Section 65 (89) of the FA and the other relating to levelling of soil including filling of gorges/nallah, removing of shrubs, grass and rubbish etc. classifiable under the head 'site formation and clearance excavation and earth moving and demolition services', as defined under Section 65 (97a) of the FA. The Court is of the view that the Appellant has made out a prima facie case on the aspect whether the entire amount received by it pursuant to the MoUs would be considered to be the 'gross value' for the purposes of computation of service tax liability. Indeed it appears that the AA agreed with the Appellant that the entire sum received by the Appellant for purchase of land could not form the basis for computation of the service tax - It further prima facie appears that the AA overlooked the fact that even as per the SCN no land in Kurukshetra was purchased although the Appellant received money for that purpose. The Appellant's explanation that it returned the said sum to SICCL in the form of shares in 13 of its group companies does not appear to have been considered. The Court is satisfied that the Appellant has made out a prima facie case and that the balance of convenience at this stage in making a conditional order of pre-deposit is in favour of the Appellant. Although the Court is not expressing any opinion on the contention of the Appellant that no taxable service has been rendered by it, and that in any event the entire profit earned by it cannot constitute the value of such services, the Court, for the purposes of determining the reasonable amount of pre-deposit to be made by the Appellant, takes note of the fact that the Appellant has after making a loss of ₹ 34,25,435 in regard to the purchase of land at Sriganganagar and a profit of ₹ 4,75,45,069 in respect of the purchase of land at Vadodara, earned a net profit of ₹ 4,41,19,634. If the service tax demand is computed at 10% of the said sum it would work out to ₹ 44,11,963. The appeal and application are disposed of.

Summary

Issues:
1. Appellant challenging order passed by CESTAT under Section 35G of the Central Excises Act, 1944.
2. Dispute regarding taxable 'real estate' services provided by the Appellant.
3. Calculation of service tax liability based on gross value received for land purchase.
4. Prima facie case made by Appellant for pre-deposit of service tax demand.
5. Examination of Appellant acting as an agent for another party and providing taxable services.

Issue 1:
The appeal by M/s. Elegant Developers challenges the order passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) under Section 35G of the Central Excises Act, 1944, against the order-in-original dated 30th September 2013 passed by the Adjudicating Authority (AA), the Commissioner of Service Tax (CST).

Issue 2:
The dispute revolves around whether the Appellant provided taxable 'real estate' services, as the AA held in the order dated 30th September 2013, despite agreeing that the cost/value of land should not be included in the gross value for levy of service tax.

Issue 3:
The calculation of the service tax liability was based on the entire sum received by the Appellant for the purchase of land, leading to a demand of service tax on the gross value, which the Appellant contested as unreasonable.

Issue 4:
The Appellant made a prima facie case for a conditional pre-deposit of the service tax demand, arguing that the tax should be levied only on the commission/profit earned and not on the entire sum received for land purchases.

Issue 5:
The Court analyzed whether the Appellant acted as an agent for another party and provided taxable services, as determined by the AA, and found that this aspect needed further examination by the CESTAT when the appeals are heard.

In the judgment, the Court noted that the Appellant argued against the inclusion of the entire sum received for land purchases in the computation of service tax liability. The Court found that the AA's calculation of the demand on the gross value appeared unsustainable, as it exceeded the total sum received by the Appellant under the three MOUs. Additionally, the Court observed that the AA overlooked the fact that no land was purchased in Kurukshetra, and the Appellant's explanation of returning the sum to SICCL in the form of shares was not considered. The Court acknowledged the Appellant's prima facie case and directed a pre-deposit of 5% of the net profit earned by the Appellant, modifying the impugned order of the CESTAT.

Therefore, the judgment highlighted the need for a detailed examination of whether the Appellant provided taxable services and acted as an agent, while also addressing the calculation discrepancies in the service tax liability and the reasonable pre-deposit amount based on the Appellant's net profit.