TMI Blog2019 (11) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax. We find that these two activities have been rendered prior to introduction of declared service under the statue, and therefore, the same cannot be made applicable to the event that as concluded before the introduction of the new levy. This issue has also been decided held in case of Vistar Construction Pvt Ltd vs. Union of India [2013 (2) TMI 52 - DELHI HIGH COURT], wherein it is held that taxable event is rendition of service and hence the rate of tax applicable would be one on the date on which services were rendered but not on the date when payment is received. Thus, there is no justification in imposition of service tax liability on the Appellant, has been held in the impugned order. The declared service under 66E(e) was first introduced from 01.07.2012 while the agreements are prior to the said date. The rules cannot go beyond Act since the charge under Finance Act was not available on the date of agreements in question. The Rule 5 of the Point of Taxation Rule has thus no application in this case to create a change in an indirect way - we also find that the all payments have been received towards the compensation for non performance of contract and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice tax under Declared Service under Section 66 E(e) of the Finance Act or otherwise. The Appellant is engaged in the business of manufacture and sale of M.S. Billets and M.S. Rods, TMT bars etc., classifiable under tariff item 72 to the First schedule of Central Excise Tariff Act, 1985, for which they are duely registered with the Central Excise authorities under the provisions of Central Excise Act, 1944 (for short the Act ) and Rules made thereunder. The appellant is also registered with the service tax department in accordance with provisions of Finance Act and the Rules made thereunder for the services being rendered by them. 3. The Appellant entered into a Development Agreement dated May 21, 2010 with 31 different companies for the development of land and construction of premises thereon. The said 31 company was the owners of the land specified in the said agreement and the Appellant had entered into the said agreement as the developer of the land. The land owned by these companies was not contiguous parcel of the land and were as such not fit for the proper development. The owners of the land had given an assurance to the Appellant that remaining inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.04.2012 21,90,00,000/- Amit Metaliks 11 companies 05.04.2012 20.06.2012 2,75,20,000 Amit Metaliks 17 companies 04.05.2012 20.06.2012 1,60,11,200 Amit Metaliks 1 company 05.04.2012 20.06.2012 62,78,000 Amit Metaliks 43 companies 05.04.2012 20.06.2012 18,20,00,000 103 companies 45,08,09,200 These payments were received during January 2013 to March, 2013. 4. Learned Advocate, on behalf of the appellant, submits that the amount received pursuant to the settlement agreement is not a consideration towards rendition of any taxable serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her arising from the dispute described above. Clause 4 states that this agreement is a compromise of a disputed matter and may not be construed as an admission of any parties liability. Clause 5 and 6 specifically state that the said agreements result from a negotiated settlement and the parties mutually agreed that each of the owners shall pay to us (developer) the specific sum as full and final settlement to terminate the Development Agreements executed earlier. A careful analysis of the aforesaid Settlement Agreement would indicate that the same cannot be construed as agreeing to refrain from an act, as alleged or at all. There is no specific condition in the said settlement agreement under which are obligated to refrain from initiating any proceedings. At best, what is stated is that we will not have any intention to proceed . The said phrase only indicates an intention and the same should be read in the context of the parties arriving at a compromise to settle a dispute. It is submitted that the said agreement cannot be construed to have a negative covenant so as to attract the provisions of Section 66E(e) of the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon by the Adjudicating Authority cannot go beyond the Act. 12. It is held by the Adjudicating Authority that the Settlement Agreement and Development Agreement were not registered by the Appellant and hence no reliance can be placed on them. But in terms of Registration Act, 1908, the Development Agreement and Settlement Agreement are not compulsorily registerable. In fact, both the parties i.e. the Appellant and the other companies have mutually negotiated the agreeable solution and compromised in the dispute in question, there is no reason to peruse any arbitration to end the litigation. 13. The demand relating to sum of ₹ 19,75,00,000/-, which was received by the Appellant from one M/s Amit Mines Private Limited, also held to be liable for service tax under Section 66E(e). It is also the submission of the learned Counsel, that the Appellant had entered into an agreement with M/s Amit Mines Private Limited for purchase of manganese ore and issued purchase order also. M/s Amit Mines Private Limited failed to supply manganese ore to the Appellant. Therefore, the Appellant debited an amount of ₹ 1,95,50,000/- to M/s Amit Mine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Rules, 2011 stating that as per Rule 5 thereof Point of Taxation in the case of new service the provisions of service shall be the date of issue of invoice and receipt of payment against such invoice. The reliance was also placed on Section 2(e) of the Rule, wherein it is defined that Point of Taxation means the point of time when a service the provisions of services shall be deemed to have been provided. The learned Authorised Representative also relied upon the Section 5 of the Point of Taxation Rules, 2011 regard the payment of tax in case of new services. As the payment has been received during January to March, 2013, that date will be date of provisions of service and hence the demand is correctly confirmed in the impugned order. 16. We have considered the rival submissions and also peruse the appeal records. 17. The issue to be decided in this Appeal are twofold. The first one is as to whether the cancellation of the Development Agreement in terms of the Settlement Agreement would be liable to service tax under Section 66E (e) of the Finance Act and the other one is regarding non supply of iron ore from M/s Amit Mines, which resulte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on nor the Rule even suggest that the taxable event is the raising of an invoice for making of payment. It is well settled in law that a taxing statute has to be read and plain meaning assigned to the provisions without importing any extraneous consideration on a presumption. 18. This issue has also been decided held in case of Vistar Construction Pvt Ltd vs. Union of India[2013(31) STR 129(Del)], wherein it is held that taxable event is rendition of service and hence the rate of tax applicable would be one on the date on which services were rendered but not on the date when payment is received. Thus, there is no justification in imposition of service tax liability on the Appellant, has been held in the impugned order. 19. The declared service under 66E(e) was first introduced from 01.07.2012 while the agreements are prior to the said date. The rules cannot go beyond Act since the charge under Finance Act was not available on the date of agreements in question. The Rule 5 of the Point of Taxation Rule has thus no application in this case to create a change in an indirect way. 20. Further, we also find that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pronounced assessing the damages and judgment was given, Swinfen Eady, L.J., observed: Here there is a debt, uncertain in amount, which will become certain when the accounts are finally dealt with by the Insurance Committee. Therefore, there was a debt at the material date, though it was not presently payable and the amount was not ascertained. Phillimore, L.J., dealing with the argument based on the fact that the sums were not ascertained at the time they were sought to be attached, observed: No doubt these debts were not presently payable, and the amounts were not, on April 9, 1914, ascertained in the sense that no on-, could say what the result of the calculations would be, but it was certain on that d ate that a payment would become due from the committee to the doctors out of the balance of the moneys in the hands of the Committee for 1913........... So also Bankes, L.J. observed: Dr. Sweeny fulfilled that condition, and a debt arose, though the amount of it was not ascertained on April 9, 1914, and was not then payable. 14. This judgment in substance ruled that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a creditor of a legally aided plaintiff. At the time when the garnishee order was sought to be issued a part of the decree amount was with the Law Society, subject to any charge conferred on the Law Society to cover the prescribed deductions which remained to be quantified, e.g. deduction for the taxed costs of the action. The Court held that there was an existing debt although the payment of the debt was deferred pending the ascertainment of the amount of the charge in favour of the Law Society. Ormerod, J., observed : ...... that is merely a question of ascertaining the debt which has to be paid over to the assisted person and does not prevent that debt from being an existing debt at the material date. This decision also recognized that, if there was a liability in praesenti, the fact that the amount was to be ascertained did not make it any the less a debt. 17. In Dunlop Ranken Ltd. v. Hendall Steel Structures Ltd.(Pitchers Ltd.-Garnishees) (4) it was held that the issuing of the architect's certificate was just as much a necessity for investing a cause of action in sub-contractors as it was in the main, contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plaintiff. Subramania Ayyar, J., did not consider that claim as a debt for the that the liability arising from the obligation of a partner to account to the other partners could not be held to be a debt in the accepted ordinary legal sense of the term for the obvious reason that the liability was not in respect of a liquidated sum. An obligation to account does not give rise to a debt, for the liability to pay will arise only after the accounts were taken and the liability was ascertained. In the context of the Succession Certificate Act, such an obligation was rightly held not to be a debt. 20. The decision of a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee(1) throws considerable light on the connotation of the word debt ., Jenkins, defined that word thus: ...... I take it to be well established that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation. Mookerjee, J., quoted the following passage with approval from the judgment of the Supreme Court of California in People v.Arguello 9: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n praesenti, solvendum in future. The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in future till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of s. 2 (m) of the Wealth Tax Act can be defined as a liability to pay in praesenti or in future an ascertainable sum of money. 21. Similarly in case of Sunrise Industries the compensation received by the appellant would fall under actionable claim; Para 35 to 40 that are relevant is as under; 35. The word 'goods' for the purposes of imposition of sales tax has been uniformly defined in the various sales tax laws as meaning all kinds of moveable property. The word property may denote the nature of the interest in goods and when used in this sense means title or ownership in a thing. The word may also be used to describe the thing itself. The two concepts are distinct, a distinction which mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38. What then is the distinction between actionable claims and other goods on the sale of which sales tax may be levied? The Court in Vikas Sales (supra) said 35. when these licenses/scrips are being bought and sold freely in the market as goods and when they have a value of their own unrelated to the goods which can be imported thereunder, it is idle to contend that they are in the nature of actionable claims It was assumed that actionable claims are not transferable for value and that that was the difference between 'actionable claims' and those other goods which are covered by the definition of 'goods' in the Sale of Goods Act, 1930 and the Sales Tax Laws. The assumption was fallacious and the conclusion in so far as it was based on this erroneous perception, equally wrong 39. The Transfer of Property Act 1882, deals with transfer of actionable claims in Chapter VIII of that Act. Section 130 of the Transfer of Property Act provides that an actionable claim may be assigned for value. A right on the fulfillment of certain conditions to call for delivery of goods mentioned in a contract is an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) An activity which constitutes merely- - A transfer of the title in goods or in any other manner, or - Such transfer, delivery or supply or any goods which is deemed to be sale within the meaning of clause (29A) of the Article 366 of the Constitution, or - A transaction in money or actionable claim, In the instant case also the impugned agreement consists of the aforesaid mandatory clause. Therefore, we propose to examine the definition of service in the Finance Act vis-a-vis Development Agreement and also the clauses contained therein. The Development Agreement clearly involves the following benefits, (a) A License to enter upon the schedule property and to develop the same. (b) Authority to enter upon the scheduled property for construction and development of the buildings. (c) The permission is to enter upon the scheduled the property only for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the liquidated damage was granted as per Settlement Agreement which is the benefit that would have arisen out from the development of land. The issue arising the value of Development Right stand decided in case of DCPC(supra). The relevant portion of the order is reproduced as under; 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 dated 02.08.2006 for further development and thereafter to transfer the same to the appellant for construction and sale the flats/properties developed by M/s DLF Ltd to various prospective buyers. At the time of transferring the constructed property to prospective buyers, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, 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 land-owning company transfers land development rights to the developers, the developers gets the right to not only to develop project on such land but also the right to sell such developed prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 including lands 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 entered into three separate but similar memorandum of understanding with the appellant firm for acquiring three lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to them for the purchase of land. The difference, if any, between the amount actually paid to the owners of land and the average rate per acre settled between the parties as indicated, would be payable to the appellant firm, as their margin or profit. Further Sahara India had reserved its right to withhold 50 per cent of the amount (out of margin) to ensure that the obligations on the developer/appellant are fully discharged in terms 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 to sell 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter scrutinising the papers relating to title, the first party- Sahara India shall enter into an agreement of sale with the owners of the land, after payment of advance/signing amount, in favour of the cultivators/owner of the land. 6.6 Thereafter having completed and covered the entire land(area) under the MOU through agreement(s) to sell, the appellant shall thereafter get the sale deed(s) executed by the cultivators/ownersof land in favour of Sahara India or its nominees, after payment of remaining amount towards purchase. Where there are several coowners in a Khata (entry in the land record) the second party/appellant shall ensure that all the co owners execute the document (sale deed) at one time. In no case shall any document be executed by part co owners. That in the case the land is owned by minor, lunatic or an insane person, appellant will get appropriate guardianship certificate from the competent court/authority and agreement to sell shall be executed only with such guardian. In case any dispute is pending before any civil court or revenue Court, regarding title, share or for partition of the property, the appellant will try its best to get th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal of Memorandum of Understanding (MoU) between the appellant and M/s Sahara India Ltd. It is very obvious that MoU is not only for providing purely service for acquisition of the land but involves many other function such as verification of the title deeds of the persons from whom the lands are to be acquired and obtaining necessary rights for development of the land from the Competent Authority. The remuneration or payment for providing this activity has actually not being quantified in the MoU. The MoU provides that the difference, if any, of the amount being actually paid to the owner of the land and the average rate shall be payable to the second party (appellant). It is very clear from the provision of the MoU that the amount payable to the appellant is not quantified and it is more of the nature of a margin and share in the profit of the deal in purchase of land. We feel that for levy of service tax, a specific amount has to be agreed between the service recipient and the service provider. As no fixed amount has been agreed in the MoU which have been signed between the parties, the amount of the remuneration for service, if any is not clear in this case. In this regard, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable. 29. We feel that since the specific remuneration has not been fixed in the deal for acquisition of the land we are of the view that both the parties have worked more as a partner in the deal rather than as an agent and the principle, therefore we are of view that taxable value itself has not acquired finality in this case. 30. It is also seen that some of the MoUs were not fully executed at the time of the issue of the show cause notice for example, in the case of MoU dated 15/11/2003 entered between Sahara India Ltd. and the appellant, the agreement is for provisioning of 100 acres of land at Village Rora, Distt. Lalitpur, U.P. and for this purpose an amount of ₹ 6,75,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of clause (29A) of Article 366 of the Constitution, or (iii) a transaction in money or actionable claim; As per the said provisions, the transfer of title in goods or immovable property, by way of sale, gift or in any other manner is not a service and no service tax is payable thereon. 15. As immovable property has not been defined in the Finance Act, 1994, therefore, as per Section 3 (26) of the General Clauses Act, 1897, the immovable property means 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; 16. On going through the said definition, the immovable property includes land benefit arising out of land. In the case of transfer of development rights of the land, therefore, it is to be seen in the legal aspect whether the benefit arising out of land can be equated to transfer of development rights of land or not? The said issue has been examined by the Hon ble Allahabad High Court in the case of Bahadur and Others vs. Sikandar and Othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in Ram Jiawan and Anr. V. Hanuman Prasad and Ors. AIR 1940 Oud 409 also held, that bazaar dues, constitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable Allahabad High court in Smt. Dropadi Devi v. Ram Das and Ors. MANU/UP/0120/1974 : AIR1974AII473 on a consideration of Section 3 (26) of General Clauses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief. Further, the issue was examined by the Hon ble High Court of Bombay again in the case of Shadoday Builders Private Ltd. and Ors. Vs. Jt. Charity Commissioner and Ors (supra) wherein the issue was in respect of sale of transferrable development right is immovable property or not? The Hon ble High Court observed as under:- 5. The principal issue which arose before the learned Joint Charity Commissioner as to whether the TDR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief. 6. The Division Bench has held that since TDR is a benefit arising from the land, the same would be immoveable property and therefore, an agreement for use of TDR can be specifically enforced. The said dictum of the Division Bench is later on followed by a learned single Judge of this court in 2009(4) Mh.L.J.533 in the matter of Jitendra Bhimshi Shah ..vs.. Mulji Narpar Dedhia HUF and Pranay Investment and ors. The learned judge relying upon the judgment of the Division Bench in Chheda Housing Development Corporation (supra) has held that the TDR being an immovable property, all the incidents of immovable property would be attached to such an agreement to use TDR. In view of the judgments of this court (supra), in my view, the order of the Charity Commissioner that no permission under Section 36 is required as TDR is a movable property cannot be sustained and therefore, the application filed by the respondent no.2 - Trust under Section 36 of the said Act would have to be considered on the touch stone of the said Section 36 and also on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the said circumstances a debt is clearly created and the said amount would fall within the scope and ambit of an actionable claim within the meaning of Section 3 of the Transfer of Property Act, 1882 and hence excluded from the definition of service as per Section 65B(44). 14. It is submitted that the amount in question is an actionable claim which is not liable for any service tax under the provisions of the 1994 Act. The meaning, nature and scope of actionable claim has been dealt with in detail by the Constitution Bench of the Hon ble Supreme Court of India in case of Sunrise Association vs. Govt. of NCT of Delhi reported in (2006) 5 SCC 603. 26. Thus, we held that the entire sum of money would be classified as Actionable Claim which otherwise is beyond the scope of service tax under Section 66B(44) (iii) of the Finance Act. If the transaction of Development Agreement, Settlement Agreement and compensation not fall under Service under the Finance Act there is no application of Section 66 E(e) of the Act ibid. 27. As far as the compensation received from M/s Amit Mines is concerned, the Show Cause Notice mentions th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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