By TIOL News Service
NEW DELHI, JAN 08, 2013: THE appellant is a body established under the Uttar Pradesh Industrial Development Act, 1976 by notification issued under section 3 of the said Act to develop certain notified areas as a planned industrial township. It functions as an arm of the State Government through its officers. Under section 6 of the said Act, one of the functions of GNIDA is to allocate and transfer whether by way of sale or lease or otherwise plots of land for industrial, commercial or residential purposes. Section 7 of the said Act gives power to GNIDA to transfer of land. They charge both one-time lease charges at the time of initial handing over of the land and also charge annual lease charges at different rates for land given for different purposes.
Revenue was of the view that service tax is payable on such "lease charges" received as per provisions of section 65 (105) (zzzz) read with section 65 (90a) of Finance Act, 1994. So they initiated proceedings for recovery of Service Tax of Rs.4,13,45,830/- on the Lease rent received during the period July 2010 to May 2011.
Aggrieved by the confirmation of the demand by the CCE, Noida along with interest and penalties, the appellant Greater Noida Industrial Development Authority (GNIDA) has filed an Appeal before the Tribunal.
In a nut shell the arguments of the appellant are that the appellant is doing a statutory sovereign function and not a service and that long term lease is like sale and not akin to renting made taxable under section 65(105)(zzzz) and hence the demand is not maintainable and the appeal should be heard without insisting for any pre-deposit of the adjudged dues.
The Revenue representative submitted that all the properties in the area leased out by GNIDA continues to belong to GNIDA; that the property is given only on lease basis and not on free hold basis; the fact that GNIDA collects annual rent shows that the property is not sold at all; clause (v) of Explanation 1 inserted by Finance Act, 2010 in section 65 (105) (zzzz) makes it clear that giving vacant land on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce, would also be taxable under the entry. Reference is also made to letter D.O. F. No. 334/1/2010-TRU dated 26-02-2010 in this regard.
The Bench observed -
"11.... We find that the adjudication is done without bringing on record the actual conditions under which land is transferred. It is not clear whether all the consideration sought to be taxed is for the same type of transactions. So we are prima facie taking the submissions of the appellant as correct because nothing to the contrary is seen recorded in the adjudication order though the contentions were raised before the adjudicating authority also.
12. The relevant provisions in section 65 of Finance Act, 1994 are the following:
(90a) "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include -
x x x
(105) "taxable service" means any service provided or to be provided, -
--
(zzzz) 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.
x x x"
13. The key question to be considered is whether long term lease like one for 90 years will be covered by the meaning of "renting" or "leasing" used in section 65 (105) (90a). In relation to immovable property the difference between "renting" and "leasing" is blurred. Difference between "sale" and "renting" has been traditionally clearer. But the difference is getting blurred in modern townships as new types of transfer of rights are emerging. Ownership is a bundle of several rights. Even when a property is held by an individual under a free hold title, he does not own absolute right to do whatever he wants to do with the property. His rights are progressively getting restricted due to increasing need for welfare of the society at large, as society and community living is changing.
14. The ordinary meaning of "renting" will not cover long term leasing. The inclusive definition given in section 65 (105) (zzzz) including renting, letting, leasing and licensing in the same type of services would suggest that the word "leasing" used in the said section does not cover long term leasing where a property is given to a person with rights to transfer, assign and mortgage the rights. Such transfers are more akin to sale and less to renting of property. Such view is supported by the decision of Delhi High Court in the case of Krishak Bharati Co-operative Ltd Vs. Dy. CIT in ITA No. 205/2010 order dated 12-07-12 = (2012-TIOL-515-HC-DEL-IT) holding that payments made to GNIDC is an expenditure in the nature of capital expenditure and not a revenue expenditure.
15. The question whether the functions carried out by the appellant is a service also needs to be examined. A government authority doing an activity as per a mandate in an Act of the legislature by itself cannot take away the character of service from the activity. If that is not the case transportation functions done by Indian Railways would not amount to service. So may be the case of insurance service provided by Life Insurance Co-operation of India mandated to do so under LIC Act, 1956. However it is recognized that sovereign functions done by a government authority like certifications done under Weights and Measures Act, issue of passport etc cannot be considered as taxable service. The concept as to what are sovereign functions also is changing. Developing a township according to a plan which will be conducive to society at large and maintaining municipal functions in such township has to be considered prima facie to be sovereign functions and not a commercial activity of the government."
The CESTAT further observed that since the appellant is an Authority set up by a State Government they should not be put to hardship that may be caused by ordering pre-deposit in a matter involving basic legal issues. Holding so, the Bench granted waiver of pre-deposit and ordered a Stay in the matter.
In passing: See Maharashtra Industrial Development Corporation = (2012-TIOL-1290-CESTAT-MUM).
(See 2013-TIOL-44-CESTAT-DEL)
