Custom, Excise & Service Tax Tribunal
New Okhla Industrial Development ... vs C.C.Ex And S.T., Noida on 11 December, 2013
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R.K.Puram, New Delhi COURT-I Date of hearing/decision: 11.12.2013 Misc. Application No.61064 of 2013 Stay Application No.57840 of 2013 and Service Tax Appeal No.57252 of 2013 Arising out of the order in original No.59/Commissioner/Noida/2012-13 dated 26.2.2013 passed by the Commissioner of Customs, Central Excise and Service Tax, Noida. For Approval and Signature: Honble Mr. Justice G. Raghuram, President Honble Mr. Rakesh Kumar, Technical Member 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982? 2 Whether it should be released under Rule 26 of 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? New Okhla Industrial Development Authority .. Appellants Vs. C.C.Ex and S.T., Noida . Respondent
Appearance:
Present Shri J.K. Mittal with Shri Nitesh Garg, Shri Kamal Gupta, Advocates for the appellant Present Shri Amresh Jain, A.R. for respondent Coram: Honble Mr. Justice G. Raghuram, President Honble Mr. Rakesh Kumar, Technical Member Final Order No. 58664/2013 Per Justice G. Raghuram:
Heard Shri J.K. Mittal, ld. Counsel for the appellant/assessee and Shri Amresh Jain, ld. A.R. for the respondent-Revenue. This appeal is preferred by the assessee against the Order-in-Original No.59/Commissioner/Noida/2012-13 dated 26.2.2013. By this order, the adjudicating authority confirmed service tax demand of Rs.250,62,21,312/- besides interest and penalties including penalty in an amount equivalent to the service tax demand assessed, under Section 78 of the Finance Act, 1994 (the Act).
2. Proceedings were initiated by the show cause notice dated 19.10.2012. According to this notice, the appellant/assessee obtained registration on 27.5.2008 for providing the taxable service renting of immovable property. On receipt of information that the assessee was collecting lease rents under various heads like lease rent (industrial), lease rent (commercial), rent (commercial), rent (industrial), other rents etc. on which service tax is remittable as per provisions of the Act, Revenue initiated the proceedings. Several notices were issued followed by summons as well. Para 2 of the show cause notice sets out in great detail the wholly uncooperative attitude of the assessee to the several notices issued by Revenue and the obstructionist strategies adopted by the assessee to the process of assessment. The assessee appears to have considered itself above and beyond the reach of assessment proceedings and adopted a condescending posture, in failing to respond to several notices issued. At one stage Revenue had to file a complaint in the Court of Special CJM, Meerut and had obtained an order from that Court, for appearance of the assessees representative, in response to summons issued, which were not honoured. Eventually, on the basis of partial information furnished by the assessee including balance sheet and income and expenditure account for 2007-08 and 2008-09 and provisional income statements for 2010-11and 2011-12, Revenue inferred that the assessee had provided the taxable service of renting of immovable property. Revenue further assumed that several receipts by the assessee amounted to the gross consideration received for the specified taxable service and brought the entire component tax. The receipts (which were brought to tax) were set out in Annexure A to the show cause notice. Among the receipts by the assessee which were considered to comprise the gross consideration received for the taxable services are:
(a) Penalty (commercial);
(b) Penalty (industrial);
(c) Forfeiture (commercial)
(d) Forfeiture (industrial);
(e) Building plan fee;
(f) Hoarding/advertisement charges;
(g) Restoration charges;
(h) Park booking charges;
(i) Interest on lease rent; and
(j) Interest from allottees /lessee Further lease rent on industrial and commercial properties and rents on commercial and industrial properties, besides other rents as well as processing fee for commercial /industrial purposes and time extension charges on industrial and commercial purpose; transfer charges for industrial and commercial leases, was also considered towards the gross consideration received, by Revenue. The period involved was April 2007 to March 2012.
3. Responding to the show cause notice the assessee inter-alia contended that (a) leasing of vacant land was not comprehended within the ambit of the taxable renting of immovable property service prior to 1.7.2010, since only by the Finance Act, 2010 and with effect from 1.7.2010 was clause (v) incorporated in Explanation (1) to clause (zzzz) of Section 65(105); that prior to 1.7.2010 renting of a vacant land was outside the purview of the taxable service; that since the assessee as a statutory Development Authority, created by the provisions of the U.P. Industrial Area Development Act, 1976 had entered into long term leases with third parties whereunder vacant lands were leased to such third parties inter alia for business or commercial purposes on long term leases (of 99 years duration), such leases are substantially in the nature of transfer of ownership and consideration received on such transfers would not amount to consideration received for providing the taxable service enumerated in Section 65(105)(zzzz). In addition to this specific defence the assessee also asserted that invocation of the extended period of limitation was unjustified since it was under a bona fide belief that leasing of vacant land was not taxable service; and that as public authority it could not be attributed with a mala fide intention to transgress provisions of the Act with an intent to evade tax. After due process and affording personal hearing as well, the adjudicating authority passed the order dated 26.2.2013.
4. The Commissioner rejected the contention that renting of vacant land for business or commercial purposes prior to 1.7.2010 was not liable to service tax as renting of immovable property. For this conclusion, the Authority based his analyses on Board Circular dated 26.2.2010 and on the Amendment introduced to the relevant provision, by the Finance Act, 2010. The assessees contention that a long term lease would not amount to renting of immovable property within the meaning of the relevant provision was also negated, by reference to the provisions of Section 105 of the Transfer of Property Act, 1882 and analysis of dictionary meanings of the expressions demise, lease, lessee and lessor. The Authority also adverted to the distinction between a lease and a licence and concluded that long term leases would also amount to renting of immovable property. Invoking the extended period of limitation was justified on the ground that the assessee had failed to file returns; disclose the consideration received for providing the taxable service; had failed to remit the tax due and obstructed the process of adjudication by employing dilatory and protractive strategies. Suffice it to observe that the ld. Adjudicating Authority considered all the amounts received by the assessee in respect of renting of vacant lands during April 2007to March 2012 as the gross consideration received for providing the taxable service.
5. We will deal with the two substantial arguments urged on behalf of the appellant before us. We first take up the issue whether long term leases of immovable property are outside the purview of the taxable service enumerated and defined in Section 65(105) (zzzz). This provision neither marks nor accommodates any distinction between long term and short term leases. On a true and fair construction of this provision it is clear that a service provided in relation to renting of immovable property for use in the course of or in furtherance of business or commerce is the taxable service. The provision does not restrict the ambit of the taxable service to only short term leases nor identifies or classifies leases in terms of the duration. A lease is defined in Section 105 of the Transfer of Property Act, 1882, as transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crop, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. In the absence of any restrictive signification in Section 65 (105)(zzzz), of a legislative intent to exclude long term leases of immovable property from the purview of the taxable service defined and enumerated in said provision, we find no authority to hold that long term leases (so-called) are outside the purview of the taxable service renting of immovable property.
6. There is yet another problematic in accepting this contention. What is a long term and what a short term lease cannot be an open-ended, ambiguous and inchoate concept. Neither does the relevant provision exclude long term leases from the purview of the definition nor is any authority, statutory or otherwise brought to our attention which provides a guidance to classify leases into long term and short term. We therefore find no justification for a restrictive interpretation of the relevant provision of the Act.
7. Ld. Counsel for the appellant has referred to an interim order of this Tribunal dated 8.11.2012 passed in an appeal preferred by the Greater Noida Industrial Development Authority. While granting waiver of pre-deposit in full, the Tribunal observed that the ordinary meaning of renting will not cover long term leasing. To buttress this prima facie conclusion the Tribunal referred to the decision of the Delhi High Court in Krishak Bharati Co-operative Ltd. vs. Dy. CIT in ITA No.205/2010 dated 12.7.2012. We therefore refer to the context and circumstances in which the decision of the High Court was pronounced. The High Court had answered a question of law framed for its consideration. The question referred was whether amortizing the lease premium paid by the assessee was a capital or a revenue expenditure. After referring to several precedents, the High Court concluded that in the facts and circumstances of the reference before it, the lease premium paid by the assessee was capital and not revenue expenditure. During the course of its analyses, the High Court referred with approval, to the principle delineated by the Patna High Court in Commissioner of Income Tax, Bihar & Orissa v. Visweshwar Singh - [1939] 7 ITR 536 (Patna) wherein Fazl Ali J. (as his Lordship then was) inter alia observed that in some cases where the rent is ridiculously low and the premium abnormally high, it may be possible to argue that the premium includes advance rent. The Delhi High Court observed that characterization of an amount by an assessee whether as premium or as rent is not conclusive and the nature of the amount must be ascertained on consideration of the totality of the facts and circumstances of the case. In the facts before it however, since the annual rent was not very low compared to the premium amount fixed, the Delhi High Court inferred that the premium paid by the assessee amounted to capital and not revenue expenditure. During the course of its analysis, the High Court did observe that the tenure of the lease is quite substantial and virtually creates ownership rights in favour of the lessee, who is at liberty to construct upon the plot. This observation, in our respectful view, neither in its factual context nor otherwise amounts to enunciation of a legal principle of general application, that a long term lease does not amount to a lease.
8. On the analysis above, the contention by the assessee that a long term lease of immovable property does not amount to renting of immovable property does not commend acceptance; and is rejected.
9. The other substantive issue presented for analysis is whether renting of vacant land by the appellant to a third party, albeit for a business or commercial purpose falls within the ambit of the taxable service, prior to 1.7.2010 i.e. before introduction of clause (v) in Explanation (1) to Section 65(105)(zzzz). To answer this issue, it is necessary to consider the legislative dynamics of the provision. To the extent relevant and material for the purposes of this lis, suffice it notice that prior to 1.7.2010, clause (zzzz) of Section 65(105) read as follows : Taxable service is a service provided or to be provided:
to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or for furtherance of, business or commerce.] Explanation 1. For the purposes of this sub-clause, immovable property includes
(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include
(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;
(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;
(c) land used for educational, sports, circus, entertainment and parking purposes; and
(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.
Explanation 2. For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;
Section 75 of the Finance Act 2010 introduced several amendments to Chapter V of the Act. In so far as Section 65(105) (zzzz), the 2010 amendments substituted the main provision of sub-clause (zzzz) and enjoined this substitution to operate with retrospective effect from 1.6.2007. Sub-clause (v) was also introduced, to Explanation (1) in the provision. This sub-clause reads:
vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce.
10. While the assessee contends that a lease of vacant land (for construction of a building or a temporary structure at a later stage to be used for furtherance of business or commerce) is a taxable service only since 1.7.2010; according to Revenue clause (v) in Explanation 1 merely clarifies the clear and implicit intent of clause (zzzz).
11. In our considered view, clause (zzzz) of Section 65(105), prior to 01.07.2010 does not embrace renting of land within scope of the enumerated taxable service. On true and fair construction of the main part of clause (zzzz) it is clear that renting of any immovable property for use in course for furtherance of business or commerce is the taxable service and this would clearly include a lease of vacant land as well. Explanation 1 to this clause (prior to the amendatory exercise in 2010) signaled, through the inclusionary clause various facets of transactions which would also amount to renting of immovable property. On established principles of statutory interpretation, normally an inclusionary clause does not limit the plentitude of an enacting provision couched in broad terms. Thus the illustrations of what are immovable property, set out in the inclusionary clause in Explanation 1 would not derogate from vacant land being comprehended within the expression renting of immovable property However, clause (zzzz) has an exclusionary clause as well, enumerating the subjects excluded from the ambit of immovable property. Under this exclusionary dispensation; in sub-clause (a) vacant land solely used for agricultural, aquaculture. farming, forestry, animal husbandry, mining purposes; in sub-clause (b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land; and in sub-clause (c) land used for educational, sports, circus, entertainment and parking purpose, are excluded from the purview of immovable property. On a true and fair construction of the exclusionary clause, the legislative intent is compelling that vacant land whether having facilities clearly incidental to its use as such or otherwise does not constitute immovable property. As a consequence of the interplay between the enumeration of renting of immovable property as the taxable event read with the inclusionary and exclusionary clauses (in particular sub-clause (b) of the exclusionary clause) in Section 65 (105)(zzzz), renting of vacant land was clearly outside the purview of the taxable service, prior to 01.07.2010.
12. Introduction of sub-clause (v) in Explanation I has significantly altered and extended the scope of the taxable service, with effect from 1.7.2010 and consequently vacant land given on lease or licence, for construction of a building or a temporary structure, to be used at a later stage for furtherance of business or commerce, would be immovable property and renting of this immovable property would be the taxable service, since 01.07.2010.
13. In view of clear exclusion of vacant land from the ambit of immovable property prior to 1.7.2010 it cannot gainfully be contended by Revenue, that clause (v) to Explanation I (introduced in 2010), was a mere clarificatory endeavour, explicating the implicit and inherent meaning of Section 65 (105)(zzzz). Clause (v) is clearly an amendment which expands the scope of the taxable service; and prospectively.
14. Clause 75 of the Bill (which later came to be enacted as Finance Act, 2010) has proposed insertion of sub-clause (v) in Explanation I in Section 65(105)(zzzz) of the Act. The memorandum explaining the provisions in Finance Bill 2010 also indicates that the amendments are being made in the definition of renting of immovable property service inter alia levy of service tax on renting of vacant land where there is an agreement between lessor and lessee for undertaking construction of building or structure on such land for furtherance of business or commerce during the tenure of the lease. The Board Circular No.334/2010-TRU, dated 26.2.2010 (in paragraph 3) explains the purpose of the amendments to Section 65(105)(zzzz). Accordingly, the Circular explains that amendments are being made in the definition of this taxable service to provide that renting of vacant land where there is an agreement or contract between the lessor and lessee for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease, shall be subjected to service tax. The statement of objects and reasons accompanying the Finance Bill, 2010 also clarify that clause 75 of the Bill seeks to amend Chapter V of the Finance Act, 1994; to modify thes scope of certain taxable services including the taxable service defined and enumerated in Section 65(105)(zzzz) , of the Act. These several contemporaneous exposition and administrative constructions and the scope of sub-clause (v) of Explanation I in Section 65(105)(zzzz) fortify the conclusion the scope of sub-clause (v). To modify and expand the scope of the taxable service to cover and include vacant land on lease or licence for construction of a building or a temporary construction at a later stage to be used for furtherance of business or commerce, within the ambit of immovable property is thus the taxable service. Since the introduction of this sub-clause in Explanation I expands the scope of the taxable service and renders the taxable (a) hitherto non-taxable transaction, and absent of explicit retrospective reach provided to the amendment and insertion of this sub-clause, , these transactions covered by this sub-clause of the Explanation have only the prospective operation.
15. On the above analysis , renting of vacant land by way of lease or licence (irrespective of the duration or tenure), for construction of a building or a temporary structure for use at a later stage in furtherance of business or commerce is a taxable service only from 1.7.2010, and not so, earlier to this date.
16. Since the show cause notice did not specifically demand nor the assessee care to furnish details and particulars of the lease transactions and of the several categories of receipts, in respect of vacant lands leased by it for business or commercial purposes; nor had asserted in defence, which of the leases were not in furtherance of business or commerce; and since the adjudicating authority also did not, in the circumstances, advert to this aspect of the matter, we are not inclined to go into the contention (urged in oral arguments) that part of the lease transactions were for furtherance of purposes other than business or commerce. If any such transactions of the appellant/assessee are in respect of leases for non-commercial or non-business purposes , since we are remitting the matter ,the Authority shall consider this aspect of the matter. The appellant may submit clear and a categorical pleadings, by way of detailed written submissions, coupled with the relevant transactional documents in support of any assertion , that some of its leases were in respect of non-business or non-commercial purposes.
17. From the material on record, including the response to the show cause notice (summarized in the adjudication order), the appellant is seen to have inadequately and incoherently pleaded its defence and claims for exclusion of some of its receipts, from the ambit of the gross consideration received from the taxable renting of immovable property transactions/leases; such as industrial or commercial penalty; industrial or commercial forfeiture, building plan fee, advertisement charges, interest on lease rent etc; on the ground that these are not legitimate components of considerations received for the taxable renting of immovable property service. Since we are remitting the matter for de novo adjudication we afford an opportunity to the appellant to furnish detailed written submissions, specifically claiming exclusion of specified receipts, from the ambit of the gross consideration attributable to the taxable service along with documentary material, including all transactional documents, bills and/or receipts supporting its plea for exclusion from the ambit of service tax. The assessing authority shall consider such claims and shall record a reasoned conclusion on what aspects or facets of consideration are attributable to taxable service and thus exigible to service tax.
18. Since we are remitting the matter for fresh adjudication, we are not inclined to deal with the issue regarding validity of invocation of the extended period of limitation. The appellant may assert its claims on this aspect and the adjudicating authority would consider the same and record its ruling.
19. Before concluding, we consider it appropriate to reiterate our strong disapprobation of the conduct of the appellant in failing to co-operate with the Service Tax Department in promptly and adequately responding to notices of hearing and summons issued and failing to furnish the requisite records and relevant documents. The appellant is an assessee and cannot delude itself by an assumption that it is immune to the process of law or adopt a condescending attitude towards the formal processes of law. We make it clear that irrespective of its status as a public authority, the appellant is an assessee. We hope and trust that the appellant would conduct itself in future with greater fidelity to the mandate of law, including assessment proceedings.
20. In the facts and circumstances of the case and on the analysis above, the adjudication order dated 26.2.2013 passed by the Commissioner, Central Excise, Customs and Service Tax, Noida (impugned herein) is quashed and matter remitted to the said authority for passing a fresh adjudication order, commencing from the stage subsequent to the show cause notice dated 19.10.2012. The appellant is at liberty to submit its written response to the said show cause notice along with all relevant and supporting documents, within 30 days from the date of receipt of a copy of this order and shall not be entitled to any further adjournment for submitting its memorandum of written submissions along with supporting documents. After the period aforesaid, the adjudicating authority shall consider and pass a fresh order of adjudication in accordance with law. In the event of further unresponsive of the conduct by the assessee, the ld. adjudicating authority is at liberty to pass orders ex-parte on the basis of the materials on record. No order as to costs.
(Justice G. Raghuram) President (Rakesh Kumar) Technical Member scd/ 1