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TMI Blog2011 (6) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... of pre-deposit of the service tax of Rs. 180,73,32,993 demands confirmed against them along with interest and penalties under the Finance Act, 1994 holding that applicants are engaged in providing the services to their clients i.e., SICCL under the category of "Real Estate Agent Service" and "Business Auxiliary Services". 2. Brief Facts : 2.1 During the relevant period, the applicants were inter alia providing the following services to other Sahara Group companies (primarily M/s. Sahara India Commercial Corporation Ltd.): Nature of service Remarks A. Mobilizing deposits under Sahara Swarn and Rajat Yojna M/s. Sahara India Commercial Corporation Ltd. (SICCL), a group company of the Applicant, had invited and accepted deposits from public under Sahara Swaran Yojana and Sahara Rajat Yojana Schemes. The Applicants through their network of more than 1500 branch offices all over India were rendering services to SICCL for mobilizing deposits/applications under the said schemes. This service did not involve any procurement of land or sale of real estate. The Applicant was entitled to a remuneration calculated as a percentage (11 per cent) of the total deposits mobilized under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The aforementioned schemes give option to the depositors to opt for purchase of real estate. Therefore, the services rendered by the Applicants for mobilizing such deposits can be said to be in relation to sale of real estate and hence, real estate agent service. B. Land Procurement Charges 2.2 The impugned O-I-O has confirmed demand of service tax on the remuneration earned by the Applicant from SICCL towards land procurement charges under Real Estate Agent Service. The Applicant contended that they had not received payment towards Land Procurement Charges from SICCL during the relevant period. Ld. Commissioner has rejected this contention. C. Mobilizing applications for Sahara Debentures 2.3 The O-I-O has confirmed demand of service tax under 'business auxiliary service' on remuneration received by the Applicants towards mobilization of applications for debentures issued by other Sahara Group Companies. It is the case of the department that debentures constitute 'goods' and that the Applicants had promoted, marketed or sold the 'goods' (debentures) belonging to their clients (SICCL) and hence, covered by the definition of business auxiliary services. D. Personalized S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and have been either redeemed in cash or utilized for purchase of other products or services offered by SICCL or other group companies. Hardly, 10 per cent of the deposit amounts have been utilized for purchase of immovable property. A.5 Further, the specific immovable property (housing/commercial unit) is not even identified/known either to the depositor or to SICCL/Applicant at the time of making of deposit. There cannot be any service relating to real estate, without even identifying or knowing which real estate. Hence, there was no nexus between the mobilization of deposits and the purchase of immovable property. A.6 In fact, the Applicant was entitled to their remuneration on the total deposits mobilized by them irrespective of whether the depositor ultimately utilized the maturity amount for purchase of immovable property or en-casheed the same. Thus, the conclusion drawn in the impugned O-I-O that the services rendered by the Applicants were in relation to sale of immovable property is erroneous. Tax liability cannot be based on mere language used in the agreement A.7 Further, the ld. Commissioner has erred in merely relying on the language used in the Agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real estate agent services. B.2 It is the contention of the Applicants that they were rendering services in relation to verification of land title documents, etc. and the said services were not covered under real estate agency service. Payment towards Land Procurement Charges were not received during the relevant period B.3 In any case, it is submitted that the Applicants did not receive land procurement charges from SICCL during the relevant period (up to 31-3-2006). Service tax was payable only upon receipt of payment from the service receiver. In this regard, reliance is placed on the following judgments: Kanpur Security Services v. CCE [2008] 15 STT 494 (New Delhi - CESTAT), Turret Industrial Security (P.) Ltd. v. CCE [2008] 14 STT 206 (Kol. CESTAT), LA Freightlift (P.) Ltd. v. CST [Final Order No. 1011/2008, dated 18-9-2008] B.4 Since the land procurement charges were not received by the Applicant during the relevant period the ld. Commissioner has erred in confirming demand of service tax even on such amounts. It is submitted that the finding given by the ld. Commissioner that the Applicant had received such amounts is factually incorrect. B.5 In support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the fact that the Noticee did not receive payment towards land procurement charges from SICCL during the relevant period. Further, it is contended that the amendment made in 2008 is prospective and cannot be applied retrospectively to transactions which happened in the past. In this regard, reliance is placed on the following judgment: Sify Technologies Ltd. v. CCE ST [Final Order No. 1162/2010, dated 8-11-2010] C. Mobilizing applications for Sahara Debentures C.1 It is submitted that during the relevant period, the Applicants were rendering services to Sahara Group companies in connection with mobilizing applications for debentures/bonds issued by them. It is emphasised that these debentures/bonds were unsecured. The Applicants were entitled to receive remuneration as a percentage of the amount of debentures mobilized/collected by them for their group companies. C.2 It is the case of the department that debentures constitute 'goods' and that the Applicants had promoted, marketed or sold the 'goods' (debentures) belonging to their clients (SICCL) and hence, covered by the definition of business auxiliary services. C.3 It is submitted that Debentures/ Bonds are in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1930,or services. Hence, the service of mobilization of debentures would not get covered under business auxiliary services. In this regard, reliance is placed on the judgment of the Hon'ble Apex Court in the case of Union of India v. Martin Lottery Agencies Ltd. [2009] 20 STT 203. In this case, the issue before the Apex Court was whether service tax under business auxiliary service is leviable on sale and promotion of lottery tickets. The Apex Court held that lottery tickets are in the nature of actionable claims and hence, not covered by the definition of "goods" under the Service Tax law (borrowing definition of goods from the Sale of Goods Act, 1930). P. Personalized Services provided to Debenture holders D.1 As already argued, the basic pre-requisite for a transaction to be covered by business auxiliary service is that the client must be either selling goods or providing services and the service provider must provide services auxiliary to such sale of goods or provision of services. In the present case, the service receiver (SICCL) had issued debentures or bonds to various applicants and the Applicants were providing services in connection with transfer, redemption, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rranger of funds and Rs. 1801 crore for procurement of land/marketing of real estate products during the impugned period, and as per the statement of Shri Rajesh Kumar dated 19-12-2008, mainly they are collecting of fund against various schemes/bonds floated by the group of companies as an agent and also doing various work given by the group of companies under cover of MOUs. The applicants issued the cheques for bond/debentures in the name of Sahara India. The day-to-day reimbursable expenses are being borne by the applicants out of the fund collected for the bond/debentures and the rest of the amount was transferred to the consultant company regularly on approximate basis by transfer entry. He further submitted that the applicants have been charged for non-payment of service tax of Rs. 43.1 crore under business auxiliary service for activity in the capacity of arranger of fund of Rs. 163.17 crore under Real Estate Services for facilitation of amount procurement and marketing of real estate projects. He further submitted that the activities in relation to facilitation of marketing of optionally fully convertible debentures (OFCD) such as making application forms available for deben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the definition relating to incidental or auxiliary services. 5. With regard to real estate agent services, he submitted as under:-- "M/s Sahara India under agreement/MOUs with M/s SICCL and SIMC have collected information as regards to availability of land and identified the lands suitable for the purpose and marketed various housing projects under Swarna/Rajat Yojna and collected land procurement commitment charges and acted as agent for marketing of projects (of Sahara India Housing Ltd.) facilitated the sale of the projects. The party have submitted that SICCL are not providing any service but are simply developers of land and seller of buildings. They receive commission only if option to sale and purchase is exercised and Sahara Swarna and Rajat Yojna do not involve any sale or purchase of the real estate. They have not received charges for land procurement. It has been held by the Commissioner that Sahara India were required to render service for identification of client such as verification, consolidation, preliminary development and supervision, etc. of the real estate projects including conversion of bonds, debentures (Sahara Swarna and Sahara Rajat Yojna) for pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th each issue separately. 8. Issue No. 1 - Mobilising deposits under the Sahara Swarna and Rajat Yojna. 8.1 We have seen the application form at page 637 of the appeal memo, the application form wherein the applicants have made an offer to general public for mobilisation of funds. As per the said application form, the relevant extracts are as under :-- "We intend to purchase immovable property (housing unit/commercial unit) and/or products of Sahara India Commercial Corporation Ltd. and/or its business associates and/or avail services of Sahara India Commercial Corporation Ltd. and/or its business associates and tender a sum under Sahara Swarna Yojana option (A) of Rs. 1,00,000 in lump sum or option (B) undertake to pay in instalments of Rs. 10,000 p.m. for 10 months or option (C) Rs. 10,000 in lump sum under Sahara Rajat Yojana as advance as per the terms and conditions of the Company." In the terms of condition of the application form, the clauses 7(a), 7(b) and 7(e) read as under :-- "(a) Every applicant (coupon holder) is entitled to opt for purchase of an immovable property (housing unit/commercial unit) in the present or future schemes promoted/to be promoted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces offered by SICCL or any other Sahara Group Company or business associates or to take back the maturity value in cash. 8.3 The revenue has held that the applicants are liable to pay service tax under the category of real estate agent services on commission received by the applicant for mobilising the deposits discussed hereinabove. To deal with the issue, we have to go through the definition of Real Estate Agent Services as per section 65(88) of the Finance Act 1994. ""real estate agent" means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant; Section 65(89) "real estate consultant" means a person who renders in any manner, either directly or indirectly, advice, consultancy or technical assistance, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate" So "real estate agent" means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant. From the facts discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch material which could reveal enforcement of those two terms nor any material on record has been pointed out which could establish the same. In such circumstances we are left with no alternative than to accept the case put forth by the applicants that the said terms regarding brouchers was never enforced. In fact, we find such claim having been made even in reply to the show cause notice. Being so it was necessary for the department to counter the same by sufficient material. We do not find any such material on record." The said decision is not fully applicable to facts of case in hand as in this case, it is admitted fact that 10 per cent of fund mobilised were utilised towards the purchases of immovable property. As 10 per cent of the funds have been utilised towards purchase of immovable property, that part of the funds is prima facie is covered under remuneration for "Real Estate Consultant". In the case of Indus Tubes Ltd. (supra), this Tribunal has held that the term "engaged in or in relation to" used in statutory definition widens the scope of definition. Therefore, prima facie we find that the applicant is covered under the category of "Real Estate Agent Service" fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has not considered the submissions of the applicants as the vouchers are in luminous volumes and physically it is not possible to bring it to the office of the Commissioner. Under these circumstances denial of reimbursable expenses is also not convincing. Therefore, prima facie the demand of service tax on the reimbursable expenses is not sustainable. 8.7 Accordingly, we prima facie find that out of total demands of Rs. 118,43,32,195, only Rs. 2,69,16,641 i.e., (10 per cent of Rs. 118,43,32,195 divided by 11 and multiplied by 2.5) can be demanded. 8.8 Therefore, prima facie Rs. 2,69,16,641 (Rupees Two Crore Sixty nine lakhs sixteen thousand six hundred forty one only) is payable by the applicants under the category of "Real Estate Agent Service" for mobilising deposits under Sahara Swarn Rajat Yojana. 9. Issue No. 2 - Land Procurement Charges : 9.1 This activity of the applicants was in relation to verification of land/title documents etc. as per the definition of Real Estate Agent Services (supra). We find that the verification of land documents are directly related to "real estate agent services". The ld. advocate have submitted that although they are liable to pay s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Land Procurement and commitment". 9.5 We further find that the applicants are having a running account with M/s SICCL and most of the times they are making the transactions in their accounts on the basis of book entry, the applicants are collecting the money on behalf of M/s SICCL and paying the same to M/s SICCL. Since the money due to SICCL is always available with the applicant, the point at which they show certain portion as their receipts from M/s SICCL is a matter of accounting jugglery which can be examined during the final hearing of the Appeal. 9.6 Prima facie, we are not in agreement with the ld. advocate that the applicant have not received any amount on account of "Land Procurement Charges" and it is also not clear from the Balance Sheet produced before us. Therefore, at this stage, the demand on this account is prima facie sustainable. 10. Issue No. 3 - Mobilising application for Sahara debentures/bonds The demand has been confirmed under the category of "Business Auxiliary Services." 10.1 Section 65(19) defines "Business Auxiliary Service" which is reproduced hereunder: "(19) "business auxiliary service" means any service in relation to -- (i) promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;" 10.4 The issue before us is whether debenture/bond in question are goods or not within the meaning of Sale of Goods Act, 1930? The applicants have received commission on the amount of debenture mobilised or collected by them for their group companies. The case of the department is that these debentures are goods, therefore the activity undertaken by the applicants are covered under definition of "business auxiliary services" as they have promoted market for the debenture/bonds or sold these debenture/bonds as "goods". 10.5 The contention of the applicants is that debenture/bonds are in nature of actionable claim hence they are not covered under the definition of "Goods" in Sale of Goods Act which is borrowed for the purpose of service tax. To support this contention, the applicants have relied on the decision of the Apex Court in Reliance Inds. Ltd. (supra) wherein the Apex Court has categorically held that the debentures are in the nature of "actionable claim", and that the same is excluded from definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of "goods" there was no need for excluding them. In other words, actionable claims are "goods" but not for the purposes of Sales Tax Acts and but for this statutory exclusion, an actionable claim would be "goods" or the subject-matter of ownership. Consequently, an actionable claim is movable property and "goods" in the wider sense of the term but a sale of an actionable claim would not be subject to the sales tax laws." 10.8 We do agree that the debentures are "goods" as "actionable claim" as held by the Apex Court in the case of Sunrise Associates (supra). But as per Sale of Goods Act, 1930 "actionable claim" are not "goods" since "actionable claim" is specifically excluded from the definition of "goods" which has been borrowed for purpose of service tax. Therefore, we find that the debentures are actionable claim as "goods" but they are excluded from the definition of "goods" under The Sale of Goods Act, 1930. Therefore, the debentures are not "goods" for the purpose of levy service tax under "BAS" under the Finance Act, 1994. As discussed above that the debentures are not "goods" within the meaning given to it in Finance Act 1994 therefore the sale, marketing or purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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