2017 (1) TMI 609 - AT - Service Tax

Development of immovable property - administrative charges - restoration charges - transfer charges - Revenue has taken the view that these charges have been recovered in connection with the sale of real estate and hence, are liable to service tax under the category of Real Estate Agent Services defined under Section 65 (88) of the Finance Act, 1994, which has been introduced w.e.f. 16/10/1998 - demand of tax, with interest and penalties. Held that - The administration charge has been recovered by the appellant from all original allottees of flats to cover expenses in connection with registration etc. It is fairly obvious that such charges are not covered within the definition of Real Estate Agent, in as much as it has been collected by the appellant directly from the allottees. In such a transaction there are only two parties - the buyer and seller (appellant) of the flat. Since no service has been rendered, the demand for service tax is not sustainable. Restoration charges - Held that - such amounts have been recovered when an allottee defaults in his payment schedule and for that reason allotment is cancelled. In such cases, if the allottee approaches for restoring the allotment, restoration charges are levied - such charges are in the nature of a penalty imposed on the allottee to cover damages caused by his default in payment - such charges cannot be considered as a service charge liable for levy of service tax. Transfer charges - Held that - A person who is engaged in rendering any service in relation to sale of real estate is liable to pay service tax under the Real Estate Agent Services - the transfer charges would be liable for payment of service tax under the above category. Matter remanded to the Adjudicating Authority to re-compute the demand within the normal period of limitation - penalties set aside - appeal allowed by way of remand.

Summary

Issues:
1. Dispute regarding charges related to real estate services and liability for service tax.

Detailed Analysis:
1. The appeals were filed against orders passed by the Adjudicating Authority concerning charges described as 'administrative charges', 'restoration charges', and 'transfer charges' by the appellants in the development of immovable property. The Revenue contended that these charges, recovered in connection with the sale of real estate, are liable for service tax under the category of Real Estate Agent Services. The appellants argued that the charges were not sustainable under the Real Estate Agents category as they were acting on their own behalf and not as agents of others.

2. The main submission by the appellants was that until the completion of construction and full payment, the ownership of the property remained with the developer, making the amounts recovered in the nature of self-service not attracting service tax. They relied on case laws to support their argument.

3. The Real Estate Agent Service was defined under Section 65(88) of the Finance Act, 1994, covering services related to the sale, purchase, leasing, or renting of real estate. The Tribunal analyzed the nature of charges like administrative, restoration, and transfer charges in relation to real estate transactions to determine their liability for service tax under the Real Estate Agent Services category.

4. The Tribunal concluded that the administration charges collected directly from flat allottees for registration expenses were not covered under the Real Estate Agent definition as no service was rendered, thus not attracting service tax. Similarly, restoration charges imposed on defaulting allottees were considered penalties for damages and not service charges liable for service tax.

5. Regarding transfer charges levied for changing ownership before the completion of construction, the Tribunal found them to be consideration for facilitating the sale of real estate, falling under the Real Estate Agent Services category. The transfer of title from one buyer to another was deemed a sale, making the transfer charges liable for service tax.

6. Relying on a previous Tribunal decision, the Tribunal modified the impugned order, remanding the matter for re-computation of the demand within the normal period of limitation. It was clarified that no penalty under Section 78 would be levied, and the penalty under Section 76 needed re-computation along with the service tax demand. An opportunity for the appellant to present their side was ensured before a final decision was made.