9911796707
TMI Blog2019 (5) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... een provided other services, such as, renting of immovable property, maintenance & repair service, construction of residential complexes, construction of commercial complex etc, that they neither executed any sale deed nor did they pay any stamp duty to the State Government on their activity of transferring the land development rights and did not pay any service tax on the consideration received on account of transferring land development rights. On the basis of documents recovered it was revealed that various Land Owning Companies (LOCs) had executed Land Development Agreement or Memorandum of Understanding or both with DCPC regarding transfer of the land development rights. One such agreement entered with DLF Ltd on 02.08.2006 was examined and the terms of agreement are as under:- 5.1 The salient features of the said agreement dated 02.08.2006 are as under: a) DCPC have definitive arrangements with various landowners and are in the final stages of negotiations for acquisition of development rights in certain land situated in the State of Haryana in District Gurgaon, which is capable of being developed for the development and construction of commercial, residential, retail, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation addition to DLF. (iii) Amount paid to land owning companies for purchase of development right would be adjusted against the ad hoc fund provided by DLF. On the basis of the said agreement and various other agreements it was alleged that the appellant has transferred development rights, therefore, they are liable to pay service tax on the said activity. Accordingly, the show cause notice was issued to demand service tax and to impose penalty. The demand was confirmed against the appellant. Penalty was also imposed against the appellant. Against the said order, the appellant is before us. 3. The Ld. Counsel for the appellant submits as under:- (i) A Show Cause Notice dated 16.11.2016 was issued covering the period 01.07.2012 to 31.03.2016 (substantial demand is beyond the normal period of limitation) seeking to raise demand to the tune of Rs. 208,22,50,224/- on the allegations that the there was a transfer of development rights by various Companies (who owns land) to the Appellant and the Appellant, in turn, transferred the development rights either to M/s. DLF Limited and/or its associate or outside parties and also on account of renunciation of development rights. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her M/s. DLF Limited and/or its associate. This fact is duly certified by Chartered Accountant vide its Certificate dated 3.5.2016. (v) The appellant filed specimen copies of letters written by the appellant to the various land owning companies and on the said letters, the land owning companies have certified that the "Refundable Performance Deposit" remitted to them is not a consideration towards transfer of "Development Rights" (as alleged by the Department). Further, the "Performance Deposit" shall be refundable in future as and when either the sale deed is executed for the land or agreement is executed for transfer of "Development Rights". (vi) The Annual Accounts of the Appellant does not say that the development rights have been transferred by the Appellant to M/s. DLF Limited nor the Annual Account of M/s DLF say so. In addition, independent CA vide Certificate dated 30.4.2018 certified that the Appellant neither purchased the land nor purchased the "Development Rights". Further, the said certificate also says that the appellant had not transferred any "Development Rights" either to DLF Ltd or its associates. (vii) The Annual Accounts of the Appellant for the year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit" to various land owning companies. It has also been certified by the Chartered Accountants that the Appellant had neither purchased any land nor purchased any Development Rights from these land owning Companies. This certificate was filed along with the reply to the Show Cause Notice and the same has, completely, been ignored/overlooked by the learned AA. There is another Certificate dt.30.4.2018, which further says that neither land nor "Development Rights" had been acquired by Appellant nor, at the same time, any land or "Development Rights" had been transferred by Appellant either to DLF Ltd or its associates. (xii) The fact of the matter is, as would be seen from the CA certificates, that neither the land has been sold by the land owning Companies nor there was transfer of any development rights by the said land owning Companies in favour of the Appellant. At the same time, there is also CA certificate dated 30.04.2018 certifying that Appellant had neither transferred any land nor "Development Rights" either to DLF Ltd or to its Associates. If at all, there would have been any transfer of "development rights" then SCN would have been issued to the land owning companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion then arises, what is the meaning of the word "immovable property". Immovable property has not been defined in Finance Act, 1994 but has been defined in Section 3(26) of General Clauses Act, 1987 in following words:- (26) "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth; (xvi) The aforesaid definition clearly says that the immovable property includes not only "land" but also the benefits "arising out of land". Next, the question then arises whether transfer of development rights is a benefit arising out of land so as to fall under "immoveable property". The word "benefit arising out of land, has been interpreted in the following judgments:- a) Bahadur & other Vs.Sikandar MANU/UP/0016/1905 b) Ananda Behera Vs. State of Orissa AIR 1956 SC 17 c) SmtDropadi Devi Vs. Ram Das AIR 1974 All 473 d) Sadoday Builders (P) Ltd Vs. Jt Charity MANU/MH/07912011 e) Chheda Housing Development Corpn Vs. Bibijan Shaikh 2007 (2) Bom CR 587 (xvii) The authorization given to a "Developer" to develop the land and sell super-structure in perpetuity shall undisputedly fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d construct building/super structure, but, at the same time, undivided right, title and interest in the land also stand transferred under the Deed of Conveyance on which stamp duty has been paid and the Deed of Conveyance has been registered before the Sub-Registrar. (xxi) In fact, in the Order-in-Original, the learned AA has reproduced certain clauses of Agreement dated 10.11.2006, the full text of the agreement, the effective date has been defined to mean the date of completion of the purchase of the scheduled property including the mutation thereof, NEPL in Revenue Records and the vesting of the right, title and interest in the scheduled property in favour of NEPL, which shall be communicated in writing to the developer of NEPL. (xxii) There is an Apartment Buyer Agreement, which is entered into in all cases at the time of allotment of the flat/space wherein the word "foot print" has been explained. "Foot Print" shall mean the precise land underneath the said building. Further in this very agreement, there is a clause No.1.17 (II), which clearly reads as under:- II. The Allottee shall have the ownership of undivided proportionate shares/interest in the "foot print" of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any service tax is payable or not in view of the fact that previously Trade Association has written to Government seeking clarification as to whether Service Tax is payable or not on transfer of development rights. To all these communications, the Govt. never came forward to say any service tax is payable upon transfer of development rights. Consequently, on 15.02.2013, M/s. DLF Limited seeking clarification as to whether the Service Tax is payable on transfer of development rights. The Government did not say that any Service Tax is payable on transfer of development rights and, therefore, the period subsequent to 15.02.2013, M/s DLF did not pay Service Tax on the alleged renunciation of development rights. However, in relation to the booking income prior to 15.02.2013, the Appellant paid Service Tax of Rs. 99,05,304/- on 30.12.2013 and also paid interest thereon to the tune of Rs. 15,39,432/. It would kindly be appreciated that after our letter dated 15.02.2013 to the Govt. seeking clarification as to whether the Service Tax is payable on transfer of development rights or not and receiving no response from the Government, the Appellant did not pay Service Tax on income arising d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said agreement dated 02.08.2006." (xxxii) The agreement dated 02.08.2006 is futuristic in nature in as much as it says that the development rights shall be transferred in future. None of this Clause of this Agreement says that the "Development Rights" had been actually transferred. (xxxiii) Para 4 (I) of the SCN, it is stated that:- (I) "The DCPC provided development rights without transferring the title of land to DLF and for transfer of development rights received consideration from DLF but failed to pay Service Tax. (II) In few cases, DCPC surrendered land development rights to third party other than DLF and in lieu of surrendering land development rights, received monetary consideration but failed to pay Service Tax. (xxxiv) These observations are completely not supported by any evidence whatsoever. However, as regards the alleged surrendering of development rights, it is submitted that it is sharing of profit upon sale of land and, therefore, by no stretch of imagination, could be taxable as service. (xxxv) As per the agreement it can be discerned that - a. DLF would provide fund to DCPC for purchasing the development rights from land owning companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by DCPC. There is absolutely no documents, agreement or instrument to suggest that any development rights have been transferred by land owning companies to DCPC. To this effect, M/s. Prem Arun Jain & Co, Chartered Accountants has given a certificate dated 3.5.2016 and also M/s. Prem Arun Jain & Co, Chartered Accountants, have also given a certificate dated 30.4.2018 clearly stating that no development rights have been transferred by the land owning Companies to DCPC and similarly, DCPC have also not transferred any development rights to either DLF or any other person. Again, there is absolutely no document or instrument to suggest there was actual transfer of development rights by DCPC to DLF Limited. (xxxix) Further, in the last five years, repeatedly, various Trade Forums including Confederation of Real Estate Developers Association of India, Northern Region, sent a representation dt.14.8.2014 to the Joint Secretary, Ministry of Finance, Government of India, New Delhi and one of the member of Big Fours CA Firms sent various communications to the Government seeking clarification/confirmation about the levy of "Service Tax" on "Development Right" and the Government never, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er companies. This business advance was given for specific purpose i.e. to acquire Development Rights which was other than the loan, provided by DLF to DCPC, for example the balance of such loan was Rs. 247.83 crores as on 31.03.2015 and Rs. 554.47 crore as on 31.03.2014. These loans carry an interest rate of 12% per annum. Whereas, the business advances were interest free. The accounts of DCPC show that many times a part of such business advance or ad hoc fund had been returned to DLF, if such fund was not used by DCPC for procuring development rights from other companies. In the show cause notice service tax has been demanded only on that amount which was used by DCPC (out of total business advance or ad hoc fund) for procuring development rights from their companies. (viii) It is correct that the Business Development Agreement dated 02.08.2006 permits the Appellant to pay the amount to various companies who will acquire the land and simultaneously development rights of such land shall be transferred to Appellant. The above said Agreement dated 02.08.2006 legally bounds the Appellant to provide all development rights procured by the Appellant to DLF or its nominee. This agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that DCPC agreed to provide development rights to DLF. The provisions of the Finance Act, 1994 ("Act‟) and rules made thereunder provides that service provider is liable to pay service tax on the consideration received against the services agreed to be provided inasmuch as Section 67(1) of the Act which is for valuation of taxable services for charging service tax, provides that in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided for the purposes of this section "consideration" includes any amount that is payable for the taxable services provided or to be provided. Further, Rule 3 of the Point of Taxation Rules, 2011 provides as under- For the purposes of these rules, unless otherwise provided, "point of taxation‟ shall be,- (a) The time when the invoice for the service provided or agreed to be provided is issued: (b) "Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service." (a) In a case, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired the land development rights, the para 2.2 of the agreement (RUD-9 to SCN), specifically mentioned as under: "The parties agree that nothing contained herein shall be construed as delivery of possession in part performance of any agreement of sale, under Section 53A of the Transfer of Property Act, and/or such other applicable law for the time being in force. It is clarified that M/s Red Topaz Real Estate Private Ltd. (PREPL) shall be the owner of the Scheduled Property only for carrying out the development activities." 5. Heard the parties and considered the submissions. 6. On hearing the parties, the sole issue emerges before us is whether the appellant has transferred any land development right in favour of M/s DLF Ltd. or not? To decide the issue, we have to go to the facts of the case, we find that as per the business module of M/s DLF Ltd. they are engaged in the business of Real Estate Development of integrated township and construction. As per their business module, they appointed the appellant to purchase the land on their behalf and thereafter to obtain certain permissions from various Govt. Department and to handover the land to DLF Ltd. as per agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant for acquisition of development rights. It is a fact on record that the appellant is not the owner of the land, therefore, how can he transfer development rights to M/s DLF Ltd. and as per the records, the amount given by M/s DLF Ltd. has been transferred by the appellant to various LOCs for purchase of the land. Therefore, it is mere transaction of the sale and purchase of land or purchase of land by the appellant for DLF Ltd. for further development. As appellant did not get any ownership of the land, in that circumstances, transfer of development right does not arises. There is no such agreement placed on record that any LOCs (who are the owner of the land) has transferred any development rights to the appellant. If so, how much the consideration paid by the appellant and in that circumstances, the land owning company (LOCs) are liable to pay service tax. Admittedly, LOCs were never issued show cause notice and nor made the party to the show cause notice in question. In such a situation, the question of transfer of development right by the appellant does not arise. These findings are on the factual aspect of the case. 10. We further find that in this case, when the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of land. Further, no physical acquisition of land was taken over by the appellant. Consequently, the appellant have no right to transfer land development to M/s DLF Ltd. 12. From the above, it is clear that the appellant has not transferred any land development right to M/s DLF Ltd. or its subsidiary nominees etc. 13. We also take a note of the fact that similar facts enumerate from the case of Premium Real Estate Developers vs. CST-Service Tax, Delhi in Appeal No. ST/50103-50104/2014 wherein the facts of the case are as under:- 2. The appellant 'Premium Real Estate Developers', New Delhi is a partnership firm and is in the business of real estate trade. The main objective of the partnership firm is to carry on the business of purchase, sale, develop, take and exchange or otherwise, whether for investment or sale in any real estate includinglands to carry on the business of builders, contractors, dealers in land, building and any other activity in connection therewith and incidental thereto. 3. Sahara India Commercial Corporation Ltd. ('Sahara India' for short) was interested in acquiring large parcels of land for setting up townships. Accordingly Sahara India enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the MOU, and in case there was any serious default on the part of the appellant, the same could be made good by way of forfeiture of such amount, so withheld. 5. Pursuant to the MOU, the appellant firm received advance amount from Sahara India for each site. Substantial part of such amount was used by the appellant to pay to the seller or the prospective seller of the land, for agreeing tosell land to Sahara India. The details of such amount based on the payment made by Sahara India, are as follows; Place/Site Amount paid under land purchase head to appellant Area of land transferred in the name of Sahara (in acres) Amount as per sale deeds in Rs. Amount under development head Kanpur 8,98,00,000/- 38.85 2,66,99,800/- NIL Lalitpur 5,50,00,000/- 77.96 4,22,01,779/- NIL Raebarelli 6,75,00,000/- 89.91 1,69,20,822/- NIL 6. For the purpose of reference we refer to Memorandum of Understanding (MOU) dated 15th November 1983, related to Lalitpur town, entered between Sahara India and the appellant, wherein Sahara India was interested to purchase 100 acres of land for developing residential township in and around the city of Lalitpur. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the property, the appellant will try its best to get the settlement arrived among the co sharers/co owners and agreement to sell shall be executed accordingly. 6.7 That it is the responsibility of the appellant for bringing the cultivators/land owners to the Registrar office along with the necessary documents and photograph and to witness execution/registration of the documents. 6.8 That all payments to the Kashtkar/land owners, shall be made through pay orders/demand drafts/account payee cheques. That the difference, if any, of the amount being actually paid to the cultivators /owner of land and the average rate, shall be payable to the appellant. Such payment of difference to the appellant shall be regulated in such amanner so as to ensure the performance of the terms and conditions of the MOU. The first party Sahara India may under discretion withhold maximum up to 10 per cent of the amount payable to the second party/appellant to ensure peaceful/proper demarcation and possession, mutation and construction of the boundary wall of the entire land. In case, the appellant fails to fulfil its obligations as stipulated in the terms of the contract/MOU, the same can be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mormugao Port Trust vs. CC, CE&ST, Goa - 2017 (48) S.T.R. 69 (Tri. - Mumbai). The relevant extract is reproduced here below :- "18. In our view, in order to render a transaction liable for service tax, the nexus between the consideration agreed and the service activity to be undertaken should be direct and clear. Unless it can be established that a specific amount has been agreed upon as a quid pro quo for undertaking any particular activity by a partner, it cannot be assumed that there was a consideration agreed upon for any specific activity so as to constitute a service. In Cricket Club of India v. Commissioner of Service Tax, reported in 2015 (40) S.T.R. 973 it was held that mere money flow from one person to another cannot be considered as a consideration for a service. The relevant observations of the Tribunal in this regard are extracted below : "11. ...Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. ... The factual matrix of the existence of a monetary flow combined with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to the appellant out of which a total amount of Rs. 3,66,32,000/- have been spent by the appellant for procurement and registration of land. Thus, an amount of Rs. 4,75,18,000/- still remain unspent with the appellant. It is to be seen that out of the above amount though the MoU was for 100 acres of land till the issue of the show cause notice only 77.96 acres of land could only be acquired and thus the remaining amount still was to be used for procurement/acquisition of balance land. This indicates that firstly; the MoU has not been executed fully and therefore the actual remuneration to the appellant have not got finalized and therefore we feel that issuing the show cause notice in such a stage was premature and unwarranted. 31. As discussed above, since the exact amount of remuneration for providing any service, if any, has not been quantified at the same time since most of the MoU remained to be fully executed and therefore the exact amount of remuneration, which was the difference in amount paid to the seller of land and average price decided in MoU, could not be finalized and therefore we feel that taxable value has not reached finality and therefore demanding servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore, we are constrained to find that the document in question purported to convey that which falls within the definition of immovable property. The so-called lease being an unregistered instrument, it could not effect the transfer and could not be admissible in evidence. We are therefore of opinion that the Court of first instance was right. We set aside the order of the lower appellate Court and restore the decree of the Court of first instance with costs in all courts." Further, in the case of Chheda Housing Development Corporation vs. Bibijan Shaikh Farid, the Hon'ble High of Bombay observed as under:- 15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants in so far as the additional FSI is concerned, are not entitled for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under Section 3(26) has been defined as under:- (26) "immovable property' shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth." If, therefore, any benefit arises out of the land, then it is immovable peruperty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under section 3(26) has been defined as under : - (26). "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth." If, therefore, any benefit arises out of the land, then it is immovable property. Considering section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish that compensation in money would be an adequate relief. Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgments for that purpose. In Sikandar and ors. .vs. Bahadur and ors., XXVII Indian Law Reporter, 462, a Division Bench of the Allahabad High Court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of section 3 of the Indian Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by registered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and anr. .vs. Hanuman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation as well as M/s DLF Ltd whether they are liable to pay service tax on transfer of development right of land or not and the same was not answered till yet which means revenue itself is not clear whether the said activity is taxable service or not. In that circumstances, we hold that the extended period of limitation is not invokable and it cannot be said that the appellant did not pay service tax with malafide intentions.
18. We also take a note of the fact that the land owning company have not transferred any development right in favour of the appellant form the facts before us. Therefore, it cannot be said that the appellant has transferred any development right of land to M/s DLF Ltd.
19. In view of above discussions, we hold that the activity in question which is only acquisition of land, therefore, no service tax is payable by the appellant in terms of Section 65B(44) of the Finance Act. Therefore, whole of the demand against the appellant is not sustainable. Consequently, the impugned order is set-aside.
20. In result, the appeal is allowed with consequential relief, if any.
(Order pronounced in the Court on 22.05.2019) X X X X Extracts X X X X X X X X Extracts X X X X
|
