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TMI Blog2014 (9) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... e planned development of the industrial development area and for this purpose, prepare plans for development, demarcate and develop sites for industrial, commercial and residential purposes according to the plan, providing infrastructure for industrial, commercial and residential purposes, providing amenities regulating erection of buildings and setting up of industries, allocation and transfer by way of sale or lease or otherwise, of the plots of land for industrial, commercial or residential purposes, etc. In terms of Section 7 of the above Act, the Appellant may sell, lease or otherwise transfer, whether by auction, allotment or otherwise, any land or building belonging to the Authority in the industrial development area on such terms and conditions as it may think fit to impose. Under section 11 of the Act, the Appellant is authorized to levy tax for the purpose of maintaining or continuing any amenities in the industrial development area which includes roads, water supply, sewerage, drainage, etc. Accordingly, the Appellant has allotted plots of land to various persons by way of sale or lease for industrial, commercial or residential purposes. The appellant is registered for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nizations rent vacant land on long term leases with an explicit understanding that lessee would construct factory or commercial building on that land, that in such cases, the ownership of the land is not transferred to the lessee and thus, it is a service provided by the lessor to the lessee, that the situation is similar to renting out a constructed structure for commercial purposes except that at the time of executing the lease agreement the land is in vacant state and that later the lessee constructs commercial structure thereon after executing the lease deed and that while earlier, such lease agreements escaped service tax because of the exclusion clause in the definition of 'immovable property', the same have become taxable now. 1.3 The expression 'renting of immovable property' is defined in Section 65(90a) and according to this definition, this expression includes 'renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include' (i) renting of immovable property by a religious body or to a religious body; or (ii) renting of immovable property to an educational body, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon under Section 75 and besides this, while penalty of equal amount was imposed on the appellant under Section 78 of the Finance Act, 1994, another penalty of Rs. 200/- per day for each day starting from the first day after the due date was imposed under Section 77(1)(c) ibid for the appellant's failure to furnish the required information and produce the documents before the investigating officers during the inquiry. Against the above order of the Commissioner, Appeal No.ST/3256/2012 has been filed. 1.6 Subsequent to the issue of show cause notice dated 19.03.2010 by the Addl. Director of General, DGCEI, New Delhi, the officers of the Central Excise Commissionerate, Noida initiated inquiry in respect of the appellant, in course of which financial records for the period from 2006-2007 to 2010d-2011 were obtained and examined. This inquiry was initiated to ascertain as to whether the appellant were paying service tax on the services of the renting of immovable property for the period from 1.6.2007 when the service had become taxable. The Investigating Officers after inquiry with the authorized representative of the appellant and also examining the data and information submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,45,830/- raised vide the DGCEI, show cause notice dated 19.03.2012, which was adjudicated by the Commissioner vide order-in-original dated 16.07.2012. 3. Both the appeals were heard for final disposal on 29.05.2014 and thereafter on 03.06.2014 and 06.06.2014. 4. Shri J.K. Mittal, Chartered Accountant, ld. Counsel for the appellant, appearing for the appellant made the following submissions:- (i) Since the second show cause notice dated 17.10.2012 which covers the entire period from 1.6.2007 to March, 2012, has been issued in respect of the same transactions and on the same basis as the first show cause notice dated 19.3.2012, the second show cause notice dated 17.10.2012 is nonest and, therefore, the adjudication order dated 30.04.13 is also illegal. In this regard, the appellant relies upon the Tribunals judgments in the cases of CCE, Indore Vs. Siddarth Tubes Ltd. reported in 2004 (170) ELT 331, Bridgestone India Pvt. Ltd. Vs. CCE, Indore reported in 2013 (294) ELT 601 and Shreeji Colourchem Industries Vs. CCE reported in 2013 (294) ELT 615. (ii) The first assessment by the impugned order dated 16.07.2012 was for the period from 01.07.2010 to 31.05.2011 whereas the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent construction of buildings for commercial purposes became taxable w.e.f. 01.07.2010 only, the issue of show cause notice dated 17.10.2012 charging service tax on the renting of vacant land for construction of building for commercial purposes for the period from 01.06.2007 i.e. period prior to 01.07.2010, is contrary to the provisions of the law and also the stand taken by the department in the first show cause notice. It is settled law that the department cannot be allowed to take stand against its own circular. In fact, the second show cause notice dated 17.10.2012 and the adjudication order dated 30.04.2012 adjudicating the same are contrary to the Tribunals order dated 11.12.2013 in Appeal No.ST/57840/2013, wherein it has been held that no service tax would be applicable prior to 01.07.2010 on vacant land given on lease basis for construction of building for commercial purposes. (v) While in the first show cause notice dated 22.03.2012, the service tax has been demanded only on the annual rental in respect of the leasing of the vacant land for construction of building for furtherance of business or commerce and not on premium rent received from the allotee, the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural land amounted to its transfer within the meaning of Section 12 B of the Income Tax Act and hence and profit and gains arising from the lease transferred would be taxable under the head 'capital gains'. (viii) Though the 'renting of immovable property became taxable under Section 65(105)(zzzz) read with Section 65(90a) of the Finance Act, 1994 w.e.f. 1.6.2007, the vacant land has been specifically excluded under clause (b) of the Explanation II to Section 65 (105)(zzzz). It is only w.e.f. 1.7.2010, that the 'vacant land' given on lease or licence for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce, became taxable. Therefore, during the period prior to 1.7.2010, leasing of vacant land for any purpose was not taxable at all and w.e.f. 1.7.2010, the renting/leasing of vacant land became taxable only when the land has been given on lease or licence for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce. In the show cause notice the service tax is sought to be charged even on lease of the vacant land, which was not to be used for construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the long term lease of immovable property are covered by Section 65(105)(zzzz) read with Section 65(90a) stands decided by the Tribunal in favour of the department vide Final Order No.ST/A/58664 of 2013 dated 11.12.2013 in Appeal No.ST/57252 of 2013 filed by New Okhla Industrial Development Authority Vs. CCE & ST, Noida, wherein in para-5 of the judgment, the Tribunal has held that in absence of any restrictive signification in Section 65(105)(zzzz) of a legislative intent to exclude long term leases of immovable property from the purview of the taxable service defined and enumerated in said provision, there is no authority to hold that the so-called long term lease are outside the purview of the taxable service of 'renting of immovable property' covered by Section 65(105)(zzzz) read with Section 65(90a). (ii) The service tax would be chargeable not only on the amount of lease rent but also on the amount of premium if any collected in addition to the lease rent. (iii) The service tax under Section (65)(105)(zzzz) read with Section 65(90a) is chargeable on all the amounts received as per schedule 19 of the balance sheet [amounts received for commercial, industrial and builder G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development area by agreement or through proceedings under Land Acquisition Act, 1984 for the purposes of this Act; (b) Preparing plans for the development of the industrial development area; (c) Providing infrastructure for industrial, commercial or residential purposes; (d) Providing various amenities; (e) Providing infrastructure for industrial, commercial or residential purposes; (f) Regulating the allocation of building and setting up of industries; (g) Allocating and transferring either by way of sale or lease or otherwise, plots of land for industrial, commercial or residential purposes; The appellant in course of discharge of its functions had allocated vacant land to various persons for residential/ group housing, institutional, commercial or industrial purposes on 90 years lease term basis. In respect of such allotment of vacant land for residential, institutional, commercial or industrial purposes, the appellant, in addition to an amount called premium also collects lease rent. There is no dispute that all such allotments of vacant land are on 90 years lease basis. Besides this, the appellant have also rented the constructed building for business/commercial purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Whether in respect of giving vacant land on lease or licence basis for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce, service tax under Section 65(105)(zzzz) read with Section 65 (90a) of the Finance Act, 1994 is chargeable from 1.06.2007 or the same is chargeable only w.e.f. 1.7.2010 when clause (V) was added to Explanation-I to Section 65(105)(zzzz) and in this regard, whether long term leases of vacant land are excluded from the preview of section 65(105)(zzzz) read with section 65(90a). (b) Whether service tax is chargeable only on the lease rent or also on the one time premium amount charged in respect of long term leases; (c) Whether service tax under section 65(105)(zzzz) read with Section 65(90a) is chargeable on lease of vacant land to builders / Group Housing Societies for construction of residential complex? (d) Whether service tax is chargeable on the processing and building plan fee, and transfer charges? (e) Whether service tax is chargeable on other miscellaneous income such as compliance fee, map revision fee, map validation fee, forfeiture charges, penalty, restoration charges, documentatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'vacant land used for educational, sports, circus, entertainment and parking purposes' and 'vacant land whether or not having facilities clearly incidental to the use of such vacant land' was excluded from the definition of term immovable property' under the exclusion clause of Section 65(105)(zzzz) and since only w.e.f. 1.7.2010, a clause (v) was added to Explanation I defining the term 'immovable property' and this newly introduced clause covered 'vacant land given on lease or licence for construction of a building or a temporary structure at a later stage for furtherance of business', the giving of vacant land on lease or licence for construction of a building or a temporary structure at a later stage to be used for furtherance of business or commerce would become taxable only w.e.f. 1.7.2010 and not during the period prior to 1.7.2010. In this regard paras 9, 10, 11,12, 13, 14 and 15 are reproduced below:- 9. The other substantive issue presented for analysis is whether renting of vacant land by the appellant to a third party, albeit for a business or commercial purpose falls within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of building or temporary structure at a later stage to be used for furtherance of business or commerce. 10. While the assessee contends that a lease of vacant land (for construction of a building or a temporary structure at a later stage to be used for furtherance of business or commerce) is a taxable service only since 1.7.2010; according to Revenue clause (v) in Explanation 1 merely clarifies the clear and implicit intent of clause (zzzz). 11. In our considered view, clause (zzzz) of Section 65(105), prior to 01.07.2010 does not embrace renting of land within scope of the enumerated taxable service. On true and fair construction of the main part of clause (zzzz) it is clear that renting of any immovable property for use in course for furtherance of business or commerce is the taxable service and this would clearly include a lease of vacant land as well. Explanation 1 to this clause (prior to the amendatory exercise in 2010) signaled, through the inclusionary clause various facets of transactions which would also amount to renting of 'immovable property'. On established principles of statutory interpretation, normally an inclusionary clause does not limit the plentitude o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in Explanation I in Section 65(105)(zzzz) of the Act. The memorandum explaining the provisions in Finance Bill 2010 also indicates that the amendments are being made in the definition of 'renting of immovable property' service inter alia levy of service tax on renting of vacant land where there is an agreement between lessor and lessee for undertaking construction of building or structure on such land for furtherance of business or commerce during the tenure of the lease. The Board Circular No.334/2010-TRU, dated 26.2.2010 (in paragraph 3) explains the purpose of the amendments to Section 65(105)(zzzz). Accordingly, the Circular explains that amendments are being made in the definition of this taxable service to provide that renting of vacant land where there is an agreement or contract between the lessor and lessee for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease, shall be subjected to service tax. The statement of objects and reasons accompanying the Finance Bill, 2010 also clarify that clause 75 of the Bill seeks to amend Chapter V of the Finance Act, 1994; to modify the scope of certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merce is taxable, Explanation-I mentions as to which immovable properties are included in expression 'immovable property' and which immovable properties are not included in this term. Section 65(90a) defines the term 'renting of immovable property' and according to the definition 'renting of immovable property' includes renting, letting, leasing, licensing or other similar arrangement of immovable property for use in the course or furtherance of business or commerce but it does not include, 'renting of immovable property' by a religious body or to a religious body; or renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject of field, other than a commercial training or coaching centre. Explanation-1 to 65(90a) clarifies that for the purpose of this sub-Section, expression 'for use in the course or furtherance of business or commerce' includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings'. Explanation - 2 to this sub-Section provides that for the removable of doubts, it is hereby declared that for the purposes of this clause 'renting of immovable propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case, the house let out by the respondent, Ms. Ved Prabha was built on a leasehold land allotted to her by DDA and it was the plea of the petitioner Ms. Shanti Sharma that the respondent Ms. Ved Prabha holding the plot on the land on leasehold basis cannot be treated as the owner. It is in this background that Apex Court held that while the respondent-landlord is the owner of the structure built on the leasehold land, so far as the land is concerned, since she holds the same on long term lease basis, she will fall within the ambit of the meaning of the term, owner as is contemplated in Section 14 (1)(e). In this case, the Apex Court also observed that meaning of the term 'owner' in Section 14(1)(e) is influenced and controlled by its context and hence, the petitioner's construction is not acceptable because it seems to be quite contrary to the reasonable operation of the statutory provisions. Thus, in this case, as observed by the Apex Court itself, the meaning of the word, 'owner' in Section 14(1)(e) is influenced and controlled by its context and, therefore, the ratio of this judgment of the Apex Court is not of universal application and all long term leases cannot be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also been examined in detail in paras-5, 6, 7 and 8 of the Tribunal's judgment in the case of New Okhla Industrial Development Vs. Commissioner of Central Excise & Service Tax, Final Order No.58664/2013 dated 11.12.2013, which are reproduced below:- 5. We will deal with the two substantial arguments urged on behalf of the appellant before us. We first take up the issue whether long term leases of immovable property are outside the purview of the taxable service enumerated and defined in Section 65(105) (zzzz). This provision neither marks nor accommodates any distinction between long term and short term leases. On a true and fair construction of this provision it is clear that a service provided in relation to renting of immovable property for use in the course of or in furtherance of business or commerce is the taxable service. The provision does not restrict the ambit of the taxable service to only short term leases nor identifies or classifies leases in terms of the duration. A lease is defined in Section 105 of the Transfer of Property Act, 1882, as transfer of a right to enjoy such property, made fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sweshwar Singh - [1939] 7 ITR 536 (Patna) wherein Fazal Ali J. (as his Lordship then was) inter alia observed that in some cases where the rent is ridiculously low and the premium abnormally high, it may be possible to argue that the premium includes advance rent. The Delhi High Court observed that characterization of an amount by an assessee whether as premium or as rent is not conclusive and the nature of the amount must be ascertained on consideration of the totality of the facts and circumstances of the case. In the facts before it however, since the annual rent was not very low compared to the premium amount fixed, the Delhi High Court inferred that the premium paid by the assessee amounted to capital and not revenue expenditure. During the course of its analysis, the High Court did observe that the tenure of the lease is quite substantial and virtually creates ownership rights in favour of the lessee, who is at liberty to construct upon the plot. This observation, in our respectful view, neither in its factual context nor otherwise amounts to enunciation of a legal principle of general application, that a long term lease does not amount to a lease. 8. On the analysis above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically or at a time in advance. In these appeals, in the show cause notice dated 19.03.212 issued by the Addl. Director, DGCEI, New Delhi, service tax has been demanded only on the lease rent and not on the premium amount while in the subsequent show cause notice dated 17.10.2012 issued by the Commissioner of Central Excise and Service Tax, Noida, the amount of premium has also been included in the lease rent for the purpose of charging of service tax for which no valid reasons have been given. Therefore, the order-in-original dated 30.04.2013 confirming the service tax demand on the premium amount is not correct and to this extent, the service tax demand would not be sustainable. 11. Whether service tax is chargeable on the processing charges, building plant approved for, transfer charges and on miscellaneous income such as map revision fee, map validation fee, forfeiture charges, penalty, restoration charges, documentation charges, etc. and also on the rent received from the staff to whom the residential premises is let out by the appellant? 11.1 Section 65(105)(zzzz) as introduced w.e.f. 1.6.2007 was as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Section 65(90a). 12.1 In terms of Clause-V to Explanation-I of Section 65(105)(zzzz) which had been introduced w.e.f. 1.7.2010, the term, 'immovable property' also includes vacant land given on lease or licence for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce. Thus, giving vacant land to a person on lease or licence basis is taxable only when in terms of the conditions of a lease or licence, the land is used for construction of a building or a temporary structure, which is used for furtherance of a business or commerce. The question now arises as to what is the 'use for furtherance of business or commerce'. We find that Explanation 1 to Section 65(90a) defines the term 'for use in the course of or for furtherance of business or commerce' as including the use of immovable property as the factories, office buildings, warehouses, theatres, exhibition halls and multiple use buildings. Thus, when the building constructed on a vacant land leased is purely as residential building, the same cannot be said to be a building to be used for furtherance of business or commerce. Therefore, the allotment of land to a build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en during the period prior to 01.07.2010. 14. Whether for demand of service tax extended period of 5 years from the relevant date under proviso to Section 73 (1) of Finance Act, 1994 would be invokable and whether penalty would be imposable on the Appellant under Section 76, 77 and 78 of the Finance Act, 1994. 14.1 In terms of Section 73(1) of Finance Act, 1994, where any tax has not been levied or short paid or erroneously refunded, the central excise officers may within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short levied or short paid or the person to whom such tax has been erroneously refunded requiring him to show case as to why he should not pay the amount specified in the show cause notice. The term, 'relevant date' is defined in sub-section (6) of the Section 73. With effect from 28.05.2012, the normal limitation period has been enhanced to 18 months. In terms of proviso to Section 73(1) wherever service tax has not been levied or paid or short levied or short paid or erroneously refunded by reason of fraud, any wilful suppression of facts, mis-statement or contraventio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable. In our view, the ratio of the above judgments of the Apex Court would be applicable while interpreting the provisions of Section 73(1) of the Finance Act, 1994. In this case, the appellant is a body corporate of the Government of Uttar Pradesh for performing statutory functions in accordance with the provisions of U.P. Industrial Area Development Act, 1976 and one of its functions is the allotment of vacant land to various persons for industrial or residential purposes on long term lease basis. In our view, there is merit in the appellant's plea that they were under bonafide belief that the allotment of vacant land to various persons on long term lease basis for construction of building for industrial purposes, would not attract service tax under Section 65(105)(zzzz).Therefore, in the circumstances of the case, in our view, longer limitation period of 5 years from the relevant date would not be applicable and the service tax demand would survive only for the normal period of one year from the relevant date, which would be quantified by the adjudicating authority. For the same reasons, this is also a fit case, where by invoking the Section 80 of the Finance Act, 1994, pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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