By TIOL News Service

MUMBAI, JULY 25, 2014 : 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. 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.

The CCE, Pune-III in his O-in-O dt. 29.11.2006 held that M/s. SRL has provided Real Estate Agent Service and confirmed a Service Tax demand of Rs.3,07,83,184/- and imposed penalties galore. The amount of Rs.88.12 lakhs paid by the appellant during investigation was also appropriated.

The appellant is before the CESTAT.

After hearing the submissions made by both sides, the Bench observed -

++ M/s SRL (appellant) 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.

++ 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, marking, acquisition or management of real estate”.

++ From the fact 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. Thus no real estate agent service can be said to have been provided by M/s. SRL to M/s. SEL.

++ 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 thereof is not the issue here.

Holding that M/s. SRL had not provided service of Real Estate Agent to M/s. SEL the appeal was allowed with consequential relief .

(See 2014-TIOL-1334-CESTAT-MUM)