Custom, Excise & Service Tax Tribunal
Blue Coast Infrastructure Development ... vs Additional Director General ... on 25 September, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
SERVICE TAX APPEAL NO. 52629 OF 2016
(Arising out of Order-in-Original No. 12/2016-ST dated 20.06.2016 passed by Additional
Director General (Adjudication), New Delhi)
Blue Coast Infrastructure ....Appellant
Development Private Limited
Flat No. 415-417, Antriksh Bhawan,
22, Kasturba Gandhi Marg,
New Delhi-110001
VERSUS
Additional Director General ....Respondent
(Adjudication),
DGCEI, West Block-VIII, Wing No. 6,
2nd Floor, R.K. Puram,
New Delhi-110066
WITH
SERVICE TAX APPEAL NO. 52628 OF 2016
(Arising out of Order-in-Original No. 12/2016-ST dated 20.06.2016 passed by Additional
Director General (Adjudication), New Delhi)
Mr. Sushil Suri, CEO ....Appellant
Blue Coast Group of Companies
Flat No. 415-417, Antriksh Bhawan,
22, Kasturba Gandhi Marg,
New Delhi-110001
VERSUS
Additional Director General ....Respondent
(Adjudication),
DGCEI, West Block-VIII, Wing No. 6,
2nd Floor, R.K. Puram,
New Delhi-110066
WITH
SERVICE TAX APPEAL NO. 52630 OF 2016
(Arising out of Order-in-Original No. 12/2016-ST dated 20.06.2016 passed by Additional
Director General (Adjudication), New Delhi)
Active Generics Private Limited ....Appellant
(Formerly known as M/s. Silver Resort
Hotel India Private Limited)
Flat No. 415-417, Antriksh Bhawan,
22, Kasturba Gandhi Marg, New Delhi-110001
2
ST/52629/2016 &
3 others
VERSUS
Additional Director General ....Respondent
(Adjudication),
DGCEI, West Block-VIII, Wing No. 6,
2nd Floor, R.K. Puram,
New Delhi-110066
AND
SERVICE TAX APPEAL NO. 52709 OF 2016
(Arising out of Order-in-Original No. 12/2016-ST dated 20.06.2016 passed by Additional
Director General (Adjudication), New Delhi)
Zios Medical Centre Private Limited ....Appellant
(Formerly known as M/s. Joy Hotel
and Resort Private Limited)
Plot No. 33-34, Industrial & Business Park, Phase-II,
Chandigarh-160002
VERSUS
Additional Director General ....Respondent
(Adjudication),
DGCEI, West Block-VIII, Wing No. 6,
2nd Floor, R.K. Puram,
New Delhi-110066
APPEARANCE:
Ms. Shagun Arora, Advocate for the Appellant
Ms. Jaya Kumari, Authorized Representative for the Department
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL)
DATE OF HEARING: 06.05.2024
DATE OF DECISION: 25.09.2024
FINAL ORDER NO's. 58648-58651/2024
JUSTICE DILIP GUPTA:
The order dated 20.06.2016 passed by the Additional Director
General (Adjudication), Directorate General of Central Excise Intelligence,
3
ST/52629/2016 &
3 others
New Delhi 1 has been assailed in these four appeals filed by Blue Coast
Infrastructure Development Private Limited 2, Active Generics Private
Limited (formerly "Silver Resort Hotel India Private Limited") 3, Zios
Medical Centre Private Limited (formerly "Joy Hotel and Resort Private
Limited") 4 and Sushil Suri, Chief Executive Officer of Blue Coast Group of
Companies.
2. Service Tax Appeal No. 52629 of 2016 has been filed by Blue
Coast to assail that part of the order dated 20.06.2016 passed by the
adjudicating authority that confirms the demand of service tax amounting
to Rs. 2,46,28,114/-; appropriates an amount of Rs. 1,04,28,894/- paid
by Blue Coast during investigation; confirms the demand of interest under
section 75 of the Finance Act 1994 5; and imposes penalties under sections
77 and 78 of the Finance Act.
3. Service Tax Appeal No. 52628 of 2016 has been filed by the
Sushil Suri, Chief Executive Officer of Blue Coast to assail that part of the
order dated 20.06.2016 passed by the adjudicating authority that imposes
a penalty of Rs. 1,00,000/- upon him under section 78A of the Finance
Act.
4. Service Tax Appeal No. 52630 of 2016 has been filed by Silver
Resort to assail that part of the order dated 20.06.2016 passed by the
adjudicating authority that confirms the demand of service tax amounting
to Rs. 2,46,28,114/-; appropriates an amount of Rs. 3,20,22,251/- paid
by Silver Resort during investigation; confirms the demand of interest
under section 75 of the Finance Act; and imposes penalties under sections
77 and 78 of the Finance Act.
1. the adjudicating authority
2. Blue Coast
3. Silver Resort
4. Joy Hotel
5. the Finance Act
4
ST/52629/2016 &
3 others
5. Service Tax Appeal No. 52709 of 2016 has been filed by the Joy
Hotel to assail that part of the order dated 20.06.2016 passed by the
adjudicating authority that confirms the demand of service tax amounting
to Rs. 60,69,810/-; and confirms the demand of interest under section 75
of the Finance Act; and imposes penalties under sections 77 and 78 of the
Finance Act.
6. The dispute in the present appeals can be divided into two parts.
The first part would relate to levy of service tax on the transaction
between Silver Resort, Delhi International Airport Private Limited 6, Blue
Coast and the unit holders. The second part would relate to transaction
between Joy Hotel, Chandigarh Administration, Blue Coast and the unit
holders.
FIRST PART
7. DIAL was granted the right to operate, manage and develop the IGI
Airport by the Airport Authority of India 7 in terms of the Operation,
Management and Development Agreement dated 04.04.2006.
8. In terms of the Development Agreement dated 26.02.2010, DIAL
granted the exclusive right and authority to undertake and implement
designing, development, financing, construction, ownership, operation and
maintenance of the Asset Area-3 to Silver Resort for a period of 30 years,
extendable by an additional 30 years in lieu of an annual license fee to be
paid by Silver Resort.
9. Silver Resort entered into a Joint Development Agreement 8 with
Blue Coast, wherein both Silver Resort and Blue Coast jointly agreed to
develop the commercial space and high end retail place. In terms of JDA,
6. DIAL
7. AAI
8. JDA
5
ST/52629/2016 &
3 others
Silver Resort would be responsible for execution of the project, while Blue
Coast would be responsible for providing funds for the project. Blue Coast
has also been granted the right to lease/sub-lease the commercial
areas/units. In terms of JDA, the project surplus (i.e. project revenue-
project cost) would be shared between Silver Resort and Blue Coast in the
ratio of 85:15.
10. Blue Coast entered into a tripartite Space Agreement with Silver
Resort and the unit holders, wherein the unit holders would be granted
leasehold rights of commercial units for the purpose of undertaking
permitted commercial activities, subject to payment of annual lease rent
charges.
11. The aforesaid arrangements are depicted in the following chart:
AAI
Operate,
Joint Development
Manage and
Agreement
Develop IGI
Airport for
30 years
- Execution of - Funding
Project Real
- Renting of Estate
Development of Immovable Agent
Asset Area 3 Property Service
DIAL Silver Resort Blue Coast
Tripartite agreement for
sub-lease
Unit Holder
6
ST/52629/2016 &
3 others
SECOND PART
12. Joy Hotel was granted leasehold rights under the lease deed dated
15.02.1982 for a period of 99 years by the Chandigarh Administration for
the purpose of construction of a five-star hotel on commercial/retail space.
13. Blue Coast entered into an agreement with Joy Hotel on 10.04.2010
whereby Joy Hotel granted lease of the Plaza to Blue Coast for a payment
of Rs. 6,50,00,000/-. Blue Coast was also authorized to sub-lease or
assign or transfer rights of the units in the Plaza.
14. Blue Coast also entered into a tripartite agreement with Joy Hotel
and the unit holders, under which the unit holders were granted leasehold
rights of the commercial units for the purpose of undertaking permitted
commercial activities, subject to payment of a lump-sum consideration.
15. These arrangements are depicted in the following chart:
Leasehold rights over
Leasehold rights plaza + rights to sub-
for 99 years lease units
Chandigarh Joy Hotels Blue Coast
Administration Renting of Renting of immovable
immovable property service
property service
Tripartite agreement for
sub-lease
Unit Holder
7
ST/52629/2016 &
3 others
FACTS
16. An investigation was conducted by the Officers of the Directorate General of Goods and Service Tax Intelligence. This culminated into issuance of a show cause notice dated 22.09.2014 proposing a demand of service tax amounting to Rs. 27,67,92,047/- with interest and penalties. The show cause alleges that:
(i) Blue Coast sub-leased commercial spaces in the Plaza to the unit holders, which service would be classifiable under "renting of immovable property services";
(ii) Blue Coast rendered 'real estate agent services' to Silver Resort in respect of marketing and sub-leasing of commercial space in the hotel project of Silver Resort, for which it would receive 15% of the project surplus;
(iii) Silver Resort undertook leasing of commercial units for monetary consideration and the same is liable to be taxed under "renting of immovable property services";
(iv) Leasing of commercial plaza by Joy Hotel to Blue Coast for Rs. 6,50,00,000/- is taxable under the category of "renting of immovable property services";
(v) Blue Coast, Silver Resort and Joy Hotel knowingly and willfully did not discharge service tax on their respective incomes. Thus, the extended period of limitation is invokable; and
(vi) Sushil Suri is liable to pay penalty under section 78A of the Finance Act.
17. This show cause notice was adjudicated upon by an order dated 20.06.2016. The demand of Rs. 22,11,73,743/- has been confirmed with interest and penalties. The details are as follows: 8
ST/52629/2016 & 3 others Sl. Appeal Period of Category Demand Demand Demand No. Number Dispute of Proposed Confirmed Dropped Service (in Rs.) (in Rs.) (in Rs.)
1. ST/52629/2016 20.3.2010 Renting of 2,73,86,333 2,46,28,114 27,58,219 (Blue Coast) to immovable 15.3.2014 property 18.12.2010 Real estate 3,16,83,354 - 3,16,83,354 to agent 28.1.2014
2. ST/52630/2016 18.12.2010 Renting of 21,12,22,360 19,04,75,819 2,07,46,541 (Silver Resort) to immovable 28.1.2014 property
3. ST/52709/2016 2010-11 Renting of 65,00,000 60,69,810 4,30,190 (Joy Hotel) immovable property
4. ST/52628/2016 - Penalty of - - -
(Sushil Suri) Rs. 1 lac
under
section 78A
Total 27,67,92,047 22,11,73,743 5,56,18,304
18. Learned counsel for the appellant made the following submissions:
(i) There is no provision of service by Silver Resort to the unit holders as the agreement between DIAL and Silver Resort was terminated due to breach of the terms of the agreement by Silver Resort. This is evident from the termination notice dated 16.07.2015 sent by DIAL to Silver Resort;
(ii) The said termination was challenged in arbitration proceedings between DIAL and Silver Resort and it was held to be valid by the Arbitral Award dated 27.06.2017 and by the Delhi High Court in the order dated 08.05.2018;
(iii) The advance amount paid by the unit holders in terms of the tripartite agreement was also refunded by Silver Resort/Blue Coast in terms of either the Settlement Agreement entered between the parties or the Scheme of Disbursement framed by the Delhi High Court in the order dated 11.10.2018; 9
ST/52629/2016 & 3 others
(iv) The initial tripartite agreement between the Silver Resort, Blue Coast and the unit holders has been repudiated and the amount received thereunder has been or is being paid back to the unit holders. There is, therefore, no provision of any service by Silver Resort to the unit holders. In support of this contention, reliance has been placed on the following decisions:
(a) Vaiguinim Valley Resort Unit of Britto Amusements Pvt. Ltd. vs. CGST, Goa 9;
(b) Honda Cars India Ltd. vs. CCE & ST 10; and
(c) Amit Metaliks Limited vs. Commissioner of CGST, Bolpur 11
(v) In terms of the lease deed entered between Joy Hotel and the Chandigarh Administration, Joy Hotel was required to get the conversion done for the land from industrial to commercial. Due to failure to pay the conversion fee, the lease deed was terminated. The lease deed entered between the Joy Hotel and the Chandigarh Administration forms the very basis of the entire transaction between Joy Hotel, Blue Coast and the unit holders. There is, therefore, no provision of any service either by Joy Hotel or by Blue Coast under "renting of immovable property service";
(vi) The extended period of limitation could not have been invoked;
(vii) Since the demand itself is not admissible, penalty is not imposable and consequently no interest is also recoverable;
and
9. 2022 (12) TMI 722- Bombay High Court
10. New Delhi, 2021 (48) GSTL 247 (Tri.-Delhi)
11. 2020 (41) GSTL 325 (Tri.- Kolkata) 10 ST/52629/2016 & 3 others
(viii) No penalty is imposable under section 78A of the Finance Act on Sushil Suri. Firstly, no demand is sustainable on Blue Coast and secondly there is no mala fide intention on the part of Sushil Suri to evade the payment of service tax. The department has also failed to provide any evidence to the contrary.
19. Ms. Jaya Kumari, learned authorized representative appearing for the department, however, supported the impugned order and submitted the activity of leasing and sub-leasing is now a covered issue in view of the judgment of the Delhi High Court in Home Solutions Retails (India) Ltd. vs. Union of India 12.
20. The submissions advanced by the learned counsel for the appellants and the learned authorized representative of the department have been considered.
21. The first issue that arises for consideration is whether Silver Resort rendered "renting of immovable property service" to the unit holders.
22. The impugned order has confirmed the demand of service tax on Silver Resort on the ground that in terms of a combined reading of the Development Agreement dated 26.02.2010 between DIAL and Silver Resort, and JDA between Silver Coast and the unit holders, it was clear that Silver Resort rendered "renting of immovable property service" to the unit holders. Under the said Agreement DIAL granted the exclusive right and authority to Silver Resort to undertake and implement designing, development, financing construction, ownership, operation and maintenance of Asset Area-3 of the IGI Airport. Silver Resort, in turn entered into a JDA with Blue Coast for joint development of the said
12. 2011 (24) S.T.R. 129 (Del.) 11 ST/52629/2016 & 3 others project. In terms of this JDA, Blue Coast identified interested unit holders and a tripartite agreement was entered between Silver Resort, Blue Coast and the unit holders for grant of leasehold rights to the unit holders of the commercial units. Blue Coast was entitled to receive consideration from the customers in terms of the tripartite agreement, a part of which was shared with Silver Resort in terms of the JDA. It is on such amount received by Silver Resort that the impugned order has confirmed the demand of service tax by holding that Silver Resort provided "renting of immovable property service" to the unit holders.
23. It is seen that the Development Agreement between the DIAL and Silver Resort was terminated due to breach of the terms of the Agreement by Silver Resort, as is evident from the termination notice dated 16.07.2015 sent by DIAL to the Silver Resort. The said termination notice is reproduced:
"Silver Resort Hotel India Private Limited, 263C, Arossim Beach, Cansaulim, Goa-407712 Also at Silver Resort Hotel India Private Limited, 415-417. Antriksh Bhawan, 22 K.G. Marg, New Delhi-110001 Kind Attention: Mr. Sushil Suri Subject: Termination Notice, issued under Article 13.3 of the Development Agreement and under Article 6.12 of the Infrastructure Development and Services Agreement, both dated February 26, 2010, executed between Delhi International Airport (P) Limited and Silver Resort Hotel India Private Limited.
Dear Sir,
1. This is with reference to the Development Agreement (the "Development Agreement/DA") and the Infrastructure Development and Services Agreement (the 12 ST/52629/2016 & 3 others "Infrastructure Development and Services Agreement/ IDSA") (together referred to as the "Project Agreements") both dated February 26, 2010, executed between Delhi Imernational Airport (P) Limited and Silver Resort Hotel India Private Limited ("Developer")
2. We refer to the 'Notice to Cure' and 'Notice of Intention to Terminate' dated 26.01 2015 ("Cure Notice"), vide which the Developer was required to rectify/cure its defaults (as highlighted in the Cure Notice) by clearing all the Outstanding Dues payable under the Project Agreements, along with applicable interest thereupon, within sixty (60) days from the date of receipt of the Cure Notice. In this regard, we also seek to place reliance upon all the correspondences exchanged between the Developer and DIAL for payment of the Developer's outstanding dues to DIAL, payable to DIAL as per the Project Agreements, which has been referred to in the Cure Notice itself, the contents which are self-explanatory and are not being repeated herein for the sake of brevity.
3. It is pertinent to note that the period of more than sixty (60) days has since expired and the Developer has failed to rectify/cure the defaults, as highlighted in the Cure Notice.
4. In view of the above, DIAL, hereby exercises its rights under the Project Agreements and serves this Termination Notice upon the Developer, terminating the Project Agreements forthwith in terms of Article 133 of the DA and Article 6.12 of the IDSA.
5. Accordingly DIAL would be taking over possession of Asset Area 3 and the Developer is requested to co-operate and remove all the material from the Asset Area 3 without any protest or demur. Further the Developer shall be subject to the consequences of termination as specified in the DA and IDSA.13
ST/52629/2016 & 3 others DIAL, reserves and retains all its tights under the Project Agreements and law, which may be exercised by DIAL, at its sole discretion.
Note: All capitalized terms used herein but not otherwise defined shall have the meaning ascribed to them in the Project Agreements Regards, For Delhi International Airport (P) L.td."
24. It needs to be noted that DIAL took possession of the Asset Area-3 after the termination notice dated 16.07.2015. The said termination was challenged in arbitration proceedings between DIAL and Silver Resort and it was held to be valid by the Arbitral Award dated 27.06.2017. The Delhi High Court, in the order dated 08.05.2018, also held it to be valid. The advance amount paid by the unit holders in terms of the tripartite agreement was also refunded by Silver Resort/Blue Coast in terms of either the Settlement Agreement entered between the parties or under the Scheme of Disbursement laid down by the Delhi High Court in the order dated 11.10.2018.
25. As the agreement with DIAL was terminated, subsequent agreements such as JDA and tripartite agreements with the unit holders also stand repudiated. Thus, the question of rendition of any service thereunder by Silver Resort does not arise. The confirmation of demand in the impugned order is, therefore, liable to be set aside.
26. What is also important to note is that the charge of service tax under section 66/66B of the Finance Act is on provision of service by one person to another. Such provision of service mandates an understanding between the service provider and the service recipient. Such mutual understanding between the service provider and service recipient is 14 ST/52629/2016 & 3 others indispensable for sustaining the levy of service tax, as in absence of this, the provision of a taxable service cannot be established. The initial tripartite agreement between Silver Resort, Blue Coast and the unit holders was repudiated and the amount received thereunder has been or is being paid back to the unit holders. There is, therefore, no provision of any service by the Silver Resort to the unit holders.
27. In this connection, reliance can be placed on the judgment of the Bombay High Court in Vanguinim Valley wherein the following observations were made:
"19. We are unable to accept the reasons disclosed by Respondent No.2 in the impugned order for the simple reason that there is no reference to the contents of the reply filed by the Petitioner to the show-cause notice and the document attached to it thereby specifically disclosing that the joint venture between BAPL and GGCPL was cancelled with effect from 1 April 2013. Thus, there was no service provider or service receiver contract between the parties justifying the levy of service tax. The impugned order further failed to take into"
28. The same view was expressed by the Tribunal in Honda Cars India.
29. In Home Solutions Retails, the constitutional validity of sections 65 and 66 of the Finance Act came up for consideration. The larger bench of the Delhi High Court upheld the validity of these two sections. The consequence of termination of the agreement was neither raised nor decided. This decision would, therefore, not help the department.
30. The confirmation of demand of service tax under this part, therefore, cannot be sustained.
31. The second issue that arises for consideration is whether any service was provided either by Joy Hotel or Blue coast under "renting of 15 ST/52629/2016 & 3 others immovable property service" when the lease deed executed between Joy Hotel and the Chandigarh Administration was terminated.
32. The impugned order has confirmed the demand of service tax on Joy Hotel and Blue Coast on the ground that in terms of a combined reading of the lease deed between Joy Hotel and the Chandigarh Administration, the agreement between Joy Hotel and the Blue Coast, and the agreement between the Joy Hotel, Blue Coast and the unit holders, it would be clear that Joy Hotel rendered "renting of immovable property service" to Blue Coast and Blue Coast rendered "renting of immovable property service" to the unit holders. Thus, the impugned order holds that both these services would be taxable.
33. Under the lease deed executed between Joy Hotel and the Chandigarh Administration, Joy Hotel was granted leasehold rights for a period of 99 years for the construction of a five-star hotel along with a plaza on the commercial space. Joy Hotel, in turn, entered into an agreement with Blue Coast for grant of leasehold rights in exchange of a consideration of Rs. 6,50,00,000/-. In terms of this agreement, Blue Coast identified interested unit holders and a tripartite agreement was entered between Joy Hotel, Blue Coast and the unit holders for the grant of leasehold rights to the unit holders with respect to the commercial units for a consideration. It is on such amount of Rs. 6,50,00,000/- received by Joy Hotel and the consideration received by Blue Coast from the unit holders that the impugned order has confirmed the demand of service tax by holding that Joy Hotel provided "renting of immovable property service" to Blue Coast, and Blue Coast provided "renting of immovable property service" to the unit holders.
16
ST/52629/2016 & 3 others
34. In terms of the lease deed entered between Joy Hotel and the Chandigarh Administration, Joy Hotel was required to get the conversion of such land from industrial to commercial. As the conversion fee was not paid, the lease deed was terminated. The lease deed entered between Joy Hotel and the Chandigarh Administration forms the very basis of the entire transaction between Joy Hotel, Blue Coast and the unit holders. It was terminated and so there is no provision of any service between the parties. The advance amount paid by the unit holders in terms of the tripartite agreement was also refunded by Blue Coast in terms of the Settlement Agreement entered between the parties.
35. Thus, since the lease deed with the Chandigarh Administration has been terminated, subsequent agreements such as agreement between Joy Hotel and Blue Coast, and the tripartite agreement with the unit holders also stands repudiated. The question of rendition of any service by Joy Hotel or Blue Coast does not, therefore, arise. The confirmation of the demand in the impugned order under this part is, therefore, liable to be set aside.
36. Thus, for the reasons stated above, the impugned order dated 20.06.2016 is liable to be set aside and is set aside. The appeals are, accordingly, allowed.
(Order Pronounced on 25.09.2024) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) Kritika, Jyoti, Shreya