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TMI Blog2019 (11) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... rate General of Central Excise Intelligence for the period 2012-13. 2. The issue involved in this appeal is as to whether the amount of Rs. 45,08,09,200/- paid to the Appellant as per 'Settlement Agreement' and the compensation received by the Appellant from M/s Amit Mines Limited (hereinafter referred to as 'Amit Mines/AML') to the extent of Rs. 1,97,50,000/- for non supply of manganese ore on account of rate difference are liable for service tax under 'Declared Service' under Section 66 E(e) of the Finance Act or otherwise. The Appellant is engaged in the business of manufacture and sale of M.S. Billets and M.S. Rods, TMT bars etc., classifiable under tariff item 72 to the First schedule of Central Excise Tariff Act, 1985, for which they are duely registered with the Central Excise authorities under the provisions of Central Excise Act, 1944 (for short "the Act") and Rules made thereunder. The appellant is also registered with the service tax department in accordance with provisions of Finance Act and the Rules made thereunder for the services being rendered by them. 3. The Appellant entered into a 'Development Agreement' dated May 21, 2010 with 31 different companies for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment Agreements and Settlement Agreements are tabulated as under which is reproduced as under; Particulars Development Agreement Settlement Agreement Amount(Rs.) Amit Metaliks & 31 Companies 21.05.2010 11.04.2012 21,90,00,000/- Amit Metaliks & 11 companies 05.04.2012 20.06.2012 2,75,20,000 Amit Metaliks & 17 companies 04.05.2012 20.06.2012 1,60,11,200 Amit Metaliks & 1 company 05.04.2012 20.06.2012 62,78,000 Amit Metaliks & 43 companies 05.04.2012 20.06.2012 18,20,00,000 103 companies 45,08,09,200 These payments were received during January 2013 to March, 2013. 4. Learned Advocate, on behalf of the appellant, submits that the amount received pursuant to the settlement agreement is not a consideration towards rendition of any taxable services and hence not liable for service tax. The Section 65B(44) of the Finance Act defines "service", which is reproduced as under; "(44) 'service' means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) An activity which constitutes merely- (i) A transfer of the title in goods or immovable pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be construed as agreeing to refrain from an act, as alleged or at all. There is no specific condition in the said settlement agreement under which are obligated to refrain from initiating any proceedings. At best, what is stated is that we will not have any 'intention to proceed'. The said phrase only indicates an "intention" and the same should be read in the context of the parties arriving at a compromise to settle a dispute. It is submitted that the said agreement cannot be construed to have a negative covenant so as to attract the provisions of Section 66E(e) of the 1994 Act. 9. It is further submitted that the amount received in terms of Settlement Agreement is not "declared service" under Section 66 E(e) of the Act. The settlement agreement indicates that the amount received is towards the damage or breach of contract towards full and final settlement of all disputes arising under the Development Agreement. This Settlement Agreement cannot be construed as agreement entered into by the appellant to refrain from initiating proceedings against the other companies. 10. In the Development Agreement it is clearly stated that the developer (Appellant) will not have any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Amit Mines Private Limited, also held to be liable for service tax under Section 66E(e). It is also the submission of the learned Counsel, that the Appellant had entered into an agreement with M/s Amit Mines Private Limited for purchase of manganese ore and issued purchase order also. M/s Amit Mines Private Limited failed to supply manganese ore to the Appellant. Therefore, the Appellant debited an amount of Rs. 1,95,50,000/- to M/s Amit Mines Private Limited which was accepted by them also. This debit was on account of compensation on the rate difference due no non-execution of purchase order by M/s Amit Mines Private Limited. It is also submitted that no specific allegation or averment have been made in the Show Cause Notice about the nature and category of service rendered and where the transaction is required to fall for the purpose of payment of service tax under the Finance Act. It is also submitted that in any case the compensation received is not towards any activity liable for service tax but for compensation for non-execution of contract for supply of manganese ore. 14. Learned Advocate further pleaded that the Show Cause Notice is barred by limitation as there has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al submissions and also peruse the appeal records. 17. The issue to be decided in this Appeal are twofold. The first one is as to whether the cancellation of the Development Agreement in terms of the Settlement Agreement would be liable to service tax under Section 66E (e) of the Finance Act and the other one is regarding non supply of iron ore from M/s Amit Mines, which resulted into payment of compensation would be chargeable to service tax within the said Section 66E(e) of the Finance Act. It is not in dispute that the Development Agreement and Settlement Agreement has been concluded before the introduction of Section 66E (e) of the Act which deals with declared service. The declared service has been defined as "agreeing to obligation or to refrain from the act or to tolerate and act and situation or to do an act". Learned Adjudicating Authority has concluded that the amount received by way of Settlement Agreement is agreeing to refrain from an act and thus chargeable to service tax. We find that these two activities have been rendered prior to introduction of declared service under the statue, and therefore, the same cannot be made applicable to the event that as concluded be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prior to the said date. The rules cannot go beyond Act since the charge under Finance Act was not available on the date of agreements in question. The Rule 5 of the Point of Taxation Rule has thus no application in this case to create a change in an indirect way. 20. Further, we also find that the all payments have been received towards the compensation for non performance of contract and the same will not be within the definition of Section 66 E (e) of the Act, which is for obligation to refrain from the Act or to tolerate and act of situation by the service provider. The Appellant has not provided any service as the Development Agreement itself has been cancelled. So, there is no question of any liability towards the service tax on the payment. The compensation that was received by the appellant is more of an actionable claim placing reliance in the case of Kesoram Industries wherein paragraph 13 to 23 are held as under; 13. If we ascertain the meaning of the word "debt", the expression "owed" does not cause any difficulty. The verb "owe" means "to be under an obligation to pay". It does not really add to the meaning of the word "debt". What does the word "debt" mean ? A s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition, and a debt arose, though the amount of it was not ascertained on April 9, 1914, and was not then payable." 14. This judgment in substance ruled that a present liability to pay an amount in future, though it was not ascertained but was ascertainable, was a debt liable to attachment. 15. The word "debt" was again considered in Inland Revenue Commissioners v. Bagnall, Ltd. (1) in connection with the excess profits tax. There, the Board of Inland Revenue accepted an offer of pound 10,000 made by the respondent company's accountants in settlement of their earlier liability. That offer was accepted only on September 22, 1937. The company contended that the sum was a debt due from the respondent to the Inland Revenue as from January 1, 1935. As the offer was not accepted, it was held that the sum was not a debt. It was argued that even if there was a liability on January 1, 1935, that liability did not become a debt within the meaning of the Finance (No. 2) Act, 1939. Adverting to that argument, Macnaghten, J., observed: "It is true that the word 'debt' may, in certain connections, be used so as to cover a mere liability, but I (1) [1944] 1 All. E.R. 204,20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was in the main, contracts,, and the judgment debtors had no right to be paid, and therefore there was no debt, until the architect had certified the amount to be paid for the work ordered by the gamishees. On that reasoning it was held that no garnishee order should have been made. Strong reliance was placed on this decision in support of the contention of the Revenue that there could not be a debt if the ascertainment of the debt depended upon a certificate to be issued by a third party. But a perusal of the judgment shows that in such contracts a certificate by the architect was a condition for imposing a liability and that, therefore, till such a condition was completed with there could not be any debt. This decision does not throw any light on the question that now arises before us. The principle of the matter is well put in the Annual Practice, 1950, at p. 808, thus : "But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and a case where both the debt and its payment rest in the future. In the former case ther e is an attachable debt, in the latter case there is not. If for instance, a sum of money is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds : solvendum in praesenti and solvendum in future............... A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt until the contingency has happened." This passage brings out with clarity the essential characteristics of a debt. It also indicates that a debt owing is a debt payable in future. It also distinguishes a debt from a liability for a sum payable upon a contingency. 21. A Full Bench of the Madras High Court in Doraisami Padayachi v. Vithilinga Padayachi ruled that "a promise to pay the amount which may be found due by an arbitrator on taking accounts between the parties is not a promise to pay a 'debt' within the meaning of s. 25 of the Indian Contract Act, 1872, the amount not being a liquidated sum." This was because the liability to pay the amount arose only after the arbitrator decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; -In commercial law this may carry its ordinary meaning of the subject-matter of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods". Hence, when used in the definition of 'goods' in the different sales tax statutes, the word 'property' means the subject matter of ownership. The same word in the context of a 'sale' means the transfer of the ownership in goods. 36. We have noted earlier that all the statutory definitions of the word 'goods' in the State Sales Tax Laws have uniformly excluded, inter alia, actionable claims from the definition for the purposes of the Act. Were actionable claims etc., not otherwise includible in the definition of 'goods' there was no need for excluding them. In other words, actionable claims are 'goods' but not for the purposes of the Sales Tax Acts and but for this statutory exclusion, an actionable claim would be 'goods' or the subject matter of ownership. Consequently an actionable claim is movable property and 'goods' in the wider sense of the term but a sale of an actionable claim would not be subject to the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Instruments Act 1881. Transferability is therefore not the point of distinction between actionable claims and other goods which can be sold. The distinction lies in the definition of actionable claim. Therefore if a claim to the beneficial interest in movable property not in the vendee's possession is transferred, it is not a sale of goods for the purposes of the sales tax laws. 40. An actionable claim would include a right to recover insurance money or a partner's right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India V. Sarada Mills (1972) 2 SCC 877, 880). A claim for arrears of rent has also been held to be an actionable claim (State of Bihar V. Maharajadhiraja Sir Kameshwar Singh 1952 SCR 889, 910). A right to the credit in a provident fund account has also been held to an actionable claim ( Official Trustee, Bengal v. L. Chippendale, AIR 1944 (Cal.) 335; Bhupati Mohan Das v. Phanindra Chandra Chakravarty & Anr. AIR 1935 (Cal.) 756). In our opinion a sale of a lottery ticket also amounts to the transfer of an actionable claim. Thus the compensation received by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Developer to resolve all claims of settlement b. Parties, i.e., the owners and the Developers released each other from all rights and claims that they might have against the other arising from the dispute. c. This agreement was the result of a negotiated settlement. d. The parties were mutually agreed that each of the owners would pay to the Developer the sum as full and final settlement amount to terminate the development agreement executed on 5th April, 2012. e. On receipt of the settlement money, Developers would not have any intention to proceed with this dispute. f. Developer had agreed and terminated the Agreements. g. Both the parties were making these agreements (Terms of Settlement) in sound state of mind. h. These agreements were intended to bind and benefit the parties(owners and Developers) i. Except as provided in these Agreements(terms of settlement), each of the parties released and discharged the other from any and all claims and causes of action, whether known or unknown, that had arisen as of the date of the Development Agreements including without limiting the generality of the foregoing, any or all claims that were or could have been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined the owner of the land and have not transferred the land in the name of the appellant unless and until if the appellant become the owner of land, how the appellant can transferred development right in favour of the DLF Ltd. 8. Admittedly, from the facts of the case, it emerges that the advance to purchase of land given by M/s DLF Ltd to the appellant which has been further given to the LOCs to purchase the land who ultimately purchased the land. The activity of the appellant would have been started only after acquisition of land and thereafter to procure NOC from the various Govt. Authorities and thereafter development activities on the land. The agreement which is based in this case dated 02.08.2006 does not say that the appellant have actually transferred the development rights. In fact, the said agreement is futuristic in nature which says that in further on acquisition of land, the appellant shall transfer the development rights to M/s DLF Ltd, it means that when the appellant never remain the owner of the land at the time of receiving the advance from M/s DLF Ltd. against purchase of land by the appellant, how can be the appellant transfer the land development right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (44) of Finance Act, 1994. Under the Development Agreement dated 05.12.2006, it is stated that there would be transfer of Development Rights in future and the Developer were permitted to carry out the developmental activities as per clause 2.2 of the Development Agreement, wherein the developer is permitted to enter the scheduled property for carrying out developmental activities. After the developmental activities have been carried out, sale deed is executed among the three parties namely Landowner, Developer and the Purchaser under which the title to the undivided portion of the land is transferred to the various vendees/purchasers from time to time as and when the Conveyance Deed/Sale Deed is executed in future. We further observe that it is not only the possession, which stood transferred with the right to use, enjoy and construct building/super structure, but, at the same time, undivided right, title and interest in the land also stand transferred under the Deed of Conveyance on which stamp duty has been paid and the Deed of Conveyance has been registered before the Sub-Registrar. 11. From the above, it is a factual aspect of the case that the amount remitted by M/s DLF Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under the MOU were- (a) divide and demarcate the entire land into the blocks of 20 to 30 acres, (b) purchase the land in contiguity block wise, (c) furnish title papers and other necessary documents for the land to be purchased (d) obtain the permission and approval from the concerned authority for transfer of land and the expenses incurred in this regard, would be borne by the appellant firm, (e) bring the owners of the land for the purposes of negotiating, registration, etc , to the relevant places and bear all the expenses involved on these. The MOU further provided that the other expenses like stamp duty/registration charges, mutation charges would be borne by Sahara India. On satisfaction by Sahara India about the fitness of deal(s) for the land, appellant firm shall organise the registration in the name of Sahara India, after making the payment to the owners of land, from the advance amount given to them for the purchase of land. The difference, if any, between the amount actually paid to the owners of land and the average rate per acre settled between the parties as indicated, would be payable to the appellant firm, as their margin or profit. Further Sahara India had reser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required for the transfer of title in the land shall be borne by second party, that is the appellant, and all the supporting documents furnished in respect thereof shall reflect the latest position of the ownership of land. 6.5 Thereafter scrutinising the papers relating to title, the first party- Sahara India shall enter into an agreement of sale with the owners of the land, after payment of advance/signing amount, in favour of the cultivators/owner of the land. 6.6 Thereafter having completed and covered the entire land(area) under the MOU through agreement(s) to sell, the appellant shall thereafter get the sale deed(s) executed by the cultivators/ownersof land in favour of Sahara India or its nominees, after payment of remaining amount towards purchase. Where there are several coowners in a 'Khata' (entry in the land record) the second party/appellant shall ensure that all the co owners execute the document (sale deed) at one time. In no case shall any document be executed by part co owners. That in the case the land is owned by minor, lunatic or an insane person, appellant will get appropriate guardianship certificate from the competent court/authority and agreement to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal vide Final Order No. 53322-53323/2018 dated 27.11.2018 observed as under:- 28. From the perusal of Memorandum of Understanding (MoU) between the appellant and M/s Sahara India Ltd. It is very obvious that MoU is not only for providing purely service for acquisition of the land but involves many other function such as verification of the title deeds of the persons from whom the lands are to be acquired and obtaining necessary rights for development of the land from the Competent Authority. The remuneration or payment for providing this activity has actually not being quantified in the MoU. The MoU provides that "the difference, if any, of the amount being actually paid to the owner of the land and the average rate shall be payable to the second party (appellant). It is very clear from the provision of the MoU that the amount payable to the appellant is not quantified and it is more of the nature of a margin and share in the profit of the deal in purchase of land. We feel that for levy of service tax, a specific amount has to be agreed between the service recipient and the service provider. As no fixed amount has been agreed in the MoU which have been signed between the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an identified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable." 29. We feel that since the specific remuneration has not been fixed in the deal for acquisition of the land we are of the view that both the parties have worked more as a partner in the deal rather than as an agent and the principle, therefore we are of view that taxable value itself has not acquired finality in this case. 30. It is also seen that some of the MoUs were not fully executed at the time of the issue of the show cause notice for example, in the case of MoU dated 15/11/2003 entered between Sahara India Ltd. and the appellant, the agreement is for provisioning of 100 acres of land at Village Rora, Distt. Lalitpur, U.P. and for this purpose an amount of Rs. 6,75,00,000/- have been remitted for la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the said provisions, the transfer of title in goods or immovable property, by way of sale, gift or in any other manner is not a service and no service tax is payable thereon. 15. As immovable property has not been defined in the Finance Act, 1994, therefore, as per Section 3 (26) of the General Clauses Act, 1897, the immovable property means as under:- (26) "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth; 16. On going through the said definition, the immovable property includes land benefit arising out of land. In the case of transfer of development rights of the land, therefore, it is to be seen in the legal aspect whether the benefit arising out of land can be equated to transfer of development rights of land or not? The said issue has been examined by the Hon'ble Allahabad High Court in the case of Bahadur and Others vs. Sikandar and Others wherein the Hon'ble Apex Court observed as under:- "Therefore, the principal question we have to consider is whether the right to collect dues upon a given piece of land, the property of the alleged lessor, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4AII473 on a consideration of Section 3 (26) of General Clauses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief." Further, the issue was examined by the Hon'ble High Court of Bombay again in the case of Shadoday Builders Private Ltd. and Ors. Vs. Jt. Charity Commissioner and Ors (supra) wherein the issue was in respect of sale of transferrable development right is immovable property or not? The Hon'ble High Court observed as under:- "5. The principal issue which arose before the learned Joint Charity Commissioner as to whether the TDR could be termed as a movable property, is concluded and is no more res integra in view of the judgment of the Division Bench of this court reported in 2007(3) Mh.L.J. 402 in the matter of Chheda Housing Development Corporation ..vs.. Bibijan Shaikh Farid and ors.Para no.15 of the said judgment is material and is reproduced hereunder. 15. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court in 2009(4) Mh.L.J.533 in the matter of Jitendra Bhimshi Shah ..vs.. Mulji Narpar Dedhia HUF and Pranay Investment and ors. The learned judge relying upon the judgment of the Division Bench in Chheda Housing Development Corporation (supra) has held that the TDR being an immovable property, all the incidents of immovable property would be attached to such an agreement to use TDR. In view of the judgments of this court (supra), in my view, the order of the Charity Commissioner that no permission under Section 36 is required as TDR is a movable property cannot be sustained and therefore, the application filed by the respondent no.2 - Trust under Section 36 of the said Act would have to be considered on the touch stone of the said Section 36 and also on the touch stone of the principles applicable to such a sale by a Trust. As the Hon'ble High Court observed in the case of Sadoday Builders Private Ltd. and Ors. (supra) that transferrable development right is immovable property, therefore, the transfer of development rights in the case in hand is termed as immovable property in terms of Section 3 (26) of General Clauses Act, 1897 and no service tax is payable as per the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution Bench of the Hon'ble Supreme Court of India in case of Sunrise Association vs. Govt. of NCT of Delhi reported in (2006) 5 SCC 603. 26. Thus, we held that the entire sum of money would be classified as Actionable Claim which otherwise is beyond the scope of service tax under Section 66B(44) (iii) of the Finance Act. If the transaction of Development Agreement, Settlement Agreement and compensation not fall under 'Service' under the Finance Act there is no application of Section 66 E(e) of the Act ibid. 27. As far as the compensation received from M/s Amit Mines is concerned, the Show Cause Notice mentions the leviablity of Service tax on the amount received towards the compensation for non supply of the agreed quantity of manganese ore under Section 64 E(e) of Finance Act which is even otherwise is purely the transaction sale of the iron ore to the Appellant by M/s Amit Mines. Thus, the compensation amount is towards default on the sale of the goods. The sale could not be effected and, therefore, Appellant received the liquidated damage by way of raising the debit note which was honoured by M/s AML. Thus, this amount of compensation/ liquidated damage cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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