Custom, Excise & Service Tax Tribunal
M/S. Sarjan Realities Ltd vs Commissioner Of Central Excise, ... on 19 June, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. ST/27/2007 (Arising out of Order-in-Original No.17/CEX/STC/COMMR/2006 dt.29.11.2006 passed by the Commissioner of Central Excise & Service Tax, Pune-III For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.S.Pruthi, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
authorities?
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M/s. Sarjan Realities Ltd.
:
Appellant
VS
Commissioner of Central Excise, Pune-III
:
Respondent
Appearance
Shri V. Sridharan, Advocate with Shri Vinay Jain, C.A. for Appellant
Shri B.S. Meena, Additional Commissioner (A.R) for respondent
CORAM:
Mr. S.S. Kang, Vice President
Mr. P.S. Pruthi, Member (Technical)
Date of hearing : 19/06/2014
Date of decision : /2014
ORDER NO.
Per : P.S.Pruthi
M/s. Sulzon Energy Limited (M/s. SEL) manufacturer of Wind Turbine Generators offers total solutions in wind power generation comprising of design, installation and operation and maintenance services, and identification acquisition and provision of suitable land for wind farm projects to its customers. The appellant, M/s. Sarjan Realities Limited (M/s. SRL), an associate company of M/s. SEL, are primarily engaged in the business of acquiring land, suitable for wind farm projects, as identified by M/s. SEL and providing such land to the customers of M/s. SEL for setting up the wind farm projects. Vide Order-in-Original No.17/CEX/STC/COMMR/2006 dt.29.11.2006 Commissioner held that M/s. SRL has provided Real Estate Agent Service under Section 65 (88) of the Finance Act, 1994 read with Section 65(105)(v) which defines taxable service as any service provided or to be provided by a real estate agent in relation to real estate. Duty of Rs.3,07,83,184/- was confirmed along with interest and penalties under Section 76 and Section 78 of the Finance Act, 1994. During investigation of the case, an amount of Rs.88,12,419/- was deposited by the appellants. The Commissioner, in his said order, appropriated this amount of Rs.88,12,419/- against the tax liability mentioned above. The appellants are in appeal before the Tribunal against the order of the Commissioner.
2. Heard both sides. Revenue and the appellants also placed written submissions on record.
3. The contention of appellant is that they are a separate legal entity. They acquire land on outright purchase or lease basis for wind farm projects and then sell/sub-lease the same to the customers who put up the Wind Turbine Generators. Although the land that is acquired by them is identified by M/s. SEL, the sale deeds are duly executed by M/s. SRL themselves on payment of stamp duty. The customer who purchases the land is liable to bear all expenses during the execution of the sale. In the Government records M/s. SRL are owner of land at the time of purchase. Their books show large inventory of land in their ownership. Such land which is in their ownership, although identified as suitable by M/s. SEL for setting up wind farm projects, is then sold to customers who are brought forward by M/s. SEL . Similar is the situation with respect of land leased by them from independent persons and then sub-leased to customers of M/s. SEL. Before selling/leasing land they may also develop the same as per requirement of a wind farm project, and as guided by M/s. SEL, before the land is sold/leased to the customers of M/s. SEL for setting up the wind farm projects. As per their Agreement with M/s. SEL, the appellants would be entitled a commission of 11% of the total cost of acquisition of land and expenses incurred by M/s. SRL such as stamp duties, employees expenses etc. However, according to them, the profit actually earned by the appellants has varied from 3% to 34%. According to the appellants, the Revenue demanded duty on the income from land operations and deducted cost of land operations to arrive at the commission earned by the appellants. They state that this procedure of arriving at the value is, in any case, incorrect because it includes financial cost while arriving at the value of taxable service.
4. Revenues main contention is that M/s. SRL do not acquire land independent of M/s. SEL but on behalf of M/s. SEL. Further, that they provide land on exclusive basis to M/s. SEL or to customers of M/s. SEL and therefore act as an agent in acquiring, purchasing, developing and selling real estate. Further, the appellants do not have freedom to decide the price at which to sell/lease land as the same is decided by M/s. SEL. Revenue also contended that M/s. SEL provides loans to appellants for acquisition of land and consequently bind M/s. SRL. to create mortgage over all movable and immovable properties of M/s. SRL in favour of M/s. SEL as security for the loans extended by M/s. SEL to M/s. SRL. It is also argued that the agreement between M/s. SEL and M/s. SRL provides for a remuneration of 11% of the total cost of acquisition plus expenses which is described as commission in the Agreement and, therefore, the appellants are acting as an agent.
5. The issue to be considered is whether M/s. SRL have provided Real Estate Agent Service to M/s. SEL in terms of the Agreement between these two parties.
It is appropriate to see the relevant provisions of Finance Act :
Section 65(105)(v): taxable service means any service provided or to be provided to any person, by a real estate agent in relation to real estate.
Section 65(88): real estate agent means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant;
Section 65(89): Real estate consultant means a person who renders in any manner, either directly or indirectly, advice, consultancy of technical assistance, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate.
6. There is no dispute regarding the factual arrangement between M/s. SEL & M/s. SRL. The relevant clauses of the Agreement are reproduced below :
WHEREAS A. The Company (M/s. SEL) is a public limited Company incorporated in India and is a leading manufacturer of Wind Turbine Generators (WTGs) in India and in addition to supply of WTGs, offers total solutions in wind power generation comprising design, installation, and operations and maintenance services, identification, acquisition, and provision of suitable land, to its customers in conjunction with its subsidiaries and associate companies.
B. SRL, a public limited Company incorporated in India and owned by the promoters of the Company, is primarily engaged in the business of acquiring land suitable for wind farm projects as designated by the Company, and providing such land on an exclusive basis to the Company or to the customer of the Company (the Customers) to be used for setting up wind farm projects. SRL is also engaged in the business of generating power through the ownership of WTGs.
C. SRL acquires/leases such land from various entities such as private owners, or Government in case of revenue land or forestland.
D. The land acquired/leased by SRL is sold or leased or sub-leased to the Company or to the Customers, on an exclusive basis, to be utilized for setting up wind farm projects.
. ACQUISITION OF LAND 3.1 SRL shall acquire and/or obtain on lease such land as identified by the Company suitable for the purposes of setting up a windfarm project (Windfarm Land).
3.2 SRL undertakes to ensure that it shall comply with and satisfy all conditions prescribed by the Company while undertaking the acquisition of Windfarm Land, including but not limited to the following:
(a) the Windfarm Land shall be free and clear of any Encumbrance or ensure that all such Encumbrances are removed prior to the Transfer of such Windfarm Land to the Customers or the Company as the case may be;
(b) in the event that the Windfarm Land is acquired as freehold land, there shall be no restrictions on the further sale of the Windfarm Land to the Company and/or its Customers;
(c) in the event that the Windfarm Land is acquired a leasehold land, there shall be no restrictions in the lease agreement for such land that would prohibit the sub-lease of or creation of any charge or encumbrance over such Windfarm Land except when the Windfarm Land has been leased/acquired from the any government in which case, SRL shall notify the Company about the restrictions in relation to sub-lease or transfer or any other restrictions in relation to the use of such Windfarm Land by SRL, the Company or the Customer;
(d) all Government and regulatory approvals for the acquisitions/lease of the Windfarm Land should be obtained prior to the Transfer of such Windfarm Land to the Customer or to the Company as the case may be;
(e) SRL shall ensure that there are no restrictions on the Company setting up a windfarm project on the Windfarm Land for its Customers;
(f) SRL undertakes to ensures that the acquisition of the Windfarm Land does not in any way contravene any Applicable Laws.
3.3 Upon completion of the acquisition of Windfarm Land by SRL in accordance with Clause 3.1, SRL shall immediately inform to the Company of the details of the land acquired.
3.5 Upon completion of the acquisition of Windfarm Land by SRL in accordance with Clause 3.1, SRL shall immediately inform to the Company of the details of the land acquired.
3.6 In the event that SRL suo moto identifies any land suitable for setting up a windfarm project, it shall duly inform the Company of the same.
4. OPTION ON WINDFARM LAND 4.1 SRL shall provide the Company with such information as it requests from time to time in order to submit proposals to Customers for setting up WTGs.
4.2 SRL hereby undertakes that it shall offer for sale, lease or sub-lease, at the option of the Company, all or part of the Windfarm Land as may be identified by the Company, to Customers and/or to the Company at such consideration as determined in accordance with Clause 6 below.
4.3 SRL undertakes that it shall at all times ensure that the terms and conditions, if any, as specified by the Company shall be strictly adhered to and shall not be varied or amended in the agreements for sale, lease or sub-lease of the Windfarm Land to the Customer except with the prior written consent of the Company.
5. TRASFER OF LAND 5.1 The Transfer of the Windfarm Land to the Customer shall be completed by SRL upon the Customer having executed a purchase order for the purchase of WTGs from the Company or such time subsequently as extended by the Company.
5.2 SRL hereby undertakes and covenants that it shall not Transfer any land or Windfarm Land acquired by it, other than as required by the Company or without the written consent of the Company.
6. CONSIDERATION In consideration for SRL acquiring Windfarm Land and exclusively offering such land for Transfer at the option of the Company in accordance with Clause 4 and 5 hereof, the consideration payable for the Transfer of Windfarm Land after the date of this Agreement shall be sum of (i) the cost of acquisition of the Windfarm Land and all expenses incurred by SRL in relation thereto (including but not limited to financing and administration cost, taxes, stamp duties, employee expenses and other commission paid) in a year (collectively the Total Cost) and (ii) a commission amounting to 11.0% of the Total Cost.
7. LOANS 7.1 The Company during the term of this Agreement shall if so required by SRL provide loans to SRL at interest accruing at market rates and upon an arms length basis and the proceeds of such loan shall be used by SRL only for the purposes of acquiring or leasing Windfarm Land.
8 UNDERTAKINGS SRL undertakes that:
a. it shall use its best endeavors to acquire and/or lease only such land that if suitable for the purposes of use o Windfarm Land and is fit to be transferred to the Customer or such other Person as designated by the Company;
b. It shall not in any manner whatsoever impose or seek to impose any onerous term or condition in any agreement for the sale or lease or sub lease of the Windfarm Land with any Customer which may (i) be inconsistent with the terms and conditions as stated in the purchase order for the WTG or such other agreement between the Company and the Customer for the sale of the WTG; or (ii) prevent the customer from entering into such agreement with SRL; (iii) result in Company being unable to provide integrated solutions in wind power generation to such Customer;
c. It shall not commence or carry on any other business other than presently carried on without the prior written consent of the Company; and d. It shall obtain all government and regulatory approvals, and registrations, necessary for the carrying on of its business;
e. It shall ensure that it complies with Applicable Laws in the conduct of its business.
7. For a service to be covered under the definition of Real Estate Agent, it should be provided by a person to another person in relation to sale, purchase, leasing or renting of Real Estate. In the present case SRL, as indicated above in para 3, purchase/obtain lease of land in their own name. Further, they are not paid any commission by M/s. SEL. In fact the commission of 11% is received from the customers as consideration for the sale/lease, in addition to the cost of acquisition of land and other expenses. Thus, it cannot be said that they have provided any service to M/s. SEL in relation to purchase and further sale/lease of land to customers of M/s. SEL. As the definition of Real Estate Agent includes a real estate consultant, it needs to be examined whether the activity of M/s. SRL would come in the ambit of real estate consultant. Here again for coverage under this definition, the appellants should have given advice, consultancy or technical assistance in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management of real estate. From the facts on record advice is not provided by M/s. SRL to M/s. SEL. In fact, it is M/s. SEL, who provide technical inputs regarding suitability of land for wind farm projects, identify the suitable land and thereafter, as per the terms of the Agreement, ask M/s. SRL to acquire/lease such land. The land has to be free of any encumbrance before transfer of such land to the customers of M/s. SEL or to M/s. SEL themselves. All the regulatory approvals benefit the purchaser of land and expenses incurred thereon are recovered from the purcfhaser. Thus no real estate agent service can be said to have been provided by M/s. SRL to M/s. SEL.
8. The crucial factor is that M/s. SRL acquire/obtain on lease, land only in its own name and thereafter sell the same or lease out the same. The cost of acquisition and other related cost are borne independently by M/s. SRL and recovered by them later from customers. The appellants submitted documents evidencing the registry of the land, and also the sale deeds and purchase deeds. The purchase deeds are seen to be executed between the independent sellers and M/s. SRL. Further, the sale deeds are seen to be executed between M/s. SRL and the customers identified by M/s. SEL who (customers) will then set up wind farm projects on such lands. Even though the land to be acquired/obtained on lease has been identified by M/s. SEL, the fact remains that it is M/s. SRL who purchase land or obtain the same on lease. M/s. SEL is nowhere the party in the transactions of sale/purchase/lease. Notwithstanding the Agreement between M/s. SEL and M/s. SRL, the legal transactions which indicate M/s. SRL as the purchasers/seller of land cannot be wished away. The argument of Revenue that the word commission used in the agreement which facilitates the profit of 11% on the total cost of land does not negate the legality of transaction in which SRL is the buyer or the seller i.e. it is M/s. SRL who are purchasing land and selling the same thereafter at a profit which may be fixed by M/s. SEL. Even the facilitation of loans by M/s. SEL to M/s. SRL for purchase of land and mortgage thereof is a financial arrangement between two which does not make M/s. SRL, real estate agent. Such financial arrangements and the exigibility to service tax whereof is not the issue here. The books of accounts of the appellants indicate that they hold large inventory of land. No consideration has been shown to be paid to M/s. SEL by M/s. SRL because no service is rendered by M/s. SRL to M/s. SEL.
9. In view of the above, we hold that M/s. SRL have not provided service of Real Estate Agent to M/s. SEL. As the issue is decided in favour of appellant on merits, matter regarding limitation is infructuous. The appeal is allowed with consequential relief if any, in terms of law.
(Pronounced in court on /07/2014)
(S.S. Kang)
Vice President
(P.S. Pruthi)
Member (Technical)
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