2021 (12) TMI 737 - AT - Service Tax

Classification of service - site formation and clearance, excavation and earth moving and demolition service or not - agreement for carrying out various activities namely, procurement for land from farmers, getting land thus procured converted from agricultural land to non-agricultural land, seeking various government permissions and approvals, necessary till formation of residential layouts etc. - scope of service - HELD THAT - Clause (97a), defining the term site formation and clearance, excavation and earth moving and demolition was inserted in Section 65 ibid vide Finance Act, 2005 dated 13.05.2005 w.e.f 16.06.2005. Such definition was in vogue till introduction of the negative list concept, effective from 01.07.2012. Under the amended provisions, Section 65B was inserted in the statute book, providing for interpretation of various clauses contained therein. Clause (44) in the said section has assigned the meaning of the phrase service for the purpose of levy and collection of service tax. The scope of work assigned to the appellant for performance under the Phase-I project were limited for the purpose of purchasing of land from the farmers; signing of agreements of the proposed land in favour of the members of society; processing of papers with the Government and other statutory bodies for getting the land in favour of such members and for ensuring that the in-principle approval has been obtained for the layout plan from the concerned statutory authorities. Further, it is observed from the case records that the Partner of the appellant has sworn an affidavit dated 15.11.2021, confirming inter alia, that the appellant is still in the Phase I stage and had completed only purchasing of the land, seeking various permissions and that no physical activity has been started/undertaken for carrying out the work under the Phase II and Phase III projects - the appellant had only undertook the activities for completion of phase I of the project and did not undertake any activities concerning phase II and phase III. The appellant had merely procured land, paid Government fees etc. This activity, in no way, can be considered as a taxable service under the category of site formation and clearance, excavation and earthmoving and demolition service inasmuch as the work assigned under the agreement for completion of the phase I project do not attract any of the clauses itemized in the definition provided under Section 65(97a) ibid. Thus, the activities undertaken by the appellant pursuant to the agreements entered into with the society will not fall under the taxing net for levy of service tax up to the period 01.07.2012. Similarly, the services provided by the appellant would also not fall under the purview and scope of the definition of service as per Section 65B (44) ibid for the period post 01.07.2012, onwards inasmuch as such definition clause has specifically excluded the activity of transfer of title in goods or immoveable property by way of sale etc. Hence, mere procurement of land from the farmers and getting necessary approval from the government authorities will not create a tax liability under the taxable category of service . It is a settled legal position that levy of service tax depends on the service rendered, but not on the basis of agreements which were never fulfilled and no payment was received by the service provider. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of taxable services under Section 65 (97a) and Section 65 B (44) of the Finance Act, 1994 for activities related to land development and sale.

Analysis:
The case involved a dispute regarding the taxability of services provided by the appellant, who was engaged in selling land after developing it with infrastructure facilities. The Service Tax Department contended that the activities undertaken by the appellant fell under taxable categories such as "site formation and clearance, excavation and earth moving and demolition" under Section 65 (97a) of the Finance Act, 1994. The department initiated proceedings against the appellant for non-registration and non-payment of service tax. The Commissioner of Service Tax confirmed a substantial tax demand, interest, and penalties through an adjudication order.

The appellant argued that during the disputed period, they only received funds for Phase-I activities, which involved purchasing land and obtaining government approvals. They contended that no physical activities were conducted on the land for Phases-II and III, and therefore, they should not be liable to pay service tax. The appellant also highlighted that the funds received were properly accounted for and referenced previous tribunal decisions to support their case.

The Revenue, on the other hand, maintained that the residential layout developed by the appellant was ready for construction, categorizing their activities as taxable services under the relevant sections of the Finance Act. They referenced a judgment from the Allahabad High Court to support their position.

Upon examining the case records and submissions, the Tribunal analyzed the definitions of "site formation and clearance, excavation and earth moving and demolition" under Section 65 (97a) and the broader definition of "service" under Section 65 B (44). The Tribunal found that the appellant's activities for Phase-I, which included land procurement and obtaining approvals, did not align with the taxable categories specified in the law. They noted that no physical work had commenced for Phases-II and III. The Tribunal emphasized that the levy of service tax should be based on services rendered, not just contractual agreements. They concluded that the appellant's activities did not attract service tax liability under the defined categories.

Ultimately, the Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal. The confirmation of service tax demand, interest, and penalties was deemed unsustainable based on the analysis of the activities undertaken by the appellant in relation to the statutory provisions.

This detailed analysis showcases the Tribunal's thorough examination of the legal provisions, factual circumstances, and arguments presented by both parties, leading to a reasoned decision in favor of the appellant.