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TMI Blog2019 (6) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Owners proposed to develop a portion of the aforesaid property admeasuring 43,56,000 sq. ft. in a phased manner by preparation of a lay out plan dividing the property into various plots, carrying out all infrastructure works, including leveling of plots, construction of Shopping Mall, Hospital, School, College, Market, and to sell them in accordance with the Rules framed by Urban Improvement Trust, Jodhpur, all of which was to be known as the "Umaid Township Project". The Appellant represented to the Owners that it is in the business of and has the expertise, skill, infrastructure in development and marketing/sale of properties and, therefore approached the Owners to permit it to develop the said 'Umaid Township Project' at Jodhpur. The Owners, granted and assigned unto the Appellant, the exclusive right to develop the said property and to sell individual developed plots. The Appellant accepted such authority, permission and the right to develop the said property and to sell the developed plots in a phased manner. Under the aforesaid agreement, the Appellant had to develop an area measuring approximately 20 acres in the first phase within two and a half years from the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-determined commission. These services of "Site formation and clearance, excavation and earthmoving and demolition" and other activities are adjunct to the services of Real Estate Agenct under a composite contract where the developers retained a part of sale proceeds of the developed plots as consideration for the services rendered by them which is nothing but commission for preparation of site for developing a real estate. Service Tax appears to leviable as per the statutory provisions on real estate developed by site preparation on consideration basis as discussed above. The service tax payable has been worked out to Rs. 5,45,52,288/- for the year 2005-06, 2006-07, 2007-08, 2008-09 & 2009-2010 on the consideration received in lieu of services rendered." (emphasis supplied) 4. The show cause notice, therefore, called upon the Appellant to explain as to why:- "(i) Service tax amounting to Rs. 5,45,52,288/- as detailed in Annexure 'A' to this notice should not be demanded and recorded from them under the proviso to section 73(1) of the Finance Act, 1994; (ii) Interest should not be recovered from them on the aforesaid amount under section 75 of the Finance Act, 1994; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , factory or any civil structure, activity of mining or laying of cables or pipes, preparation services of site formation and clearance, excavation and earthmoving or leveling are normally undertaken for a consideration to make the land suitable for such activities. Such services include blasting and rock removal work, clearance of undergrowth, drilling and boring, overburden removal and other development and preparation services of mineral properties and sites and other similar excavating and earthmoving services. Demolition of structures, buildings, streets or 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. 23. I further observe from the contents of the contract entered between developer and land owner that the developers will themselves market the developed plots and will retain their consideration to the services provided, from the sale proceeds of the plots and remit the land value of the owners as per the agreed formula given in Para 12 and 13 of the contract. I thus hold that the developer has provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment dated 5 September, 2001 is in nature of co-venture and there is no provision of service inter se parties; (vi) In any case, the services, if any, are not classifiable under 'Site Formation' or 'Real Estate Agent'; and (vii) The extended period of limitation could not have been invoked, nor penalties could have been imposed. 9. Shri Amresh Jain, learned Representative of the Department has, however, supported the impugned order and has made the following submissions: (i) The Commissioner committed no illegality in confirming the demand after granting the benefit of cum service tax on the Appellant; (ii) A perusal of the show cause notice indicates that the essential character of the service rendered by the Appellant, is 'Site Formation' in terms of section 65A of the Act and 'Real Estate Agent' Service is merely adjunct; (iii) The order passed by the Commissioner has correctly appreciated the terms of the agreement for imposing tax liability upon the Appellant. 10. The submissions advanced on behalf of the parties have been considered. 11. In order to appreciate the contentions, it would first be appropriate to refer to the terms of the agreement. As noticed above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in development and marketing/sale of properties and the Developers have approached the Owners to permit them to develop the said Umaid Township Project at Jodhpur (hereinafter called "the Project"). D. -------------- Now it is hereby agreed, confirmed and declared by and between the parties hereto as follows:- 2. The Owners hereby grant and assign unto the Developers exclusive right to develop the said property describes in Annexure "C" hereto and to sell individual developed plots and the Developers accept such authority, permission and right to develop the said property and to sell the developed plots thereof in phase manner TO THE INTENT that the Developers shall complete the said project in accordance with the layout/building plans that may be sanctioned by UIT, Jodhpur and other concerned authorities and in accordance with all Rules, Regulations and bye-laws of the Public body and/or authority that may be applicable to the said property. ------------------ 8. The Developers shall undertake the development of the said property in phases. In the First phase, the Developers shall develop an area admeasuring approximately twenty acres of the said property or such ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loped plots, the Owners shall be entitled to receive from the Developers the following amounts: (i) In case of sale of Plot for the price upto Rs. 2,500/- per sq. yards then the Owners shall be entitled to receive 40% of the sale proceeds thereof; (ii) In case of sale of plot above Rs. 2,500/- per sq. yards and upto Rs. 3,500/- per sq. yards then the Owners shall be entitled to receive 48% of the sale proceeds thereof; (iii) In case of sale of plot above Rs. 3,500/- per sq. yards and upto Rs. 4,500/- per sq. yards then the Owners shall be entitled to receive 54% of the sale proceeds thereof; (iv) In case of sale of above Rs. 4,500/- per sq. yards and upto Rs. 5500/- per sq. yards then the Owners shall be entitled to receive 56% of the sale proceeds thereof; (v) In case of sale of plot above Rs. 5500/- per sq. yards then the Owners shall be entitled to receive 60% of the sale proceeds thereof; (b) ------------------- (c). The Owners shall receive a minimum of Rs. 400/- per sq. yards towards the land cost for residential and commercial plots. However in respect of the plots utilized for public utilities like schools, hospitals. Colleges, religious places, etc. th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Owners to develop the said property and to sell individual developed plots, the Owners were entitled to receive from the Appellant the amount indicated in paragraphs 12 and 13 of the agreement depending on upon the size of the plots. The Owners were also entitled to receive a minimum of Rs. 400 per. sq. yard towards the land cost for residential and commercial plots. (iii) If for any reason any land/plot was not sold, the same was be divided between the Owners and the Appellant equally and in that event the Appellant would pay to the Owners only the cost of the land/or plots retained by the Appellant, after deducting the cost of the development. (iv) The Owners and the Appellant also agreed that the Development Agreement will not be treated as a Partnership/ Joint Venture between the parties and that the Appellant had been given only the right to develop the property and that each of them had undertaken their respective obligation and have the rights specified 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. 13. According to the Revenue the activities undertaken by the appellant would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable; (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration; 18. It is in the light of the aforesaid provisions of the agreement and the definitions of 'real estate agent' and 'site formation' services that the submissions advanced by learned Counsel for the Appellant and the Authorized Representative of the Department have to be examined. 19. Learned counsel for the Appellant placed emphasis on paragraph 8 of the show cause notice that has been reproduced above, and pointed out that whereas the first part of the said paragraph refers to the activities undertaken by the Appellant under the category of "site preparation", the second portion of the paragraph refers to the activities undertaken by the appellant under the category of "real estate agent" and it has been alleged that service tax 'appears to be leviable as per statutory provision on rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever reason, is prima facie classifiable under two or more sub-clauses of clause (105) of section 65, then sub-section (2) of section 65A of the Act provides that the classification shall be effected in the manner described below; "(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more description; (b) composite services consisting of a combination of different services which cannot be classified in the manner specified in (a) shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable; (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally mere consideration." 22. Paragraph 8 of the show cause notice does mention that composite services were rendered by the assessee consisting of "real estate agent" and "site formation". Section 65A (2) (a) provides that when a taxable service is prima facie classifiable under two or more sub-clauses, than the sub-clause which provides the most specific descrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd Vs. Commissioner of Central Excise, Puducherry 2017-TIOL-1491-CESTAT-MAD and the relevant paragraphs are as follows; "8. Sub-clause (b) under sub-section (1) of Section 65A provides classification of cluster of services under a specific taxing entry which gives the essential character of the services. Such an exercise was not carried out by the adjudicating authority and also there is no whisper the show cause notice in this regard. Such legal infirmity in the show cause notice is incurable at the appellate stage. Unless the show cause notice exhibits the activity carried out, and the service which has essential character to embrace the cluster of service to its fold, it is difficult to comprehend to classify such services under an appropriate taxing entry. 10. In view of the aforesaid observation, without finding any foundation in the show cause notice, we painfully allow the appeal for the short comings in the show cause notice and the adjudication order failing to appreciate law relating to classification. 11. At this stage, both sides agree that on the similar situation, where a final order was passed by Tribunal in the assessee's own case reported in 2007 (7) STR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, it would be appropriate to refer to the CBEC Circular dated 7 October 1998. The aforesaid Circular notices that some international reality concerns are providing services to real estate developers and promoters in respect of evaluation of a proposed real estate scheme/ project by conducting techno economic study, providing feasibility report and even helping in marketing real estate projects. Such services attract service tax. The Circular clarifies that the activity of actual construction of any building carried out by builder/ developer 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". The said Circular containing a clarification regarding service tax on 'real estate' agents and 'real estate consultants' is as follows; "CLARIFICATION REGARDING SERVICE TAX ON REAL ESTATE AGENTS AND REAL ESTATE CONSULTANTS EXTRACTS OF CBEC CIRCULAR F.NO.B-11/3/98-TRU, DATED 7-10-1998/ TRADE NOTICE NO. 7/98-ST, DATED 13-10-1998, MUMBAI COMMISSIONERATE 8.1 (i) As per Section 65(35), "real estate agent" means a person who is engaged in rendering any service in relation to sale, purchase, leasing or rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into by the appellant with various entities, we find that the appellant is liable for the profit or the loss of the said project despite the said project was executed in the name of special purpose vehicle. It is also seen that the entire project was financed by the appellant herein. The said facts are not denied or disputed by the lower authorities. It is to be seen on this factual matrix whether there was any service rendered by the appellant in the category of real estate agent for receiving development charges. It is common knowledge that the real estate agent transacts the business of sale or purchase of the property, leasing or renting of the property and gets an amount as a commission. Though the definition of real estate consultant talks about evaluation, construction, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management of real estate, it has to be borne out of the record that such services are rendered. As already stated hereinabove that the appellant herein has not rendered any of the services. On the contrary, he envisaged conceptualized developed, implemented and marketed the scheme/ project for himself which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative that the category of service for the activity undertaken by the Appellant would be 'real estate agent'. However, as learned counsel for the Appellant has made extensive submissions, this submission can be examined. 32. "Site formation" service is defined in Section 65 (97a) of the Act. It includes services for preparation of site for further development. This is apparent from the Circular dated 27 July 2005 issued by the Government of India, Ministry of Finance for the year 2005-2006 when this service was added. It is reproduced; "6.1. Any service provided or to be provided to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities is leviable to service tax under sub-clause (zzza) of section 65 (105) of the Finance Act, 1994. "Site formation and clearance, excavation and earthmoving and demolition" has been defined in clause (97a) of Section 65 of the Finance Act, 1994. 6.2. The definition of site formation and clearance, excavation and earthmoving and demolition is an inclusive definition and the activities specifically mentioned are indicative and not exhaustive. Prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case is river. Some part of site formation, excavation and earthmoving done by the appellant was for preparing of further construction of reservoir and other civil works. We therefore are of the view that these activities undertaken by the appellant are out of purview of Site Formation, and Clearance Excavation and Earthmoving and Demolition Service as defined under Section 65(97a) of the Act". (emphasis supplied) 34. The activity carried out by the Appellant would, therefore, not fall under 'site formation'. 35. Thus, all the reasons stated above, the impugned order dated 29 February 2012 passed by the Commissioner of Central Excise, Jaipur cannot be sustained and is set aside. 36. It is, therefore, 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 shall be refunded to the Appellant within a period of two months from the date of copy of the order is produced before the competent authority. The Appeal is, accordingly, allowed. (Operative portion of the order pronounced in the open court) FOOT NOTE:- 1. The Act 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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