TMI Blog2014 (9) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Vs. Commissioner of Central Excise & Service Tax [2014 (1) TMI 1203 - CESTAT NEW DELHI] - Decided against the assessee. Levy of service tax only on the lease rent or also on one time premium amount charged in respect of long term leases - Held that:- Service tax under Section 65(105)(zzzz) read with Section 65 (90a) cannot be charged on the ‘premium’ or ‘salami’ paid by the lessee to the lessor for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased. Since the levy of service tax is on renting of immovable property, not on transfer of interest in property from lessor to lessee, service tax would be chargeable only on the rent whether it is charged periodically or at a time in advance. - Decided in favor of assessee. Service tax on various activities - Held that:- the services, which are in connection with the renting of immovable property for business or commerce, would also be taxable under this Section. Therefore, processing charges for application for land allotment on lease basis would also be taxable. However, the services like processing and approval of building plan, map revision, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the normal period of one year from the relevant date, which would be quantified by the adjudicating authority. - Decided in favor of assessee. Waiver of penalty u/s 80 - Held that:- this is a fit case, where by invoking the Section 80 of the Finance Act, 1994, penalties under Sections 76, 77 and 78 have to be waived - penalty waived - Decided in favor of assessee. - Appeals Nos. ST/59067/2013 & ST/3256/2012 - Final Order Nos.53354-53355/2014 - Dated:- 28-8-2014 - Mr. G. Raghuram and Mr. Rakesh Kumar, JJ. For the Appellant : Shri J.K. Mittal, Advocate along with Shri Kamal Gupta, CA For the Respondent : Shri Amresh Jain, DR JUDGEMENT Per Rakesh Kumar: The facts leading to filing of these two appeals are, in brief, as under:- 1.1 The appellant - M/s. Greater Noida Industrial Development Authority is a body corporate established under U. P. Industrial Development Act, 1976 to develop the defined area as a planned industrial township. The appellant discharges the statutory duties and functions which, include allotment of land on lease basis. The appellant also provides municipal services in the Greater Noida, which has been notified as an indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such vacant land; (c) Land used for educational, sports, circus, entertainment and parking purposes; and (d) Land used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. The definition of the term immovable property mentioned four types of immovable properties as covered by this term. However, w.e.f. 1.7.2010, a clause (V) was added to the definition of immovable property , which covers vacant land given on lease or licence for construction of building or temporary construction at a later stage to be used for furtherance of business or commerce. At the time of amendment, the Tax Research Unit of Central Board of Excise Customs (Department of Revenue) vide Circular dated 26.02.2010 clarified that suitable amendment in the definition of taxable service relating to renting of immovable property is being made so as to provide that tax would be charged on rent of a vacant land if there is an agreement or contract between the lessor and the lessee that construction on such land is to be undertaken for furtherance of business or commerce dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey have not paid any service tax on the lease rent received by them. The Investigating Officers were of the view that allotment of vacant land by the appellant on lease basis to various persons for construction of commercial building is covered by the definition of renting of immovable property under Section 65(105)(zzzz) read with Section 65 (90a) and accordingly, the same would be taxable w.e.f. 1.7.2010. Since during the period from 1.7.2010 to 31.5.2011, the appellant had received a total amount of ₹ 40,14,15,820/- as lease charges from the allotment on lease basis of various plots of land for commercial purposes, a show cause notice dated 19.3.2012 was issued to the appellant for - (a) demand of service tax including education cess amounting to ₹ 4,13,45,830/- on the amount of rent received from the lease of plots of land for commercial purpose during the period July, 2010 to May, 2010 under proviso to Section 73(1) of the Finance Act, 1994 along with interest thereon under Section 75 ibid; and (b) imposition of penalty on the appellant under Section 77(1)(C) and 78 of the Finance Act, 1994. 1.5 The above show cause notice was adjudicated by the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Sections 76, 77 and 78 ibid. This show cause notice was adjudicated by the Commissioner of Central Excise and Service Tax, Noida vide order-in-original dated 30.04.2013 by which he confirmed the service tax demand of ₹ 140,74,64,342/- against the appellant under proviso to Section 73(1) of the Finance Act, 1994 along with interest thereon under Section 75 ibid and besides this, he imposed penalty of equal amount on him under Section 78 and penalty of ₹ 200/- per day was imposed starting from the day on which the tax became payable till the date upto which the failure to pay the tax continued under Section 76 of the Finance Act, 1994.Against this order of the Commissioner, Appeal No.ST/59067/2013 along with stay application No.ST/59745/2013 have been filed. The misc. application No.ST/Misc./61063/ST has been filed for early hearing of the appeal. 2. The misc. application for early hearing was heard on 22.04.2014 and the Tribunal vide misc. order No.51470/2014 dated 22.04.2014 allowing the misc. application ordered for hearing of the appeal No.ST/59067/2013 along with appeal No.ST/3256/2012 on 20.05.2014, as one of the contentions of the appellant is that the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial particulars and lack details and are without any substance. In para-10 of the said show cause notice, it is alleged that from the above, it appears that the party is providing renting of immovable property service inasmuch as they are allotting commercial and industrial land on lease basis for consideration of the rent. Thus, the allegation is only in respect of the allotting land on lease basis. The finding given on internal page 49 and 53 of the impugned order is also that the Appellant is allotting land on lease basis for consideration. However, in the show cause notice dated 17.10.2012, the receipt in respect of the rental of constructed property and on which the service tax is being paid since 1.6.2007 has also been included for charging tax and not only this, the other receipts such as rent as received from the staff, RTI fee, transfer charges, road cutting charges, building plan approval charges, penalty, etc. have also been included in the assessable value for the purpose of charging service tax. In the show cause notice dated 22.03.2012, it has been stated that service tax on leasing of vacant land for construction of building for commercial purposes, become taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices for consideration. Therefore, the allotment of land by the appellant on lease basis to various persons for construction of building for business or commerce cannot be treated as renting of immovable property and subjected to tax. (vii) The term lease appearing in the definition of renting of immovable property given in Section 65(90a) is not defined in Finance Act, 1994 and, therefore, the same has to be construed in popular sense i.e. the sense in which the people conversant with the subject matter understand this term. The term lease used in Section 65(90a) cannot include perpetual leases, which are long term leases and which virtually involve transfer of ownership of land against full consideration on which stamp duty has been paid. Such transfer of land by allotment would not be covered by the definition of renting of immovable property and as such, the provisions of Section 65 (105)(zzzz) read with Section 65(90a) of the Finance Act, 1994 would not be attracted. The Hon ble Delhi High Court in the case of KRIBHCO Vs. Dy. Commissioner of Income Tax (order dated 12.07.2010) in ITA No.205/2010 has held that premium received for long term lease of 90 years is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der proviso to Section 73(1) of Finance Act, 1994, which can be invoked only on the ground of wilful suppression of facts, mis-statement, fraud, or contravention of the provisions of Finance Act, 1994 or of the rules made thereunder with intent to evade the tax. It is undisputed fact that appellant is a public authority doing its activity in full public view and was already registered under the Service Tax and was paying service tax on renting of constructed property. The appellant under bonafide belief that perpetual leases of vacant land for 90 years given by public authority would not come within the purview of the renting of immovable property , did not pay service tax on the lease rent received from such allotments of land on such long term lease basis. The question as to whether such leases would attract service tax under Section 65(105)(zzzz) read with Section 65(90a) of the Finance Act, 1994 is a highly disputed fact based on interpretation of law and hence in such circumstances, the appellant could not be accused of fraud, wilful mis-statement, suppression of facts with intent to evade payment of duty. Therefore, in any case, the service tax can be recovered only for norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns; and (d) The appellant contravened the provisions of Section 66 of Finance Act, 1994 read with Rules-4, 5, 6 and 7 and Service Tax Rules, 1994 with intent to evade the payment of service tax. In view of this, both the demands have been correctly confirmed by invoking the extended period of 5 years from the relevant date. For the same reasons, penalties under Section 78 and also under Section 77 has been correctly imposed. 6. We have considered the submissions from both the sides and perused the records. 7. The Appellant - M/s. Greater Noida Industrial Development Authority, is a statutory body constituted under Section 3 of U.P. Industrial Area Development Act, 1976 to develop the defined area as a planned industrial township. Under Section 3 of the U. P. Industrial Area Development Act, 1976, the State Government may, by notification, constitute for the purposes of this Act, an authority for planned development of an industrial development area and the authority shall be a body corporate and shall consist of a Chairman who is to be an officer of the rank of the Secretary to the Government of U.P. By notification issued under Article 243 Q(1) of the Constitution of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or temporary structure at later stage to be used for furtherance of business or commerce. This first show cause notice was adjudicated by the Commissioner of Central Excise, New Delhi vide order-in-original dated 16.07.2012 by which the entire demand of ₹ 4,13,45,830/- was confirmed along with interest. The second show cause notice dated 17.10.2012 issued by the Commissioner of Central Excise and Service Tax, Noida covers the period from 1.6.2007 to March, 2012 and in this show cause notice, the service tax of ₹ 140,74,64,342/- has been demanded along with interest on- (a) One time premium amount in respect of vacant land given on 90 years lease basis; (b) Annual lease rent for vacant land given on 90 years lease basis; (c) Fee charged for examination of the applications received for allotment of land and also the fee charged from the allotees for getting their building plan approved; (d) Transfer charges charged when the original allotee transfers the land to others; (e) Rent received from the staff to whom the residential units of the Appellant had been let out; (f) Other misc. incomes such as compliance fees, map revision fee, map validation fee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant? 8.1. Our findings on the above points are as under. 9. Whether in respect of giving vacant land on lease or rent for construction of building or a temporary structure at a later stage to be used for furtherance of business or commerce would attract service tax under section 65(105) (zzzz) read with Section 65 (90a) from 1.6.2007, the date on which the service tax on renting of immovable property had become leviable or the same is chargeable w.e.f. 1.7.2010 when clause (v) was added to the inclusive portion of the definition of immovable property in Section 65 (105)(zzzz) and whether for this purpose, the long term leases of vacant land are excluded from the purview of Section 65(105(zzzz) read with Section 65(90a) of the Act. 9.1 The question as to whether giving vacant land on lease, lease or rent for construction of a building or temporary structure at a later stage for furtherance of business or commerce is taxable from 1.6.2007, the date on which the service tax on renting of immovable property had been introduced or w.e.f. 1.7.2010 when Clause (v) had been added to the Explanation-I to Section 65(105)(zzzz) has been examined by this Tribunal in detail in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting thereto; and (iv)in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include - (a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes; (b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land; (c) land used for educational, sports, circus, entertainment and parking purposes; and (d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. Explanation 2. -For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce; Section 75 of the Finance Act 2010 introduced several amendments to Chapter V of the Act. In so far as Section 65(105) (zzzz), the 2010 amendments substituted the main provision of sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd whether having facilities clearly incidental to its use as such or otherwise does not constitute immovable property. As a consequence of the interplay between the enumeration of renting of immovable property as the taxable event read with the inclusionary and exclusionary clauses (in particular sub-clause (b) of the exclusionary clause) in Section 65 (105)(zzzz), renting of vacant land was clearly outside the purview of the taxable service, prior to 01.07.2010. 12. Introduction of sub-clause (v) in Explanation I has significantly altered and extended the scope of the taxable service, with effect from 1.7.2010 and consequently vacant land given on lease or licence, for construction of a building or a temporary structure, to be used at a later stage for furtherance of business or commerce, would be immovable property and renting of this immovable property would be the taxable service, since 01.07.2010. 13. In view of clear exclusion of vacant land from the ambit of immovable property prior to 1.7.2010 it cannot gainfully be contended by Revenue, that clause (v) to Explanation I (introduced in 2010), was a mere clarificatory endeavour, explicating the implicit and inherent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation have only the prospective operation. 15. On the above analysis , renting of vacant land by way of lease or licence (irrespective of the duration or tenure), for construction of a building or a temporary structure for use at a later stage in furtherance of business or commerce is a taxable service only from 1.7.2010, and not so, earlier to this date. In view of this position, we hold that giving of vacant land on license, rent or lease for construction of structure at a later stage for furtherance of business or commerce became taxable only w.e.f. 1.7.2010 under Clause (v) of Explanation I to Section 65(105)(zzzz) and this activity was not taxable during the period prior to 1.7.2010. 9.2 The other plea of the appellant that the allotment of land by the appellant to various persons is on long term lease basis the leases of 90 years, which amount to transfer of ownership and such leases are outside the purview of Section 65(105)(zzzz) and in this regard, the appellant have relied upon the judgments of the Apex Court in the case of Shanti Sharma Ors. vs. Ved Prabha Ors reported in (1987) 4 SCC 193 and also the judgment in the case of R.K. Polshikar (HUF) vs. CIT re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble property, irrespective of the transfer of possession or control of the said immovable property. Section 65(90a), while defining the immovable property does not make any distinction between the long term lease or short term lease and there is absolutely no provision to exclude the long term lease or lease in perpetuity from the purview of the expression renting of immovable property . Therefore, it is difficult to accept that appellant s contention that long term leases or lease in perpetuity are excluded from the purview of Section 65(105)(zzzz) read with Section 65(90a). 9.2.3 The appellant have cited the judgment of the Apex court in the case of Shanti Sharma Vs. Ved Prabha (supra). This judgment is with regard to the provisions of Section 14(1) (e) of the Delhi Rent Control Act, 1958. Section 14(1) of the Delhi Rent Control Act provides that Rent Controller may, on an application made by the landlord in the prescribed manner, order for the recovery of the possession of the premises on the ground as mentioned in Clause (a) to (e). The ground mentioned in clause (e) is that the premises let for residential purposes are required bona fide by the landlord for occupation as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and gains shall be deemed to be the income of the previous year in which the sale, exchange, relinquishment or transfer took place. The terms capital asset was defined as property of any kind held by an assessee, whether or not connected with his business, profession or vocation. The Apex Court in this case held that when the petitioner has given his property on long term lease basis for 99 years, it would appear that under the leases in question, he has parted with an asset of enduring nature, viz. the right to possession and enjoyment of the property leased for a period of 99 years subject to certain conditions on which the leases could be terminated and that provisions of Section 12B of the Income Tax Act would be applicable to the income from such leases. Thus, this judgment of the Apex Court is also with regard to the provisions of Section 12B of the Income Tax Act and the ratio of this judgment is that income from transfer of a plot of land on long term basis is to be treated as capital gain income which would be taxable under Section 12B of the Income Tax Act. This judgment is not an authority for the appellant s proposition that all long terms lease of land amount to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to our attention which provides a guidance to classify leases into long term and short term. We therefore find no justification for a restrictive interpretation of the relevant provision of the Act. 7. Ld. Counsel for the appellant has referred to an interim order of this Tribunal dated 8.11.2012 passed in an appeal preferred by the Greater Noida Industrial Development Authority. While granting waiver of pre-deposit in full, the Tribunal observed that the ordinary meaning of renting will not cover long term leasing. To buttress this prima facie conclusion the Tribunal referred to the decision of the Delhi High Court in Krishak Bharati Co-operative Ltd. vs. Dy. CIT in ITA No.205/2010 dated 12.7.2012. We therefore refer to the context and circumstances in which the decision of the High Court was pronounced. The High Court had answered a question of law framed for its consideration. The question referred was whether amortizing the lease premium paid by the assessee was a capital or a revenue expenditure. After referring to several precedents, the High Court concluded that in the facts and circumstances of the reference before it, the lease premium paid by the assessee was cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assam and Manipur Vs. Panbari Tea Co. Ltd. reported in (1965) 3 SCR 811 has made a distinction between premium and rent observing that when the interest of the lessor is parted with for a price, the price paid is premium or salami, but the periodical payments for continuous enjoyment are in the nature of rent, the former is a Capital Income and the latter is the revenue receipt. Thus, the premium is the price paid for obtaining the lease of an immovable property. While rent, on the other hand, is the payment made for use and occupation of the immovable property leased. Since taxing event under Section 65(105)(zzzz) read with Section 65(90a) is renting of immovable property, service tax would be leviable only on the element of rent i.e. the payments made for continuous enjoyment under lease which are in the nature of the rent irrespective of whether this rent is collected periodically or in advance in lumpsum. Service tax under Section 65(105)(zzzz) read with Section 65 (90a) cannot be charged on the premium or salami paid by the lessee to the lessor for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Section. Therefore, processing charges for application for land allotment on lease basis would also be taxable. However, the services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis have no nexus with the renting of immovable property for business or commerce, and as such, the activities in relation to the construction of building on the vacant land allotted on lease basis i.e. the charges of map approval, validation, map revision, malba charges, etc. would not attract service tax. As regards restoration charges or penalty, which appears to be the penalty for violating the conditions of the lease, the same, in our view, cannot be said to be the consideration for lease and would not attract service tax. As regards the rent/licence fee received by the appellant from their staff to whom the residential units has been let out, such letting out the residential units to the staff is not renting of immovable property for use in or for furtherance of business or commerce and hence, the licence fee/ rent received from such letting out of houses of Noida Authority would not attract serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sultan Tobacco Co. Ltd. reported in 1997 (83) ELT 3 (SC). The Apex Court in this case has held that the goods manufactured prior to levy of duty but cleared thereafter would not be liable to excise duty. This judgment does not help the Appellant, as the levy of service tax is on the event of provision of a taxable service, not on the event of entering into agreement for provision of service. Moreover, unlike manufacture of goods and clearance of manufactured goods which are one-time events, the provision of service in pursuance of an agreement for the same, may after starting the provision of service, continue for some time - for several days, several months or several years, depending on the terms of the agreement and in between, a service which at the time of initiating the provision of service was non-taxable may become taxable. Since the taxing event for service tax is provision of service, not the event of entering into an agreement for provision of service, the service provided from the date on which the same became taxable, would attract service tax, irrespective of the fact that at the time of entering into an agreement for provision of service, the same was not taxable. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied or erroneously refunded duty under proviso to Section 11 A(1) of Finance Act, 1994 would not be applicable for failure or negligence of the manufacturer to take out licence or to pay duty when there was scope for doubt that the goods were dutiable or not, that the extended period under proviso to Section 11 A(1) is applicable only when there is something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, or contravention of the provision of Central Excise Act, 1944 or of the Rules made thereunder with intent to evade payment of duty. It has also been observed that expression suppression of facts in proviso to Section 11 A(1) is to be interpreted strictly because it has been used in the company of such strong words as fraud , collusion , wilful mis-statement , and where the facts are known to both the parties. It is not the case of suppression of facts. The Apex Court in the case of Continental Foundation Joint Venture vs. CCE, Chandigarh reported in 2007 (216) ELT 0177 (SC) has held that wherever on account of conflicting judgments on an iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax of ₹ 140,74,64,321/- for the period May, 2007 to March, 2012. Though the order dated 30.04.2013 passed by the Commissioner in respect of a show cause notice dated 17.10.2012, at one place mention that the service tax demand of ₹ 140,74,64,321/- confirmed by this order, does not include the service tax of ₹ 4,13,45,830/- demanded in the show cause notice dated 22.3.2012 issued by a ADG, DGCEI and adjudicated by the order-in-original dated 16.07.2012, from the order dated 30.04.2013, it is not at all clear as to whether the service tax demand confirmed vide order-in-original dated 16.07.2012 is not covered by this order. In this regard, Shri Amresh Jain, ld. DR, in his written submissions has also mentioned that though efforts at every level from the Range Superintendent to the Commissioner were made with the noticee to cooperate and submit the headwise figures but all vain and without noticees cooperation, it could not be ascertained at that stage as to whether the amounts included in the show cause notice dated 22.3.2012 issued by the ADG, DGCEI, New Delhi is included in the show cause notice dated 17.10.2012. This written submission also mentions that o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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