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2022 (8) TMI 989 - AT - Service TaxLevy of service tax - Compensation/Short term capital gains - whether payments received by the appellants from 11 different companies/firms are liable to service tax or not? - extended period of limitation - Demand of interest and penalty - section 9AA(1) of the Central Excise Act, 1944. For BGB Spintex Pvt Ltd and CFM Infratex Ltd - Department is of the view that the amount received by the appellants was an agreement for refraining from an act or for tolerating an act or situation and was, therefore, liable to service tax - HELD THAT - In the present case the appellants had acquired a right to purchase the said agricultural piece of land and this right was a benefit arising out of an immovable property and was, therefore, an immovable property itself. The instant case is nothing but transfer of the title of immovable property in any other manner ( not by way of sale or gift). Such a transaction is excluded from the definition of service and, hence, not liable to service tax - the view of adjudicating authority that capital gains can be earned only against change in ownership, not otherwise, cannot be agreed upon. It is now established law that any amount received on account of surrender of tenancy rights is also liable to capital gains tax as per the Income Tax Act, 1961. By the surrender of the agreement rights in the property by the appellants it cannot be said that the appellants agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any act or situation. For Shivshankar Logitex Pvt Ltd - HELD THAT - In this case of purchase of agricultural land by the appellants at the price of Rs 15,00,000/- earnest money was paid to the owner. In this case too another company by the name Shivshankar Logitex Pvt Ltd wanted to purchase the said land and after mutual discussion the appellants released their agreement rights to the property for Rs 36,50,000/-. In this case also, we hold that since the rights or benefits of the appellants arose out of an immovable property the same was outside the scope of service and, therefore, outside the scope of service tax - Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of another person or tolerated any act or situation. For M/s Shanti Enterprise - HELD THAT - In this case the appellants entered into an agreement with another buyer for purchase of non-agricultural land @ Rs.1,51,00,000/- and an advance payment was also made. Subsequently another company, M/s Shanti Enterprise wanted to purchase the said land for developing it and, accordingly, the appellants surrendered their agreement rights at a mutually agreed price of Rs 2,08,00,000/- - the transaction did not relate to any service and, therefore, no service tax was leviable on the same - Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation. For Excelsior Services Pvt Ltd - HELD THAT - The compensation cannot be considered as the appellants agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act. M/s Autocare Services - HELD THAT - Autocare Services owned a property in Vadodara which they developed and started construction of commercial office space. The appellants entered into 14 separate agreements for purchase of 14 office premises in the said building and advance amounts were also paid. Subsequently, it was mutually agreed between the appellants and M/s Autocare Services to cancel the sale agreements and relinquish the appellants rights on payment of consideration/profit of Rs 3,38, 24,939/- - Since this amount was also received in connection with surrender of rights or benefits arising out of immovable property the same is outside the scope of service and, hence, not liable to service tax. Vijay Kumar Dalmia and STB Exports Pvt Ltd - HELD THAT - In this case the appellants had purchased 204.75 satak of land from one Vijay Kumar Dalmia. Subsequently, out of this area of land 82 satak land was sold by the appellants to M/s STB Exports Pvt Ltd. In the whole transaction of sale/purchase of immovable property the appellants earned profit of Rs 64,31,000/-. This is a clear case of outright sale and purchase of immovable and is outside the scope of service and hence, not liable to service tax. M/s Thermax Ltd - HELD THAT - Since M/s Thermax had not released payments to M/s Ensol Power Pvt Ltd the appellants made payment to M/s Ensol Power Pvt Ltd and, in turn, booked the amount paid on M/s Thermax account. Hence, the appellants issued a debit note on Thermax for Rs 2,00,000/-. Thus, it is seen that this Rs 2,00,000/- is nothing but the reimbursement by M/s Thermax for the amount paid by the appellants on their behalf to M/s Ensol Power Pvt Ltd. - This cannot be considered as a service provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd. Nilu Construction Pvt Ltd - HELD THAT - The surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 - Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situation or did an act. M/s Siddhartha Land and Building Pvt Ltd - HELD THAT - The surrender of tenancy rights on receipt of some compensation is subject to capital gains tax and is not covered under clause (e) of section 66E of the Finance Act 1994 - Further, as per the decision of the Hon ble Allahabad High Court in the case of Kanhiyalal and Anr 1964 (8) TMI 96 - ALLAHABAD HIGH COURT the tenancy rights are also benefits arising out of the immovable property and outside the definition of service and, therefore, cannot be subjected to Service Tax. M/s Madanlal Brijlal Pvt Ltd - HELD THAT - The appellants were in occupation, as tenant, of a portion of the building owned by M/s Madanlal Brijlal Pvt Ltd. The owner wanted to construct a building at the said premises and entered into a rehabilitation agreement with the appellants to vacate the premises on the condition that the appellants would be provided a larger area in the new building. However, subsequently the appellants surrendered their tenancy rights on payment of Rs 2.40 crores as compensation. The surrender of tenancy rights on receipt of some compensation is subject to capital gains tax and is not covered under clause (e) of Section 66E of the Finance Act 1994 - as per the decision of the Hon ble Allahabad High Court in the case of Kanhiyalal and Anr 1964 (8) TMI 96 - ALLAHABAD HIGH COURT the tenancy rights are also benefits arising out of the immovable property and outside the definition of service and, therefore, cannot be subjected to Service Tax. Jasmine Commercials Pvt Ltd - HELD THAT - This is nothing but receipt of compensation on account of the other party not being able to fulfil its obligations under a contract. These damages cannot be considered as agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act as per clause (e) of section 66E of the Finance Act, 1994 - the appellants were not required to pay service tax on any of the amounts received by them. Extended period of limitation - HELD THAT - This is not a case where service tax returns were not filed at all. The case of the department is that the amounts recovered from the 11 companies, were not reflected in the said returns. It is also noted that the whole case is based on the balance sheets of the appellants. The appellants had declared all the transactions in their records and had even paid capital gains tax on the profit/compensation received. Hence, it cannot be said that the appellants had resorted to wilful mis-statement or suppression of facts or had contravened of any of the provisions of service tax law with intent to evade payment of service tax. Courts have consistently held that the extended time limit can be invoked only if there is a positive act on the part of an assessee to conceal anything from the department. There must be a deliberate attempt to suppress information for invoking the extended period. The appeals are allowed, on merits as well as on limitation.
Issues Involved:
1. Liability of payments received from various companies/firms to service tax. 2. Applicability of extended period of limitation. 3. Imposition of interest and penalty. Analysis of the Judgment: A. BGB Spintex Pvt Ltd and CFM Infratex Ltd: The appellants entered into an agreement for purchasing agricultural land, which was later sold to CFM Infratex Ltd. The department viewed this as an agreement to refrain from an act or tolerate a situation, liable to service tax under Section 66E(e) of the Finance Act, 1994. However, the tribunal found that the right to purchase the land was a benefit arising out of immovable property, excluded from the definition of 'service' under Section 65B(44) of the Finance Act, 1994, and hence not liable to service tax. B. Shivshankar Logitex Pvt Ltd: Similar to the previous case, the appellants released their agreement rights to purchase agricultural land to Shivshankar Logitex Pvt Ltd. The tribunal held that the rights or benefits arose out of immovable property and were outside the scope of 'service' and hence not liable to service tax. C. M/s Shanti Enterprise: The appellants surrendered their agreement rights to purchase non-agricultural land to M/s Shanti Enterprise. The tribunal held that this transaction did not relate to any 'service' and hence no service tax was leviable. D. Excelsior Services Pvt Ltd: The appellants entered into an agreement to purchase a built-up area but received compensation when the seller could not fulfill the agreement. The tribunal held that such compensation could not be considered as agreeing to refrain from an act or tolerate a situation under Section 66E(e) and hence not liable to service tax. E. M/s Autocare Services: The appellants canceled agreements for purchasing office premises and received compensation. The tribunal held that this amount was received in connection with the surrender of rights relating to immovable property, outside the scope of 'service' and hence not liable to service tax. F. Vijay Kumar Dalmia and STB Exports Pvt Ltd: The appellants sold a portion of land and earned a profit. The tribunal held that this was a clear case of sale and purchase of immovable property, outside the scope of 'service' and hence not liable to service tax. G. M/s Thermax Ltd: The appellants reimbursed M/s Ensol Power Pvt Ltd for manpower supplied on behalf of M/s Thermax Ltd. The tribunal held that this reimbursement could not be considered a 'service' provided by the appellants and hence not liable to service tax. H. Nilu Construction Pvt Ltd: The appellants vacated a rented godown space and received compensation. The tribunal held that the surrender of tenancy rights could not be considered a 'service' and hence no tax was payable. I. M/s Siddhartha Land and Building Pvt Ltd: The appellants vacated rented space and received compensation. The tribunal held that surrender of tenancy rights is not covered under Section 66E(e) and hence not liable to service tax. J. M/s Madanlal Brijlal Pvt Ltd: The appellants vacated rented premises and received compensation. The tribunal held that surrender of tenancy rights is not covered under Section 66E(e) and hence not liable to service tax. K. Jasmine Commercials Pvt Ltd: The appellants received damages due to the seller's failure to fulfill an agreement. The tribunal held that these damages could not be considered as agreeing to refrain from an act or tolerate a situation under Section 66E(e) and hence not liable to service tax. Limitation: The show cause notice was issued on 28.09.2018 for the period from 01.04.2013 to 31.03.2015, invoking the extended period of limitation. The tribunal found that the appellants had declared all transactions in their records and paid capital gains tax, indicating no intent to evade service tax. Hence, the extended period of limitation was not justified, and the demand was barred by limitation. Interest & Penalty: Since the demand itself was not sustainable, the tribunal held that there was no question of charging interest or imposing any penalty on the appellant company or the Director, Shri Nikunj Beriwal. Conclusion: The appeals were allowed on merits as well as on the ground of limitation, and the demand for service tax, interest, and penalties were set aside.
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