2025 (7) TMI 929 - AT - Service Tax

Levy of service tax - Business Support Services - sale of Developmental Rights which are benefits arising out of immovable property - Extended period of limitation - profit a prendre - HELD THAT - The CBEC vide Circular No. 109/3/2009-ST dated 23.02.2009 further clarified that Business Support Service is a generic service of providing support to the business or commerce of the service receiver. In other words the principal activity is to be undertaken by the recipient while the service received is to support the business or commerce of the said recipient. The Delhi Bench in DLF Commercial Projects Corporations 2019 (5) TMI 1299 - CESTAT CHANDIGARH held that the authorization given to a Developer to develop the land and sell super-structure in perpetuity shall undisputedly fall within the words benefit arising out of the land and shall therefore be held to be immovable property . Once there is a transaction in relation to immovable property that shall undisputedly fall outside the purview of Service within the meaning of Section 65B(44) and consequently. no Service Tax shall be payable under Section 66. It is also observed that when a company who owns the land or to whom the land is allotted transfers the same for being developed to a developer the transfer amounts to the transfer of land development rights to the developer for consideration. The Development rights has to be the permission simpliciter to get entire on land either to get profit a prendre or to get a right to develop the land including the allotment and approval simpliciter with reference to land in case it was not owned or possessed by the person desirous of getting it developed. The Development Rights cannot be sold except rights are those which are known as Transferable Development Rights (TDR). The arrangement under question is for outsourcing these activities to the appellants. It is wrongly nomenclated as agreement to transfer Approvals and Allotments also. EIL/WWIL had received the same amount of money from its customers/third parties as is mentioned as Purchase Money in the agreements entered between appellants and EIL/WWIL dated 22.09.2010 11.03.2011. It is also an admitted fact that said purchase month was the debit note given to the appellants of the said amount. Thus demand of service tax has rightly been confirmed. Extended period of limitation - HELD THAT - The act of appellants is held to be an intentional act of hiding true colour of the transaction between the service provider (VWILLP) and the recipient of such services (EIL). This appears to have been done with intent to misguide the government authorities for the purpose of avoiding scrutiny of the transactions and to evade Service Tax payable thereon support services of business commerce being taxable services the agreement are held to be the act done by VWILLP/JNITC in connivance with EIL/WWIL to suppress the true nature of services provided. Hence it is held that extended period of limitation has rightly been invoked while issuing the impugned show cause notice. There are no infirmity in the order under challenge when the invocation of extended period has been justified and the demand of service has been confirmed holding that appellants have rendered Business Support Services to EIL/WWIL - appeal dismissed.

Summary

Two appeals arising from the same Order-in-Original involving two companies of the same group were considered. The core legal question was whether the appellants, while transferring allotments and approvals acquired for wind farm projects to their parent company, were providing taxable 'Business Support Services' under the guise of sale of Development Rights (DRs), or whether the transactions constituted sale of immovable property rights exempt from service tax.

The appellants, both entities floated by the parent company engaged in wind energy projects, contended that they independently acquired Development Rights-comprising governmental approvals and allotments necessary for setting up wind farms-through extensive procedural and regulatory compliance. They argued these rights were immovable property benefits and that their transfer to the parent company was a principal-to-principal sale, not a provision of taxable services. The appellants denied any agency or service provider relationship with the parent company and asserted that the agreements dated 22.09.2010 and 11.03.2011 reflected bona fide sales of Development Rights, supported by commercial discretion and independent acquisition of approvals.

The Revenue disputed this, alleging that the appellants merely provided business support services to the parent company by undertaking activities such as feasibility studies, obtaining approvals, and other preparatory work essential for setting up wind farms. The Department contended that these activities were outsourced services, not independent acquisition of immovable property rights, and that the so-called sale of Development Rights was a camouflaged service transaction intended to evade service tax. Evidence included statements from government officials confirming that developer permissions were non-transferable except under strict conditions, a valuation report indicating the appellants acted on behalf of the parent company, and documentary proof that the parent company funded the projects and received the full consideration from third parties.

To resolve the dispute, the Tribunal examined the legal definitions of 'Business Support Service', 'Service', and 'Development Rights' under the Finance Act, 1994, and relevant jurisprudence. 'Business Support Service' was defined as services auxiliary or ancillary to the business of the client, typically outsourced functions supporting the principal activity undertaken by the service recipient. 'Service' excluded transfers of title in goods or immovable property by sale or otherwise. The Tribunal noted that 'Development Rights' relate to ownership and regulatory permissions to develop land, including rights such as Floor Area Ratio, setbacks, height restrictions, and land use, all governed by zoning and building regulations. Transferable Development Rights (TDRs) allow landowners to sell development entitlements separately from the land itself.

The Tribunal analyzed precedents, including decisions holding that approvals and allotments from government authorities constitute benefits arising out of land and thus immovable property, exempt from service tax. However, it distinguished the present case on factual grounds, observing that the appellants' activities went beyond mere transfer of immovable property rights. The approvals and allotments were not simply rights held by the appellants but were obtained through extensive services and preparatory activities performed on behalf of the parent company. The agreements, though labeled as sale of Development Rights, concealed the true nature of the transactions, which were service provisions supporting the parent company's turnkey wind farm projects.

The Tribunal gave considerable weight to the Valuation Analysis Report and investigative findings, which established that the appellants acted as facilitators and service providers for the parent company, performing essential functions including wind monitoring, site identification, obtaining multiple governmental approvals, land acquisition, and coordination with nodal agencies. The parent company provided funding and ultimately delivered the complete wind farm projects to third-party customers under composite contracts. The Tribunal found that the appellants' role was integral to the parent company's business and constituted 'Business Support Services' as defined under the Finance Act.

Further, the Tribunal noted that the governmental nodal agencies' permissions were not transferable at will and that the appellants failed to produce evidence of lawful transferability of the 'Developer Permissions'. The agreements' nomenclature was held to be insufficient to override the substance of the transactions, which involved provision of taxable services. The Tribunal also rejected the appellants' plea of joint venture or self-supply, finding that the transactions were undertaken on behalf of the parent company and did not absolve service tax liability.

The Tribunal concluded that the appellants intentionally disguised the true nature of the transactions to evade service tax, justifying invocation of the extended limitation period for recovery. The demand for service tax, interest, and penalties under the relevant provisions was upheld. The Tribunal dismissed the appeals, affirming the original order.

Significant holdings include the following verbatim reasoning: "The appellants agreements when read along with the said Valuation report it stands clear beyond all reasonable doubts that what has been transferred by the appellants under the said agreements to EIL/WWIL is not merely the approvals and allotments required to set up the wind farms but the whole set of underlying activities undertaken by the appellants to obtain those approvals and allotments. The approvals and allotments so obtained are not 'profit a prendre' hence cannot be called as benefit arising out of immovable property. Appellants are rightly held to have rendered the Business Support Services to EIL/WWIL."

The Tribunal reaffirmed the principle that the substance of a transaction prevails over its form, especially where attempts are made to evade tax obligations by mischaracterizing service transactions as sales of immovable property rights. It emphasized that 'Business Support Services' encompass outsourced activities that support the principal business of the client, and such services are taxable under the Finance Act.

In sum, the Tribunal determined that the appellants' transfer of Development Rights was not a mere sale of immovable property rights but a provision of taxable business support services to the parent company, thereby sustaining the service tax demand and associated penalties.