2019 (2) TMI 869 - AT - Service Tax

Classification of services - Renting of immovable property services or not - Advance Development Cost received from Developers towards development of common infrastructure facilities - extended period of limitation - Held that - Development of Common Infrastructure facilities outside Asset Area cannot be construed as Renting of Immovable Property or a service in relation to the renting of immovable property. The treatment of reimbursement of cost, of common facilities, as Renting Service by the Adjudicating Authority is not legal because such common facilities were developed by taking advances as a pool of fund, for the infrastructure to be used by common beneficiaries and the account was to be settled as per Agreement by returning excess, if any, or charging deficit, etc. if any, if the cost of the works exceeded or was less than the amount collected as advance. For rent on immovable property service, the expression in relation to has to be read in conjunction with the expression rental . The term rental even in enlarged form of Lease, Rent, Licence, etc., cannot encompass anything done for development of the common facility/ property. There is difference between anything done in relation to renting of immovable property service and anything done in relation to immovable property per-se, which is in common domain. The latter cannot fall within the ambit of the former. From the definition of Renting of Immovable Property Services as contained in Section 65(105)(zzzz), it is evident that in order to be covered under renting of immovable property services, the nature of the activity should be that of renting or letting or leasing or licensing or other similar arrangements of immovable property for use in the course or furtherance of business. In the present case, there is no Service Provider-Service Recipient relationship between the appellant and the Developers, as regards the Advance development cost, because common facilities developed belong to none (held in trust) and the benefit is derived by all the 13 developers, as well as the public. Hence the same is not liable to Service Tax - Advance development cost is not consideration for any services rendered, therefore, Section 67 has been improperly invoked to take gross value as consideration for alleged services provided, even when whole of the deposit is liable to be spent and nothing retained as per the IDSA agreement. It is settled law that service tax, if any, is not applicable on the Advance Development Cost received prior to 01.07.2010. In the instant case taxable event happened even prior to the date when licensing of vacant land was included in the renting of immovable services w.e.f 01.07.2010. Therefore, taxable event having occurred earlier to the point of levy of service tax, the same cannot be levied. The Infrastructure development cost as per IDSA is not covered under renting of immovable property and is not chargeable to service tax - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of 'Advance Development Cost' under 'Renting of Immovable Property Services.'
2. Applicability of extended period of limitation.

Issue-wise Detailed Analysis:

1. Classification of 'Advance Development Cost' under 'Renting of Immovable Property Services':

The core issue was whether the 'Advance Development Cost' (ADC) received from developers for common infrastructure facilities falls under 'Renting of Immovable Property Services.' The tribunal observed that the ADC was allocated for developing common infrastructure facilities outside the asset area, which were not exclusive to any developer but for common use. The tribunal noted that the agreements for development and infrastructure services were distinct and conferred different rights and obligations. The Development Agreement provided exclusive rights to developers for specific plots, while the Infrastructure Development and Service Agreement (IDSA) obligated DIAL to develop common facilities for all developers and the public.

The tribunal highlighted that the ADC was not retained by DIAL as profit but was to be used for the development of common facilities, with any excess amount to be refunded to the developers. The tribunal relied on the Supreme Court judgment in Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., which clarified that reimbursement of expenses incurred by the service provider is not included in the valuation of taxable services unless specifically provided by law. The tribunal concluded that the ADC could not be considered as consideration for any service provided and thus, did not fall under 'Renting of Immovable Property Services.'

2. Applicability of Extended Period of Limitation:

The tribunal examined whether the extended period of limitation could be invoked in this case. It was noted that the appellant had sought clarifications from the department regarding the taxability of various services, and there were conflicting opinions within the department itself. The tribunal observed that the appellant had disclosed all relevant information in their balance sheets and ST-3 returns and had acted on legal opinions that suggested ADC was not taxable under 'Renting of Immovable Property Services.' The tribunal referred to the case of Simplex Infrastructure Ltd. Vs. Commissioner Service Tax, Kolkata, where it was held that the extended period of limitation is not applicable when there is full disclosure and no intent to evade tax.

The tribunal concluded that there was no suppression of facts or intent to evade tax by the appellant. The agreements and transactions were disclosed, and the appellant had a bona fide belief based on legal opinions. Therefore, the extended period of limitation could not be invoked.

Conclusion:

The tribunal held that the 'Advance Development Cost' received by DIAL was not taxable under 'Renting of Immovable Property Services' and that the extended period of limitation was not applicable. The impugned order was set aside, and the appeal was allowed with consequential relief.