Custom, Excise & Service Tax Tribunal
Dlf Limited vs Gurgaon I on 22 May, 2019
1
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH
~~~~~
REGIONAL BENCH - COURT NO. 1
Appeal No. ST/60493/2018
[Arising out of OIO-01-2018-ST dated 30.01.2018 passed by the Commissioner of
Central Excise and Service Tax-Gurgaon I]
Dlf Ltd. : Appellant (s)
6th Floor, Gateway Towers, Dlf Cyber City,
Dlf Phase-iii, Gurugram, Haryana
Vs
Commissioner of Service Tax, Gurugram : Respondent (s)
Plot No. 36 & 37, Sector 32, Near Medanta Hospital Gurgaon, Haryana 122001 APPEARANCE:
Shri P. K. Mittal, Advocate for the Appellant Ms. Seema Arora, Authorised Representative for the Respondent CORAM : HON‟BLE Mr. ASHOK JINDAL, MEMBER (JUDICIAL) HON‟BLE Mr. BIJAY KUMAR, MEMBER (TECHNICAL) FINAL ORDER No. 60568/2019 Date of Hearing:06.12.2018 Date of Decision:22.05.2019 Per : Mr. Ashok Jindal The appellant is in appeal against the impugned order wherein demand of service tax for transfer of land development rights has been confirmed.
2. The facts of the case are that the appellant is engaged in the business Real Estate Development and registered with the service tax department. An intelligence was gathered and developed by the DGCEI that the appellant were not paying service tax on the consideration received for transferring land development rights. As the said activity is a service in terms of Section 65B(44) of the Finance Act, 1994 and not covered under the negative list (Section 2 66D of the Act) nor under the Mega Exemption Notification No. 25/2012 dated 20.06.2012. Therefore, the appellant is required to pay service tax for the consideration received for transferring land development rights. On the basis of that information, search was conducted on 21.07.2014 wherein documents were resumed and statement of Shri Mr. Kailash Chandra, Authorized Signatory and AGM of the appellant company was recorded wherein it is stated that neither executed any sale deed nor did they pay any stamp duty of their activity for transferring of land development rights. On scrutiny of documents one business development agreement dated 02.08.2006 it was executed between the appellant and M/s DLF Commercial Projects Corporation (DCPC) wherein the appellant has acquired the land development rights from DCPC.
3. The main features of the said agreements are as under:-
5.1 The salient features of the said agreement dated 02.08.2006 are as under:
a) DCPC have definitive arrangements with various landowners and are in the final stages of negotiations for acquisition of development rights in certain land situated in the State of Haryana in District Gurgaon, which is capable of being developed for the development and construction of commercial, residential, retail, industrial park, information technology parks, special economic zones and the like alongwith the rights, interests, and benefits appurtenant and attached hereto (Development Rights);
b) DCPC have represented to DLF that the Development Rights to be acquired by the DCPC are capable of further assignment. Relying on the said representations DCPC, DLF agree to purchase of the Development Rights from DCPC;
c) DCPC have agreed to assign the Development Rights to M/s DLF or any of their (DLF) affiliate, nominee(s) for consideration;
d) DLF shall grant advance of such amounts (Advance) to DCPC from time to time as may be mutually agreed upon;
e) DLF and DCP agree that price payable by DLF for the Development Rights shall be first set-off/adjusted from the Advance given by DLF to DCPC and the balance price, if any shall be paid by DLF by way of a crossed cheque;
f) DCPC shall be responsible for obtaining requisite approvals, documents including power of attorney from land owners that DLF may require form time to time for effectively carrying out the development of the said land;3
g) DCPC will transfer, assign or nominate DLF in all the arrangements/agreements that DCPC will enter into with land owners for acquisition of Development Rights so as to enable DLF to enter upon the respective lands for the purposes of carrying out development of such land;
h) DCPC will not sell, assign or transfer or agree to sell, assign or transfer the Development Rights to any person other than DLF pm their (DLF) nominee, in any manner whatsoever;
i) DCPC will comply with terms, conditions, obligations arising out of or in respect of the Development Rights and shall ensure that there was no restriction, prohibition etc. on the sales/assignment of the Development Rights in favour of DLF; and
j) DCPC will ensure that actual landowner's title, in respect of which Development Rights have been agreed to be sold by DCPC to DLF is clear and marketable and the land is capable of development and construction of commercial, residential, retail, industrial park, IT parks, SEZ and the like.
Further, other documents the appellant also relied upon and on the basis of the agreements, it was alleged that the appellants were engaged in the activity of transferring of land development rights.
Consequently, the appellant are liable to pay service tax on their activity. Accordingly, the show cause notice was issued to the appellant which was adjudicated and demand of service tax was confirmed against the appellant. Against the said order, the appellant is before us. Therefore, the present appeal.
4. The Ld. Counsel for the appellant submits as under:-
i) That the Appellant is engaged, inter-alia, in the business of purchasing land and developing the real estate in the State of Haryana.
ii) That the Appellant had given an advance of Rs. 1424.83 Crores to DLF Commercial Projects Corporation (hereinafter called DCPC) and DCPC, in turn, gave the very same amount as refundable performance deposit to various Land owning companies. In fact, DCPC was to acquire either the land or Development Rights (hereinafter called DR) from various land owning companies to whom the DCPC had, in turn, passed the above said amount of Rs.1424.83 Crores as refundable 4 performance deposit. The DCPC was to obtain / arrange license from the Govt. of Haryana towards a step for development of land which were acquired or to be acquired by various land owning companies.
iii) That a Show Cause Notice dated 15.03.2016 covering the period 1.7.2012 to 31.3.2015 was issued alleging that the Appellant had either exploited (DR) or subsequently transferred in favour of the builders. It is alleged that Appellant had made provision for transfer of land development rights during the period 31.3.2013 to 02.09.2014.
It is alleged that the appellant failed to pay Service Tax to the tune of Rs.37,38,92,972/-. In para 15 of the SCN extended period of limitation is invoked by alleging that the complete details had not been provided in ST-3 Returns.
iv) That Appellant filed Reply to SCN that it is a case of DCPC that they had not acquired any DRs from the land owning companies.
Since DCPC had not acquired any DRs from the land owning companies as per CA Certificate dated 3.5.2016. Obviously, DCPC could not have transferred the DRs in favour of DLF Limited.
Similarly, DLF Limited also could not have transferred the alleged and purported DRs in favour of any other person. It is his submission that the development rights had not been transferred by LOC to DCPC and obviously nothing has come to DLF - the present appellant. At the time of transfer of "DR", a separate agreement is executed conveying or transferring DR in favour of Purchaser. Hence, there is no actual transfer of DRs by DCPC either in favour of DLF Ltd or any of its associates. There is CA Certificate dt.30.4.2018, which further says that neither land nor "Development Rights" had been acquired by DCPC nor DCPC has transferred any DRs to DLF Ltd (the present 5 appellant) nor to its associates nor received any consideration from DLF Limited for transfer of "Development Rights". If DLF Ltd has not acquired anything from DCPC, then naturally, therefore, nothing could be passed on by it to any other person. It is also specifically submitted that the appellant DLF Ltd has not acquired DR from any other sources.
v) That the Appellant had entered into an Agreement dated 02.08.2006 with DCPC under which DCPC was to purchase the land / development rights and develop the same after obtaining / arranging license from the Govt. of Haryana. The perusal of the Agreement clearly says that there was no actual transfer of DRs in favour of DLF Limited and the Agreement only envisage/postulate that the "actual transfer" to take place in future.
vi) Further, Service Tax is payable when the service has been supplied by the service provider to the service receiver. The "Service"
has been defined U/s 65 (44) in the following words:-
The relevant portion of Section 65B (44) is 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 title in goods or immovable property, by way of sale, gift or in any other manner; or
vii) Section 65B (44) (a) (i) says that transfer of title in goods or immovable property, by way of sale, gift or in any other manner. In other words, the transaction of transfer of title either in goods or in "immovable property" are excluded from the purview of "Service". A 6 question then arises, what is the meaning of the word "immovable property". Immovable property has not been defined in Finance Act, 1994 but has been been defined in Section 3(26) of General Clauses Act, 1987 in following words:-
viii) Section 3 (26) of the General Clauses Act, 1987 reads 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;
ix) The aforesaid definition clearly says that the immovable property includes not only "land" but also the benefits "arising out of land". Next, the question then arises whether transfer of development rights is a benefit arising out of land so as to fall under "immoveable property". The word „benefit arising out of land, has been interpreted in the following judgments.
a) Bahadur & other Vs.Sikandar MANU/UP/0016/1905
b) Ananda Behera Vs. State of Orissa AIR 1956 SC 17
c) Smt Dropadi Devi Vs. Ram Das AIR 1974 All 473
d) Sadoday Builders (P) Ltd Vs. Jt Charity MANU/MH/0791 2011
e) Chheda Housing Development Corpn Vs. Bibijan Shaikh 2007 (2) Bom CR 587
x) The authorization given to a "Developer" to develop the land and sell super-structure in perpetuity shall undisputedly fall within "benefit arising out of the land" and shall, therefore, be held to be "immovable property". Once there is a transaction in relation to immovable property, that shall, undisputedly, fall outside the 7 purview of "Service" within the meaning of Section 65B(44) and no "Service Tax" shall be payable under Section 66.
xi) Further, the Ld Commissioner noted that "In the present case, when the land-owning company transfers land development rights to the developers, the developers gets the right to not only to develop project on such land but also the right to sell such developed property along with undivided interest in the land underneath and to receive payments for such transfers from the buyers. Once the land-owning companies transfers the land development rights to developer for a consideration, it is obligated to transfer the undivided interest in the land in favour of developer‟s buyers for which no separate consideration is paid for it. In other words, such transfer of undivided interest in the land by the land-owning company is in return of the initial consideration paid by the developer to it for transfer of land development rights only. Thus, it is the ownership of the land, which stands transferred effectively by the land-owning company in return of consideration payable by the developers. Moment it is held to be either land or "benefits arise out of land" it goes outside the purview of "Service" as defined in Section 65B(44) of Finance Act, 1994 and obviously not exigible to Service Tax.
xii) Further, in the last five years, repeatedly, various Trade Forums including Confederation of Real Estate Developers Association of India, Northern Region, sent a representation dt.14.8.2014 to the Joint Secretary, Ministry of Finance, Government of India, New Delhi and one of the member of Big Fours CA Firms sent various communications to the Government seeking clarification/confirmation about the levy of "Service Tax" on "Development Right" and the 8 Government never, in the past, viewed that the Service Tax is payable.
xiii) Hence, extended period cannot be invoked. The demand for the period 31.3.2013 to 02.09.2014 is time barred since SCN has been issued 15.3.2016.
5. On the other hand, the Ld. AR for the Revenue submits as under:-
Whether transfer of Land Development Rights against a consideration is a service under 65B (44) of Finance Act 1994.
It is submitted that the transactions involving immovable property can fall only under 3 categories which are as follows:-
(a) Transfer of title of immovable property viz sale.
(b) Activities carried out for the development of the immovable property after grant of development rights.
(c) Enjoyment of immovable property by way of leasing, renting, easement etc. „(b) and (c)‟ above are in the nature of Service only and cannot be termed as sale by any stretch of imagination.
„Transfer of Title‟ either in goods or in immovable property is sine-qua-non for any activity to be termed as sale. The activity where the benefits arise out of immovable property and are in the nature of leasing, renting, easement, development rights or benefits out of any agricultural / forest produce did not involve any "Transfer of Title" and are only benefits of temporary nature during certain currency of time say few years. Hence these activities are „Services‟ 9
(ii). Scope of nature of benefits transferred by the transferee of development rights.
The Development Rights clearly involve following benefits:-
(a) An exclusive license to enter upon the
scheduled property and to develop the same.
(b) An exclusive permit and authority to enter
upon the scheduled property for construction and
development of the buildings.
(c) The permission is to enter upon the scheduled the
property only for carrying out the development activities.
(d) The developer is entitled to undertake
development either by itself or through
contractors / sub-contractors.
(ii) The aforementioned benefits are only for limited purpose
of developing the immovable property without involving „any transfer of title‟ in the immovable property.
(iii) The term "benefit to arise out of land" as
interpreted by Hon‟ble Apex Court.
The term "Benefit to arise out of Land" has been
interpreted by Hon‟ble Apex Court. The term "benefit to arise out of land" was a subject matter of consideration before the Hon‟ble Supreme Court of India in the case of Shrimati Shantabai vs. State of Bombay & others AIR 1958 SC-532. Expounding on the matter the Apex Court clarified as follows "it is not a "transfer of a right to enjoy the immovable property" itself (s. 105 of the Transfer of 10 Property Act), but a grant of a right to enter upon the land and take away a part of the produce of the soil from it. In a lease, one enjoys the property but has no right to take it away. In a profit a prendre one has a license to enter on the land, not for the purpose of enjoying it, but for removing something from it, namely, a part of the produce of the soil."
(iv) Mandatory / essential clause in the agreement for transfer of development rights.
Normally all the Agreements for transfer of development rights consists of following mandatory clause:-
"the activity should not be construed as delivery of possession in part performance of any agreement of sale under Section 53A of the Transfer of Property Act."
In the instant case also the impugned agreement consists of the aforesaid mandatory clause.
(v) Definition of service under Section 65B (44) of Finance Act 1994.
The taxable service under finance Act 1994 is defined as follows:
"(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 -
- A transfer of the title in goods or
immovable property, by way of sale, gift or
in any other manner, or
11
- Such transfer, delivery or supply of any goods
which is deemed to be a sale within the meaning
of clause (29A) of Article 366 of the
Constitution, or
- A transaction in money or actionable claim,"
It may be seen from above, that only the activity which "merely" constitutes a transfer of the title in immovable property is excluded from taxation.
It is pertinent to highlight that there are many benefits which can arise from immovable property / land but only the benefits where the transfer of title is involved i.e. sale is excluded from taxability. All the remaining benefits being of temporary and limited nature are taxable under aforesaid definition.
(vi) "Effect of Section 3(26) of general clauses at 1897 in the present dispute. Section 3(26) of General Clauses of 1897 defines the immovable property as follows:
3(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"
The immovable property as per aforementioned definition includes following:-
- Land
- Benefits to arise out of land
- Things attached to earth
- Things permanently fastened to anything attached to the
earth.
12
However, the question is whether the immovable properties excluded from 65(B) 44 from taxability of Finance Act 1994 are only for a particular type of transaction / or activity. As evident from the harmonious interpretation of the two sections i.e. 65(B) of Finance Act 1944 and Section 3(26) of General Clauses 1897, the transaction / activity of the immovable property where the "Transfer of Title", merely or „only‟, is involved can get the benefit of exclusion and not the other activities which do not involve any transfer of title viz. :
- Leasing
- Renting
- Easement
- Development rights
- Right to enjoy the fruits of agricultural/ forest produce.
(vii) Comments against the submissions made by M/s. DLF Ltd.
(a) To understand the genesis of „Development Rights‟, organizational structure of DLF group is to be understood. In DLF group M/s DLF Ltd. (DLF) is the holding company, who are engaged mainly in construction and development of residential and commercial projects. M/s DLF Commercial Projects Corporation (DCPC) is a registered partnership firm wherein DLF is major partner and have majority profit sharing ratio.
(b) DLF entered into an agreement with DCPC wherein DCPC have agreed to assign or transfer all the development rights acquired from Land Owning Companies (LoCs) who are subsidiary or associated companies of DLF group. DCPC entered development agreements with various LoCs wherein DCPC acquired sole irrevocable development rights which had been acquired or would be acquired by these LoCs.
The development rights acquired by DCPC from LoCs were transferred to DLF. These development rights were acquired/transferred without transfer of title of land and without executing the sale deed of land. Since DCPC acquired land development rights without the title of land, therefore, DCPC further transferred development rights to DLF without 13 the title of the land. In the present case, DLF further sold development rights, obviously without the title of land and demand has been raised by the department on consideration received by DLF on transferring/ selling/relinquishing of the land development rights without the transfer of land title.
(c) M/s DLF Ltd. (DLF) provided business advance or an ad-hoc fund to DCPC for procuring development rights from other companies. The advance was other than loan or working capitals, provided by DLF to DCPC. The accounts of DCPC show that many times a part of such business advance or ad-hoc fund had been returned to DLF, if such fund was not used by DCPC for procuring development rights from other companies. In the show cause notice issued to DCPC, service tax have been demanded only on that amount which was used by DCPC (out of total business advance or ad-hoc fund) for procuring development rights from other companies.
(d) The Accounts of DLF and DCPC shows that receipt of development rights in their annual audited accounts under the head of "Inventory". Once provisions of development rights have been made in annual financial accounts, it does not matter under which cover i.e. performance deposit or business advance or refundable deposit, such amount have been given. The purpose to give such amount is important than the name given to such amount of transfer. Further, the recording of transactions under the head of "Inventory" shows transactions have been capitalized.
(e) To understand the issue of transfer of Development Rights from DCPC to DLF, Business Development Agreement dated 02.08.2006 entered between DLF Ltd. and DCPC should be read harmoniously with agreements entered between DCPC and land owning companies. All Development Agreements entered between LoCs and DCPC shows that there was transfer of Development Rights.
(f) The Audited Balance Sheet of DCPC for the year 2012-13 under Note-10 mentions that "The Firm has entered into development agreements with various land owning companies wherein the Firm has 14 acquired sole irrevocable development rights in land which has been acquired/ will be acquired by these LoCs. Further, the firm has been entered into an agreement with DLF Limited (one of its partner) wherein the Firm has agreed to assign or transfer all the development rights so acquired from the LoCs to DLF Limited."
(g) The contention of Appellant that there was no actual transfer of development rights in favour of DLF and the agreement only envisage/postulate that the actual transfer to take place in future. Rule 3 of the Point of Taxation Rules, 2011 provides that for the purposes of these rules, unless otherwise provided, „point of taxation‟ shall be -
the time when the invoice for the service provided or agreed to be provided is issued:
Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service;
in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment In view of Rule 3(b) provider of development rights is liable to pay service tax even before the incident of transfer of development rights, if any, advance payment have been received.
(h) If there was transfer of title of the specified land along with its transfer of land development rights then appropriate stamp duty would have been paid to the State. Neither DCPC nor DLF paid such stamp duty on impugned transfer of development rights. The agreements discussed in paras 5 to 6.5 of SCN show that acquiring or transferring the development rights to develop and carry out construction, does not involve transfer of title in land. The Business Development Agreement dated 02.08.2006, discussed in paras 5 and 5.1 of the SCN, under which DLF had acquired the land development 15 rights from DCPC, did not transfer the title of land in favour of DLF.
Para 2.2 of the Development Agreement dated 05.12.2006 under which DLF had acquired the land development rights, specifically mentions as under:
"The parties agree that nothing contained herein shall be construed as delivery of possession in part performance of any agreement of sale, under Section 53A of the Transfer of Property Act, and/ or such other applicable law for the time being in force. It is clarified that M/s Red Topaz Real Estate Private Ltd., (RREPL) shall be the owner of the Scheduled Property and the Developer shall have the permission to enter upon the Scheduled Property only for carrying out the development activities."
(i) Scrutiny of financial records of DLF revealed that after 01.07.2012, DLF had transferred their land development rights, in favour of other persons/builders/developers and for such transfers, they had received monetary consideration. This makes it clear that transfer of development rights is a commercial activity covered under the definition of „service‟ under Section 65B (44) of the Act, w.e.f. 01.07.2012.
(viii) Extended period of Limitation:
The investigation was initiated by the DGCEI on 21.07.2014 by conducting the search at the office premises of DLF. DLF never approached the department disclosing the transactions of development rights on their own. They are registered with Service Tax and had been filing ST-3 with the Service Tax department. But DLF did not disclose the amount received on transfer of development rights in their ST-3. Even if, they were of the view that those transactions are exempted services even then they have to disclose the amount received from such transactions in relevant column of the ST-3 and proportionate Cenvat Credit should be reversed under Rule 6(3) of the Cenvat Credit Rules but they failed to do so. It is seen that DLF were well aware about the Service Tax liability on such transaction and even had paid service tax of Rs.99,05.304/- along 16 with interest of Rs.15,13,432/- in one such transaction, but DLF had intent to evade service tax, therefore, information regarding providing such services and receipt of consideration was suppressed from the department, therefore, extended period of limitation has rightly been invoked in show cause notice.
Even under new GST regime the activities of transfer of development rights have been considered as taxable and provisions have been made by the constitutional body viz. GST Council.
Hence, it can be concluded from above, that the activities performed by the Appellants w.r.t. grant of Development Rights are firstly a „service‟ and secondly „taxable‟ as per Finance Act 1994.
The Ld. AR also reiterated the findings of the impugned order.
6. Heard the parties and considered the submissions.
7. On hearing the parties, we find that in this case on the basis of the facts of the case which are based on various agreements relied in the show cause notice alleges that the appellant has acquired land development right from M/s DLF Commercial Projects Corporations and further transferred those rights to various parties, therefore, the appellant is liable to pay service tax.
8. We have gone through the facts of the case in the case of M/s DLF Commercial Projects Corporations vs. Commissioner of Service Tax, Gurugram (DCPC) vide Final Order No. 60554/2019 dated 22/05/2019 wherein it has been held that they have not transferred any development right to the appellant in question, therefore, no service tax is payable by observing as under:-
17"6. On hearing the parties, the sole issue emerges before us is whether the appellant has transferred any land development right in favour of M/s DLF Ltd. or not?
To decide the issue, we have to go to the facts of the case, we find that as per the business module of M/s DLF Ltd. they are engaged in the business of Real Estate Development of integrated township and construction. As per their business module, the appointed the appellant to purchase the land on their behalf and thereafter to obtain certain formalities from various Govt. Department and to handover the land to the appellant as per agreement dated 02.08.2006 for further development and thereafter to transfer the same to the appellant for construction and sale the flats/properties developed by M/s DLF Ltd to various prospective buyers. At the time of transferring the constructed property to prospective buyers, there is a tri-pirate agreement between the land owning company, M/s DLF Ltd. and the prospective buyers and documents of transfer of title were executed at that time. It shows that in the entire transaction, the LOCs remain the owner of the land and as per the agreement, the development activities is taken place and thereafter developed property was sold by M/s DLF Ltd as per tri-pirate agreement to the prospective buyers upon execution of sale deed of land by the LOCs.
7. In this background, as per the facts, which are not in dispute that M/s DLF Ltd have given a sum of Rs. 1423.83 Crores to the appellant for purchase of land and the said amount has been paid by the appellant to various land owning company (LOCs). It is also a fact on record that the land owning company remained 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 to M/s DLF Ltd.
9. We also take a note of the fact that the Ld. AR disputed that the amount received by the appellant is paid by DLF Ltd. to the appellant for acquisition of development rights. It is a fact on 18 record that the appellant is not the owner of the land, therefore, how can he transfer development rights to M/s DLF Ltd. and as per the records, the amount given by M/s DLF Ltd. has been transferred by the appellant to various LOCs for purchase of the land. Therefore, it is mere transaction of the sale and purchase of land or purchase of land by the appellant for DLF Ltd. for further development. As appellant did not get any ownership of the land, in that circumstances, transfer of development right does not arises. There is no such agreement placed on record that any LOCs (who are the owner of the land) has transferred any development rights to the appellant. If so, how much the consideration paid by the appellant and in that circumstances, the land owning company (LOCs) are liable to pay service tax.
Admittedly, LOCs were never issued show cause notice and nor made the party to the show cause notice in question. In such a situation, the question of transfer of development right by the appellant does not arise. These findings are on the factual aspect of the case.
10. We further find that in this case, when the land-owning company transfers land development rights to the developers, the developers gets the right to not only to develop project on such land but also the right to sell such developed property along with undivided interest in the land underneath and to receive payments for such transfers from the buyers. Once the land- owning companies transfers the land development rights to developer for a consideration, it is obligated to transfer the undivided interest in the land in favour of developer‟s buyers for which no separate consideration is paid for it. In other words, such transfer of undivided interest in the land by the land-owning company is in return of the initial consideration paid by the developer to it for transfer of land development rights only. Thus, it is the ownership of the land, which stands transferred effectively by the land-owning company in return of consideration payable by the developers. The moment it is either land or "benefits arise out of land", it goes outside the purview of "Service" as defined in Section 65B (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 19 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 Ltd to the appellant is towards the acquisition of land by the LOCs which the said payment received from M/s Dlf. Ltd was transferred to LOCs for acquisition of land. Further, no physical acquisition of land was taken over by the appellant. Consequently, the appellant have no right to transfer land development to M/s DLF Ltd.
12. From the above, it is clear that the appellant has not transferred any land development right to M/s DLF Ltd. or its subsidiary nominees etc.
13. We also take a note of the fact that similar facts enumerate from the case of Premium Real Estate Developers vs. CST-Service Tax, Delhi in Appeal No. ST/50103-50104/2014 wherein the facts of the case are as under:-
2. The appellant 'Premium Real Estate Developers', New Delhi is a partnership firm and is in the business of real estate trade. The main objective of the partnership firm is to carry on the business of purchase, sale, develop, take and exchange or otherwise, whether for investment or sale in any real estate includinglands to carry on the business of builders, contractors, dealers in land, building and any other activity in connection therewith and incidental thereto.
3. Sahara India Commercial Corporation Ltd.('Sahara India' for short) was interested in acquiring large parcels of land for setting up townships. Accordingly Sahara India entered into three separate but similar memorandum of understanding with the appellant firm for acquiring three large parcels of land at three different locations as follows;
Name of Place/Sites Date of the Area of the Average the MOU land(in acre rate per Associate intended to acre (in acquire Rs.) M/s Kanpur 09.08.2003 100 8,50,000/-
Premium
Real Estate
Developers
Lalitpur 15.11.2003 100 5,75,000/-
Raeberalli 16.05.2005 125 7,50,000/-
4. Under the MOU, Sahara India, had agreed to pay an average rate per acre of land to be purchased by Sahara India, which land would be identified, divided and demarcated by the appellant firm together with necessary documents and other formalities. The MOU for each site specifically provided the obligations of both the parties. It specifies that Sahara India had agreed to procure land at the aformentioned locations, at the fixed average rate per acre, which included all the cost of land, development expenses (items). The obligations of the appellant 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 20 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 reserved its right to withhold 50 per cent of the amount (out of margin) to ensure that the obligations on the developer/appellant are fully discharged in terms of the MOU, and in case there was any serious default on the part of the appellant, the same could be made good by way of forfeiture of such amount, so withheld.
5. Pursuant to the MOU, the appellant firm received advance amount from Sahara India for each site. Substantial part of such amount was used by the appellant to pay to the seller or the prospective seller of the land, for agreeing tosell land to Sahara India. The details of such amount based on the payment made by Sahara India, are as follows;
Place/Site Amount paid Area of land Amount as per Amount
under land transferred in sale deeds in under
purchase head the name of Rs. development
to appellant Sahara (in head
acres)
Kanpur 8,98,00,000/- 38.85 2,66,99,800/- NIL
Lalitpur 5,50,00,000/- 77.96 4,22,01,779/- NIL
Raebarelli 6,75,00,000/- 89.91 1,69,20,822/- NIL
6. For the purpose of reference we refer to Memorandum of Understanding (MOU) dated 15th November 1983, related to Lalitpur town, entered between Sahara India and the appellant, wherein Sahara India was interested to purchase 100 acres of land for developing residential township in and around the city of Lalitpur. The appellant assured to make available 100 acres of land situated in the village Rora, Distt. Lalitpur U.P.,with direct opening or acess of at least 1000 feet on the National highway. The salient features of the agreement are;
6.1 The process of land purchase shall be in a compact contiguous, adjacent and plot wise or block wise manner starting from the roadside. 6.2 The appellant shall furnish the title papers and all other necessary documents with reference to the land proposed, within 15 days from the date of signing of the MOU.
6.3 Thereafter the appellant shall obtain and furnish, each and every other necessary permission/ approval from the Government body/competent authority, or other regulatory authority, required for transfer of the land proposed, and further arrange for the purchase of land proposed under the MOU, at the average agreed rate per acre, within two months or within such further time at the discretion of Sahara India.
6.4 All expenses for obtaining proof of title and approval (except for ULC clearance) 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.
216.5 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 sell shall be executed only with such guardian. In case any dispute is pending before any civil court or revenue Court, regarding title, share or for partition of the property, the appellant will try its best to get the settlement arrived among the co sharers/co owners and agreement to sell shall be executed accordingly. 6.7 That it is the responsibility of the appellant for bringing the cultivators/land owners to the Registrar office along with the necessary documents and photograph and to witness execution/registration of the documents.
6.8 That all payments to the Kashtkar/land owners, shall be made through pay orders/demand drafts/account payee cheques. That the difference, if any, of the amount being actually paid to the cultivators /owner of land and the average rate, shall be payable to the appellant. Such payment of difference to the appellant shall be regulated in such amanner so as to ensure the performance of the terms and conditions of the MOU. The first party Sahara India may under discretion withhold maximum up to 10 per cent of the amount payable to the second party/appellant to ensure peaceful/proper demarcation and possession, mutation and construction of the boundary wall of the entire land. In case, the appellant fails to fulfil its obligations as stipulated in the terms of the contract/MOU, the same can be terminated by Sahara India and the withheld amount is liable to be forfeited. All expenses for registration of documents relating to the transfer or agreement of sale, etc., shall be borne by Sahara India. Further all expenses of mutation of land in the office of the concerned Revenue authority shall be borne by Sahara India and the appellant shall be required to coordinate and to do the work of Pairvi in respect thereof in the concerned offices and shall provide to Sahara India all necessary help so as to get the work of mutation completed.
7. It appeared to Revenue that the appellant was liable to pay the service tax under the classification 'Real Estate Agent Service' (introduced with effect from 1 st October,2004) under section 65(88) of the Finance Act which defines a 'real estate agent' as a person who is engaged in rendering any service in relation to sale, purchase, leasing and renting, of real estate and includes a real estate consultant.
In the above stated facts which are similar to facts of this case, this Tribunal vide Final Order No. 53322-53323/2018 dated 27.11.2018 observed as under:-
2228. 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 veryclear 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 parties, the amount of the remuneration for service, if any is not clear in this case. In this regard, we also take shelter of this Tribunal's decision in the case of Mormugao Port Trust vs. CC, CE&ST, Goa - 2017 (48) S.T.R. 69 (Tri. - Mumbai). The relevant extract is reproduced here below :-
"18. In our view, in order to render a transaction liable for service tax, the nexus between the consideration agreed and the service activity to be undertaken should be direct and clear. Unless it can be established that a specific amount has been agreed upon as a quid pro quo for undertaking any particular activity by a partner, it cannot be assumed that there was a consideration agreed upon for any specific activity so as to constitute a service. In Cricket Club of India v. Commissioner of Service Tax, reported in 2015 (40) S.T.R. 973 it was held that mere money flow from one person to another cannot be considered as a consideration for a service. The relevant observations of the Tribunal in this regard are extracted below : "11. ...Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. ... The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient.
12. ... Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transaction will not arise. Contributions for the discharge of liabilitiesor for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit so derived.
13. ... Neither can monetary contribution of the individuals that is not attributable to an identifiable activity be deemed to be a consideration that is liable to be taxed merely because a "club or association" is the recipient of that contribution.23
14. ... To the extent that any of these collections are directly attributable to 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 land cost andan amount of Rs. 1,66,50,000/- have been remitted for the purpose of stamp duty and registration. Thus, a total amount of Rs. 8,41,50,000/- have been remitted to the appellant out of which a total amount of Rs. 3,66,32,000/- have been spent by the appellant for procurement and registration of land. Thus, an amount of Rs. 4,75,18,000/- still remain unspent with the appellant. It is to be seen that out of the above amount though the MoU was for 100 acres of land till the issue of the show cause notice only 77.96 acres of land could only be acquired and thus the remaining amount still was to be used for procurement/acquisition of balance land. This indicates that firstly; the MoU has not been executed fully and therefore the actual remuneration to the appellant have not got finalized and therefore we feel that issuing the show cause notice in such a stage was premature and unwarranted.
31. As discussed above, since the exact amount of remuneration for providing any service, if any, has not been quantified at the same time since most of the MoU remained to be fully executed and therefore the exact amount of remuneration, which was the difference in amount paid to the seller of land and average price decided in MoU, could not be finalized and therefore we feel that taxable value has not reached finality and therefore demanding service tax on the entire amount paid to the appellant for acquisition of land is not sustainable in law in view of the discussion in the preceding paras.
32. Further we find that the issue relates to interpretation, and there is no malafide on the part of the appellant. The transaction is duly recorded in the books of accounts maintained by the appellant. Further there is no suppression of information from the revenue. Accordingly, we hold that the extended period of limitation is not applicable.
2414. Now, we deal with the legal aspect of the case. Section 65B(44) of the Finance Act, 1994 defines the services and excluded certain activities which are as under:-
any activity which constitutes merely -
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution, or
(iii) a transaction in money or actionable claim;"
As per 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 a benefit to arise out of land within the purview of Section 3 of the Registration Act. In our opinion, the right to collect dues upon a given spot is such a benefit, and therefore, we are constrained to find that the document in question purported to convey that which falls within the definition of immovable property. The so-called lease being an unregistered instrument, it could not effect the transfer and could not be admissible in evidence. We are therefore of opinion that the Court of first instance was right. We set aside the order of the lower appellate Court and restore the decree of the Court of first instance with costs in all courts."
Further, in the case of Chheda Housing Development Corporation vs. Bibijan Shaikh Farid, the Hon‟ble High of Bombay observed as under:-
15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants in so far as the additional FSI is concerned, are not entitled for an injunction to that 25 extent. An immovable property under the General Clauses Act, 1897 under Section 3(26) has been defined 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." If, therefore, any benefit arises out of the land, then it is immovable peruperty. Considering Section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish the compensation in money would be an adequate relief.
Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgements for that purpose. In Sikandar and Ors. Vs. Bahadur and Ors. 27 ILR 462 a Division Bench of the Allahabad High court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of Section 3 of the India Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by resitered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and Anr. V. Hanuman Prasad and Ors. AIR 1940 Oud 409 also held, that bazaar dues, constitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable Allahabad High court in Smt. Dropadi Devi v. Ram Das and Ors. MANU/UP/0120/1974 :
AIR1974AII473 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. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants insofar as the additional F.S.I. is concerned, are not entitled for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under section 3(26) has been defined as under : -26
(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."
If, therefore, any benefit arises out of the land, then it is immovable property. Considering section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish that compensation in money would be an adequate relief.
Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgments for that purpose. In Sikandar and ors. .vs. Bahadur and ors., XXVII Indian Law Reporter, 462, a Division Bench of the Allahabad High Court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of section 3 of the Indian Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by registered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and anr. .vs. Hanuman Prasad and ors., AIR 1940 Oudh 409 also held, that bazaar dues, constitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable property. A similar view has been taken by another Division Bench of the Allahabad High Court in Smt.Dropadi Devi vs. Ram Das and ors., AIR 1974 Allahabad 473 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."
6. The Division Bench has held that since TDR is a benefit arising from the land, the same would be immoveable property and therefore, an agreement for use of TDR can be specifically enforced. The said dictum of the Division Bench is later on followed by a learned single Judge of 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."
27As 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 exclusion in terms of Section 65B(44) of the Finance Act, 1994.
17. We also take a note of the fact that from time to time the query was made to the Revenue by the trade organization as well as M/s DLF Ltd whether they are liable to pay service tax on transfer of development right of land or not and the same was not answered till yet which means revenue itself is not clear whether the said activity is taxable service or not. In that circumstances, we hold that the extended period of limitation is not invokable and it cannot be said that the appellant did not pay service tax with malafide intentions.
18. We also take a note of the fact that the land owning company have not transferred any development right in favour of the appellant form the facts before us. Therefore, it cannot be said that the appellant has transferred any development right of land to M/s DLF Ltd.
19. In view of above discussions, we hold that the activity in question which is only acquisition of land, therefore, no service tax is payable by the appellant in terms of Section 65B(44) of the Finance Act. Therefore, whole of the demand against the appellant is not sustainable. Consequently, the impugned order is set-aside.
20. In result, the appeal is allowed with consequential relief, if any."
As the appellant has not acquired any land development right from DCPC, then how the appellant can transfer development right of third party.
9. In view of the above, the show cause notice is based on incorrect facts that the appellant has acquired land development right from DLF Commercial Project Corporations which were later transferred to various parties by the appellant, therefore, the appellant is liable to pay service tax. In fact, the appellant has not acquired any development right on the basis of the facts placed before us and as per the agreements relied upon by the revenue in the show cause notice, therefore, the question of transfer of development right 28 by the appellant does not arises. Consequently, the demand against the appellant is not sustainable.
10. In view of the above, we set-aside the impugned order and allow the appeal with consequential relief, if any.
(Order pronounced in the Court on 22.05.2019) (Ashok Jindal) Member (Judicial) (Bijay Kumar) Member (Technical) G.Y.