2023 (8) TMI 474 - AT - Service Tax

Classification of services - Site Formation and Clearance service - land purchased outright by the appellant from the landowners and where site formation etc. is done after purchasing the land but before selling it - land sold by the appellant as per the GPA obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land - extended period of limitation - suppression of facts or not - penalty. Whether on the land purchased outright by the appellant from the landowners and where site formation etc. is done after purchasing the land but before selling it, service tax is payable under the classification heading Site formation and clearance service? - HELD THAT - The development charges in the present case is paid by the buyer of land for site formation done by the seller by way of levelling, plotting, boundary marking, road layout, clearance of the area etc done by the seller so that the buyer can enjoy a vacant land which is ready for use. The land development charge paid for such site formation carried out when such land was owned by the developer/ promoter will be liable to service tax - When land is purchased outright by the appellant from the landowners and where it is self-developed by site formation etc. after purchasing the land but before selling it, and the development work is not done for or on behalf of any person involving a consideration being collected, service tax is not payable by the landowner. Whether on the land sold by the appellant as per the GPA obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land, service tax is payable under the classification heading Site formation and clearance service? - HELD THAT - The sale price of the land has been fixed separately at Rs 4,35,000/- per acre. Ground leveling, earth filling, laying roads on the land, fixing of boundary stones etc. are part of site formation and clearance which are clearly covered by the inclusive definition of Section 65(97a) that defines site formation and clearance, excavation and earthmoving and demolition . The appellants activities do not fall under any of the exclusions of the said definition. The amount received by the appellant is shown as development charges in the Agreement. If any part of this charge was towards any other expenses they should have bifurcated it with the help of documents and informed the department. When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Hence the service has been correctly classified and the value correctly determined in the impugned order. The power of attorney is only a creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him. Even an irrevocable attorney does not have the effect of transferring title to the grantee. Hence the averment of the appellant that Section 53A of Transfer of Property Act envisages situations where under the contract of transfer of immovable property the transferee has paid the consideration and taken possession of the property even without the execution of the sale deed the transfer takes place and the transaction is recognized as a valid transfer of property, is incorrect and not sustainable in law. Their entire argument of self-service hence falls through. The activity of land development as rendered by them for a consideration is hence liable to Service Tax as per the taxable service Site Formation and Clearance Service under section 65(105)(zzza) of the Finance Act, 1994. Thus, even on the land sold by the appellant as per the GPA obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land, service tax is payable under the classification heading Site formation and clearance service. Extended period of limitation - suppression of facts or not - HELD THAT - The averment of the appellant cannot be accepted. Firstly, under Income Tax laws, illegal gains can be taxed at the hands of those who financially gained from these illegal actions. Hence this fact does not come to their rescue. The development of land by site formation was done by the appellant as per a registered agreement. The Agreement states that taxes like service tax and income tax etc. are to be paid by the appellant. This should have made them verify their obligations under the Finance Act 1994. What prompted them to believe that service tax on the development charges were not tenable is not forth coming from their pleadings. Hence their bonafide s cannot be accepted since as per the Agreement they have collected service tax from MRF - There is no complication in the definition of the service or the taxability of the activity as per the Finance Act 1994. It was clearly a suppression of fact from the department with the intention to fraudulently evade payment of duty. These facts would not have come to light without the investigation done by the Survey, Intelligence and Research Unit of the Service Tax Commissionerate, Chennai. It is now well settled that fraud vitiates all solemn acts. Any advantage obtained by practicing fraud is a nullity. Hence the extended period of time has been rightly invoked in this case - The penalty is also justified. Appeal dismissed.

Summary

Issues Involved:
1. Service tax liability on land purchased outright and developed before sale.
2. Service tax liability on land sold as per General Power of Attorney (GPA) and developed before sale.
3. Validity of invoking the extended period for demand and imposition of penalties.

Summary:

Issue A: Service Tax on Land Purchased Outright and Developed Before Sale

The Tribunal examined whether service tax is payable under the classification heading 'Site Formation and Clearance' service for land purchased outright by the appellant, developed, and then sold. The appellant argued that since the development was self-service on self-owned land, no service tax was payable. The Tribunal agreed in principle that self-service on self-owned land without consideration does not attract service tax. However, if development charges are collected separately from buyers, it constitutes a taxable service. The Tribunal distinguished the appellant's case from the Hallmark Infrastructure Pvt Ltd judgment, emphasizing that the development charges collected from buyers indicate a service provider-service receiver relationship, making the activity taxable.

Issue B: Service Tax on Land Sold as per GPA and Developed Before Sale

The Tribunal analyzed the appellant's contention that development activities on land sold as per GPA constituted self-service and were not taxable. The Tribunal referred to the agreement with MRF Ltd, which clearly indicated that the appellant acted as an agent for landowners and not as an independent party. The Tribunal noted that the GPA does not transfer ownership and the appellant's activities were for a consideration, making them taxable. The Tribunal rejected the appellant's reliance on Section 53A of the Transfer of Property Act, clarifying that possession under GPA does not equate to ownership. The Tribunal held that development activities for a consideration on land owned by others are taxable under 'Site Formation and Clearance' service.

Issue C: Invocation of Extended Period and Imposition of Penalties

The Tribunal addressed the appellant's argument against the invocation of the extended period and imposition of penalties. The Tribunal found that the appellant had suppressed facts and collected service tax from MRF without remitting it to the government. The Tribunal cited the Supreme Court's judgment in Suraj Lamp & Industries Pvt. Ltd., highlighting the fraudulent nature of GPA transactions. The Tribunal upheld the extended period for demand and the imposition of penalties, stating that the appellant's actions were fraudulent and intended to evade tax.

Conclusion:

The Tribunal rejected the appeal, upholding the service tax demand, interest, and penalties imposed by the adjudicating authority. The appeal was disposed of accordingly.