2025 (3) TMI 846 - AT - Service Tax

Eligibility of benefit of N/N. 41/2016 dated 22.09.2016 - whether the respondent is eligible for claiming the benefit of N/N. 41/2016 dated 22.09.2016. Government of Kerala had entered into an agreement dated 23.02.2011 with Smart City (Kochi) Infrastructure Pvt. Ltd. to lease-out two pieces of land for consideration of Rs.104 Crores? - HELD THAT - It is an admitted fact that the lease deed was executed for entering into a Special Purpose Vehicle under Smart City (Kochi) Infrastructure Pvt. Ltd. and it is also an accepted fact that the said area is declared as SEZ. The fact being so the service tax demand for the above said lease deed considering it as not covered under the Notification No.41/2016 dated 22.9.2016 is unsustainable. It was also brought to the notice of the appellant that the levy of tax was not in force at the time of entering in to lease agreements as the old lease agreements were entered on November 17 2007 and July 29 2008 and the total lease premium was paid by SCIPL at that time but due to certain technical reasons these two lease deeds were cancelled on February 23 2011 and the lease premium received for the old lease agreements were adjusted in the new lease agreements and that at the time of the old lease agreement there was no levy of service tax on renting of vacant land. It was also stated that as service tax was payable only on receipt of payment the payment that was received at the time of the two old lease agreements could not be taxed at the time of entering of the two new lease agreements. Conclusion - The lease agreement falls within the exemption provided by Notification No.41/2016. The impugned order is upheld and the appeal filed by the Revenue is dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue in this appeal is whether the respondent is eligible to claim the benefit of Notification No.41/2016 dated 22.09.2016, which exempts certain taxable services from service tax. Specifically, the question is whether the lease of land to Smart City (Kochi) Infrastructure Pvt. Ltd. qualifies for this exemption under the category of industrial plots, given that the land is part of a Special Economic Zone (SEZ).

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework revolves around Notification No.41/2016, which provides an exemption from service tax for taxable services related to the long-term lease of industrial plots. The exemption is contingent on the land being used for industrial purposes. The case also references the judgment in CCE vs. Dileep Kumar & Co., which establishes that exemptions should be strictly construed and only available to those who meet all specified conditions.

Court's Interpretation and Reasoning

The Tribunal considered whether the lease agreement for land within the SEZ qualifies as an industrial plot under the notification. The Tribunal noted that the adjudicating authority had previously determined the exemption was applicable, considering the broader interpretation that the exemption should extend to State Government actions, not just State Industrial Development Corporations.

Key Evidence and Findings

The Tribunal acknowledged that the land in question was declared as an SEZ, and the lease was part of a Special Purpose Vehicle agreement with Smart City (Kochi) Infrastructure Pvt. Ltd. The respondents provided evidence that the land was acquired and allocated for SEZ purposes, and prior agreements had been canceled and re-entered due to technical reasons, with no service tax applicable at the time of the original agreements.

Application of Law to Facts

The Tribunal applied the legal framework to the facts, determining that the lease agreement fell within the scope of the exemption provided by Notification No.41/2016. The Tribunal agreed with the adjudicating authority's broader interpretation that the exemption applies to the State Government's leasing activities for SEZ development.

Treatment of Competing Arguments

The Tribunal considered the Revenue's argument that the exemption should not apply because the land was not exclusively used for industrial purposes. However, the Tribunal found the respondent's evidence and reasoning persuasive, particularly the broader interpretation of the exemption's applicability to State Government actions and the historical context of the lease agreements.

Conclusions

The Tribunal concluded that the lease agreement qualified for the exemption under Notification No.41/2016. The Tribunal upheld the adjudicating authority's decision to drop the service tax demand, finding no reason to disagree with the respondent's arguments and evidence.

SIGNIFICANT HOLDINGS

The Tribunal's significant holding is the affirmation of the adjudicating authority's decision that the lease agreement falls within the exemption provided by Notification No.41/2016. The Tribunal emphasized the broader interpretation of the exemption's applicability to State Government actions, supporting the respondent's position.

The Tribunal quoted the principle from the CCE vs. Dileep Kumar & Co. case, emphasizing that exemptions must be strictly construed and only available to those who meet all specified conditions. However, in this case, the Tribunal found that the conditions for exemption were met.

The final determination was to uphold the adjudicating authority's decision and dismiss the Revenue's appeal, confirming that the lease agreement was exempt from service tax under the relevant notification.