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2019 (6) TMI 633

during the period 2005-2006 to 2009-2010 - Circular dated 27 July 2005 - HELD THAT:- The clauses of the present agreement clearly indicate that extensive construction and development had to be carried out by the Appellant and, thereafter, land/ plots were to be sold. The finances were also to be arranged by the Appellant. An agent does not carry out these activities. Thus, for this reason also the impugned order cannot be sustained. A Division bench of the Tribunal in M/S RADIUS CORPORATION LTD. VERSUS CCE, RAIPUR [2013 (9) TMI 517 - CESTAT NEW DELHI] examined the scope for “site formation” services and it was observed that the contract signed for construction of the Major Ground Balancing Reservoir for raising the height of the existing reservoir would not fall under the category of “site formation”. The activity carried out by the Appellant would, therefore, not fall under ‘site formation’. Extended period of limitation - HELD THAT:- It is not necessary to deal with the other submissions advanced by learned Counsel for the Appellant relating to co-venture or extended period of limitation. The pre-deposit made by the Appellant in this Appeal sha .....

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be completed within seven years. The Appellant was required to carry out all such acts, deeds and things for completing the project in terms of clause 11 of the agreement. In consideration of the Owners granting exclusive and irrevocable rights to the Appellant to develop the said property and to sell individual developed plots, the Owners were held entitled to receive an amount from the Appellant to be determined terms of Clause 12 of the agreement. 3. A show cause notice dated 6 October, 2010 was issued to the Appellant by the Department. It was stated that the Appellant had evaded payment of Service Tax to the tune of ₹ 5,45,52,288/- on the taxable service Real Estate Agent and Site Formation and Clearance, Excavation and Earth Moving and Demolition 3 provided by the Appellant during the period 2005-2006 to 2009-2010. The show cause notice mentions that the Appellant had signed an agreement with the Owners on 5 September, 2001 and received grant and rights for development of immovable property situated in Khasra No. 426. The show cause interpreted the development agreement to mean preparation of a site for developing a real estate for commercial purpose . The agreement was .....

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e imposed upon them for contravention of Section 66,67,68,69 and 70 of the Finance Act, 1994 read with Rule 4, 6 and 7 of the Service Tax Rules, 1994. 5. The Appellant submitted a detailed reply to the aforesaid show cause notice pointing out inter alia that no taxable service had been rendered by the Appellant under the said agreement and the notice should be withdrawn. 6. The Commissioner, however, did not accept the contentions advanced by the Appellant and confirmed the demand. After perusal of the definition of Site Formation as contained in section 65(97a) of the Act and the definition of Real Estate Agent as contained in section 65(88) of the Act and on consideration of the fact that the Appellant had been granted the right for development of land, the Commissioner concluded that the activities of developing the land by leveling it and carrying out infrastructural work, would fall under the definition of Site Formation . Further, after noticing that the Appellant was also required to market the developed plots and retain consideration from the sale proceeds of the plots and remit the land value to the Owners in terms of Clauses 12 and 13 of the Agreement, the Commissioner co .....

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ots and retaining the consideration from the sale proceeds is squarely covered under the Real Estate Agent services defined under section 65(88) of the Finance Act, 1994. 24. In view of above, it is clear that it was a composite agreement in which the developer has provided two services to the land owner. First of all, they had prepared the site for developing a real estate for commercial purposes covered under Site Formation Service. Secondly they had sold out the developed plots on behalf of the land owner and in turn rendered the service of Real Estate Agent. The developer had retained the consideration from the sale proceeds of the developed Plots for their services rendered to the land owner on which service tax is leviable as per the statutory provisions discussed above. I also find that both the services are taxable and there is no needs to bifurcate the consideration service wise. (emphasis supplied) 7. The Appellant was, however, held entitled to the benefit of cum service tax and so the amount of service tax was directed to be recalculated. The Commissioner, therefore, confirmed the demand of Service Tax amounting to ₹ 4,87,71,787/- instead of 5,45,22,288/-, but wit .....

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that the Appellant represented to the Owners that it had the requisite expertise, skill, infrastructure and reputation in development and marketing/sale of properties. The Owners granted and assigned to the Appellant the exclusive right to develop the said property and to sell individual developed plots and the Appellant accepted such authority, permission and the right to develop the said property and to sell the developed plots in a phased manner. The relevant clauses of the agreement are reproduced below:- WHEREAS A. The Owners represent that they are the absolute owners and seized and possessed of or otherwise well and sufficiently entitled, inter alia, to all that piece or parcel of land bearing khasra No. 426 of Jodhpur Tehsil, admeasuring 1,19,86,800 sq. ft. (One Crore Nineteen Lacs Eighty Six Thousand Eight Hundred square feet) or thereabouts together with a palace known as Umaid Bhawan and a hotel known as Umaid Bhawan Palace and the hereditaments and premises standing thereon. (hereinafter referred to as the said entire Property ). The said entire property is described in Annexure A herein and shown surrounded by yellow colour boundary line on the Plan hereto annexed and .....

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tually agreed upon. The period of completion of the remaining phases shall be seven years from the date of approval of plans or such extended period as may be mutually agreed after completion of first phase. - 11. The Developers shall subject to clause 6 above be responsible for doing, executing and carrying out all such acts, deeds and things as may be necessary to complete the said project including the following: a. To bring and /or arrange finance within a period of nine months from the date of approval of plans towards initial cost for infrastructure, roads, sewerage treatments, cables, water lines, electricity, etc., as may be required, for the development of the said property. - d. Applying and obtaining from officers of the Government of Rajasthan all such permissions/consent/ sanctions/approvals as may be necessary for the development envisaged herein and to do and perform all acts connected therewith or pertaining thereto, including any application made to the Housing and Urban Development Department, and /or anybody corporate, department, authority or agency. - g. Carrying out all the infrastructural work including leveling of the said property, laying or roads, street l .....

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s equally. In that event, the Developers shall pay to the Owners only the cost of the land and/or plots retained by the Developers after deducting the cost of development therefrom. The price of the land or of the plots along with the construction thereon retained by the Developers shall be ascertained as may be mutually agreed upon between the parties hereto and if the parties fail to do so, then a Valuer shall be jointly appointed by the Owners and the Developers to determine the price of the unsold land/or plots and such valuation will be final and binding on the parties. - 19. The Development Agreement hereby executed and the Development Project as set out herein, will not be treated as Partnership/joint Venture between the parties hereto nor an Agreement for Sale by the Owners to the Developers and the Developers are given only a right to develop the said property. It is hereby agreed and declared that the Owners and the Developers have each undertaken their respective obligations and have rights specified hereinabove on their own account and on principal to principal basis and not on behalf of or on account of or as agent of any of them or anyone else. 12. It is, therefore, c .....

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for construction, geophysical, geological or similar purposes; or (ii) Soil stabilization; or (iii) Horizontal drilling for the passage of cables or drain pipes; or (iv) Land reclamation work; or (v) Contaminated top soil stripped work; or (vi) Demolition and wrecking of building, structure or road, But does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies; 15. Real Estate Agent has been defined in section 65 (88) of the Act as follows:- 65(88) real estate agent means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant 16. Taxable Service has been defined in section 65 (105) of the Act and in relation to Real Estate Agent and Site Formation it is as follows:- 65(105) taxable service means any service provided or to be provided; - (v) to any person, by a real estate agent in relation to real estate; - (zzza) to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other sim .....

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he Department to find out the essential character of the service under which the liability of the assessee is proposed to be taxed. 20. The submission of learned Authorized Representative for the Department is that a perusal of paragraph 8 of the show cause notice would indicate that the Department has clearly come out with a case that the essential character of the service rendered by the Appellant is of a real estate agent and the other activity of site formation is merely adjunct to the service of a real estate agent under a composite contract. According to him this is clear from the sentence in paragraph 8 which states that developer has rendered prime services of a real estate agent…. and other activities were adjunct to the services of real estate agent . It is, therefore, his submission that the learned counsel for the Appellant is not correct in his submission that the show cause notice has not indicated that the essential character of the services mentioned in the show cause notice is of real estate agent . It is also his submission that the Appellant has performed real estate agent service, as is apparent from a perusal of the agreement. 21. Section 65(105) of the .....

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preparation on consideration basis . The earlier portion of paragraph 8 of the show cause notice mentions that the developer in the capacity of a real estate agent rendered services of site formation for developing the real estate which was ultimately sold by the developer on pre-determined commission. It is very difficult to really cull out from the show cause notice as to which particular category of service was intended to be taxed. The show cause notice should have clearly indicated whether the service of real estate agent or site formation was leviable to tax, for this is the requirement of section 65A of the Act. This confusion is maintained in the impugned order. After referring to the provisions of the agreement dated 5 September 2001, the Commissioner in paragraph 22 of the order finds that the service rendered by the Appellant is of site formation as defined in section 65 (97a) of the Act. In paragraph 23, the Commissioner also finds that the service rendered by the Appellant is of real estate agent as defined in section 65 (88) of the Act. It is for this reason that in paragraph 24 of the order, the Commissioner observed that it was a composite agreement in which the dev .....

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d by treating the real estate agent service as the essential character of the services. The show cause notice states that this was the prime service rendered to the Appellant. Real estate agent has been defined in section 65(88) of the Act to mean a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate and includes a real estate consultant. The taxable service is the service provided to any person by a real estate agent in relation to real estate. This category of service would cover services rendered by one person as agent of another in relation to sale, purchase, leasing or renting of real estate. A service provider must, therefore, carry out an activity in the capacity of an agent of another. The Appellant in the present situation is himself selling the plots. A principal to principal transaction would, therefore, not be covered under section 65(105)(v) of the Act. The Appellant does not act an agent for any person when it is selling property to purchasers. The development and sale of property under the agreement is undertaken by the Appellant on its own and in exercise of the rights vested in the Appellant. The Appellant .....

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s and Jardine etc. have opened shop in India and they are providing comprehensive realty services. Apart from the traditional services in respect of sale/purchase/leasing of real estate, such concerns are, inter alia, providing services to real estate developers and promoters in respect of evaluation of a proposed real estate scheme/project by conducting techno-economic studies, providing feasibility reports and by even helping in marketing real estate projects. Such services shall also attract service tax. However, it is clarified that activity of actual construction of any building, carried out by builders/developers does not attract service tax levy as it is not a service within the meaning of the term real estate agent or real estate consultant . 27. In this connection it will also be appropriate to refer to the decision of the Tribunal in Saumya Construction Pvt Ltd. Vs. C.S.T., Ahmedabad 2016 (46) S.T.R. 723 (Tri. - Ahmd.). One of the issues that arose for consideration in the aforesaid case was whether the appellant was liable to discharge service tax ability under the category of real estate agent services for the amount received by it as development charges. The Tribunal f .....

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to mean a person who renders in any manner, either directly or indirectly, advice, consultancy or technical assistance, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate. It has, therefore, been urged that the service rendered by the Appellant was of real estate agent . 29. This submission of the learned Authorized Representative cannot be accepted. In the first instance, the show cause notice that was issued to the Appellant seeks to restrict the definition of a real estate agent to the first part of the definition as paragraph 8 of the show cause notice does not refer to real estate consultant . The Appellant was never put to notice that the service rendered by the Appellant was attributable to a real estate consultant . Secondly, the Circular dated 7 October, 1998 that has been reproduced above, specifically clarifies that the activity of actual construction of any building carried out by builders/developers does not attract service tax levy as it is not a service within the meaning of the term real estate agent or real estate consultant . 30. The clauses of th .....

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r highways is also undertaken for a consideration as a preparatory activity for subsequent construction activity or for clearing the site for any other purpose. All such activities fall within the scope of this service. 6.3. However, site formation and clearance, excavation and earthmoving and demolition services when provided in relation to agriculture, irrigation watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies are specifically excluded and not within the scope of this service. 6.4. Notification 17/2005-S.T., dated 7-6-2005 exempts this service provided in the course of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams, major and minor port . (emphasis supplied) 33. A Division bench of the Tribunal in Radius Corporation Ltd. vs. Commissioner of Central Excise, Raipur 2014 (33) S.T.R. 416 (Tri. - Del.) examined the scope for site formation services and it was observed that the contract signed for construction of the Major Ground Balancing Reservoir for raising the height of the existing reservoir would not fall under the category of site formation . The relevant portion of paragrap .....

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