2025 (7) TMI 1542 - AT - Service Tax

Levy of service tax - renting of immovable property services for the period upto 30.06.2012 and under Section 66E read with 65B (44) for the period post 01.07.2012 - transfer of development right - lump sum premium and transfer fee received in respect of commercial/vacant land - Construction of residential complex service (CRCS) on lump sum premium and transfer fee received in respect of residential land and sale of superstructure constructed thereon - Interest received under CRCS (01.04.2010 to 31.03.2013) - Supply of water under management maintenance or repair services (MMR) - Denial of CENVAT credit availed and utilized included in availed amount. Levy of service tax - renting of immovable property services for the period upto 30.06.2012 and under Section 66E read with 65B (44) for the period post 01.07.2012 - lump sum premium and transfer fee received in respect of commercial/vacant land - HELD THAT - The demand of this issued is based upon a agreement dated 11.11.2005 as was entered between the appellant and M/s. GIPL for development of City Centre Mall on the land which was otherwise owned by the appellant. However on the basis of own ownership and transfer (BOOT Policy). The said project was sanctioned by Chhattisgarh Government vide letter dated No. 1950/1452/32/2005 dated 13.07.2005. Undisputedly the appellant was appointed as the body responsible for urban planning including town planning one of the sovereign function but department has alleged that the act of the appellant vide the said agreement is meant to have a personal commercial motive of RDA and that the activity is taxable. Krishi Upaj Mandi Samiti (supra) has already held that personal commercial motive even of government authority vis- -vis service is also taxable. Hence we need to look into whether the act of transferring the land on lease to the appellant for a period of 30 years extendable to 90 years against the one time premium giving all rights of use possession and even sale to the developer amounts to fall under the definition of service for the period w.e.f. 01.07.2012 or under the definition of renting of immovable property till the period 30.06.2012. Finance Act 2012 w.e.f. 01.07.2012 has defined the term service under Section 65B (44) of Finance Act 1994. Once the possession of property is transferred to the developer against the payment of share of sale consideration for the development/construction on the said immovable property the transaction is also that of the transfer to immovable property. The land in question as given by RDA to the developer was initially a vacant land which was sanctioned to be developed by the developer under a government notification. As already held above the transaction agreed under agreement dated 11.11.2005 was not purely an act as covered under the aforesaid definition. It was an act of leasing out the land permanently for a longer period as that of 90 years against the one time payment. Irrespective that an annual ground rent was received but the lessee was allowed to retain the possession with all control on the immovable property. The transaction is one similar to sale as defined under Arcticle 366 (29A)(d) of the Constitution of India incorporated vide 46th amendment. The activity therefore cannot fall under the definition of renting of immovable property even for the prior period. Construction of residential complex service (CRCS) on lump sum premium and transfer fee received in respect of residential land and sale of superstructure constructed thereon - HELD THAT - There is a Chartered Accountant Certificate produced by the appellant certifying that the appellant while discharging the service tax liability under Construction of Residential Complex Service has included the value towards the sale of super structure and the lease premium which is the cost of land/amount of consideration for sale of land - No evidence is produced by the department that any of the said four conditions as mentioned in N/N. 29/2010 dated 22.06.2010 have been violated by the appellant. It is also apparent on record that the appellant earlier availed the Cenvat credit however the same already stands reversed. It is settled that Cenvat credit till it is not utilized it is as good as it it is not availed. Resultantly though the appellant is liable to pay service tax with respect of the CRCS activity however as per the abatement under Notification No. 29/2010 dated 22.06.2010. Interest received under CRCS (01.04.2010 to 31.03.2013) - HELD THAT - The appellant had received the interest from the buyers of residential units in cases where there was deferment of payment of sale considerations. This apparent fact is sufficient for us to hold that the amount of interest is actually in the nature of penal consequences of delayed payment. It is as good as liquidated damages which have already been held to not to be includable into the gross taxable value. The Circular No. 96/7/2007 dated 23.08.2007 states that the amount collected for delayed payment of bill is not to be treated as consideration charged for the provision of taxable service and resultantly will not form part of the value of taxable service under Section 67 read with Service Tax (Determination of Value) Rules 2006. Support drawn from the decision of this Tribunal in the case of AP Trade Promotion Corporation Vs. Commissioner of Central Excise Hyderabad 2009 (9) TMI 94 - CESTAT BANGALORE . Supply of water under management maintenance or repair services (MMR) - HELD THAT - From the meaning of government authority as discussed above supply of water by a government authority is a sovereign function. Also from the definition of service as discussed above it is clear that discharging a sovereign function cannot be called as the provision of services. Otherwise also as pointed out on behalf of the appellant that Chhattisgarh State Act 2003 in its Schedule I while talking about tax free goods has specifically covered water in its ambit. Once water is as good as a good supply thereof is an act of transfer of goods which is subject to VAT and not to service tax. Denial of CENVAT credit availed and utilized included in availed amount - HELD THAT - There is no denial nor any evidence to the contrary to the fact that the Cenvat credit as was availed by the appellant stands already reversed. On this basis appellant is already held entitled for the benefit of abatement under Notification No. 29/2010 dated 22.06.2010. Hence there remains no need to give any findings for the eligibility of input services based where upon the Cenvat credit was availed. The entire demand confirmed vide impugned OI- O except that appellant is held liable to pay service tax w.r.t activity of Construction of Residential Complex set aside. However appellant is held eligible for abatement benefit of Notification No. 29/2010 - appeal allowed in part.

Summary

ISSUES:

Whether the amounts received as lease premium and transfer fees for development rights on immovable property constitute "Renting of Immovable Property Service" or are excluded as transfer of immovable property under the definition of "service".Whether the activity of construction of residential complexes and related transactions attract service tax under "Construction of Residential Complex Service" and whether abatement under Notification No. 29/2010 applies.Whether interest received from buyers on deferred payment of sale consideration forms part of taxable value under service tax law.Whether supply of water by a government authority to occupants of residential complexes is taxable as "Management, Maintenance or Repair Service" or exempt as sovereign function.Whether Cenvat credit availed on input services is rightly denied or reversed and the implications thereof.Whether the appellant qualifies as a "government authority" for exemption purposes under service tax law.Whether the demand and penalties are barred by limitation and whether interest and penalties are justified.

RULINGS / HOLDINGS:

The transaction involving transfer of development rights and lease premium for immovable property is a "transfer of development right i.e. transfer of benefit arising out of immovable property which is out of the scope of ... definition of service" under Section 65B(44) of the Finance Act, 1994, and hence not taxable as "Renting of Immovable Property Service".The activity of construction of residential complexes attracts service tax under "Construction of Residential Complex Service" but the appellant is entitled to the 75% abatement benefit under Notification No. 29/2010 dated 22.06.2010, provided conditions therein are fulfilled and Cenvat credit is reversed.Interest received on deferred payments is akin to liquidated damages or penal consequences and is not includable in the taxable value for service tax purposes, consistent with Circular No. 96/7/2007 dated 23.08.2007.Supply of water by the appellant, being a government authority, is a sovereign function and not taxable as "Management, Maintenance or Repair Service"; further, water supply is treated as supply of goods subject to VAT, not service tax.Cenvat credit availed by the appellant has been reversed; hence, denial of credit is upheld and does not affect the abatement entitlement.The appellant qualifies as a "government authority" under the expanded definition in Notification No. 25/2012-ST dated 20.06.2012, being constituted under a statute and carrying out functions entrusted to a municipality under Article 243W of the Constitution.The demand and penalties confirmed by the adjudicating authority except for the service tax on construction of residential complexes are set aside; interest and penalties on non-taxable activities are not justified.

RATIONALE:

The Court applied the statutory definitions under the Finance Act, 1994, particularly Section 65B(44) defining "service" with specific exclusions for transfer of title in immovable property, relying on the General Clauses Act, 1897 definition of immovable property including "benefits arising out of land".Precedents including decisions of the Supreme Court and various High Courts were relied upon to interpret transfer of development rights as sale of immovable property, excluding such transactions from taxable services.The Court referenced the exemption framework under Notification No. 25/2012-ST and the Clarification Notification redefining "governmental authority" to include bodies constituted under statute with functions entrusted under Article 243W, supported by recent Supreme Court jurisprudence emphasizing strict construction of exemption notifications.The Court distinguished between statutory fees collected as sovereign functions, which are not taxable, and commercial activities undertaken by government authorities which attract service tax liability, as clarified in Circular No. 89/7/2006-ST and affirmed by the Supreme Court in Krishi Upaj Mandi Samiti case.The Court relied on Circular No. 96/7/2007 and relevant Tribunal decisions to exclude penal interest from taxable value.The Court acknowledged the abatement provisions under Notification No. 29/2010 and emphasized reversal of Cenvat credit as a precondition for availing abatement.The adjudicating authority's reliance on unamended definitions and failure to consider the expanded exemption scope was noted as a material error, leading to setting aside of demands except for the construction service tax liability.