By TIOL News Service

NEW DELHI, SEPT 12, 2014: THE appellant M/s. Greater Noida Industrial Development Authority is established under the U.P. Industrial Development Act, 1976 to develop the defined area as a planned industrial township. The appellant discharges the statutory duties and functions which include allotment of land on lease basis. The appellant is registered for payment of Service Tax on "Renting of Immovable property services" and sale of space for advertising and are paying service tax on rent received from the constructed immovable properties rented out by it for business or commerce.

With effect from 1.7.2010, a clause (v) was added to the definition of 'immovable property' in s.65(105)(zzzz), Explanation-1 of the Finance Act, 1994 and which covered vacant land given on lease or licence for construction of building or temporary construction at a later stage to be used for furtherance of business or commerce.

The officers of the Directorate General of Central Excise Intelligence initiated inquiry against the appellant and found that in their balance sheet for 2010-2011, the appellant have shown income from leasing of vacant land for the purpose of construction of commercial buildings, but they had not paid any service tax on the lease rent received by them.

Since during the period from 1.7.2010 to 31.5.2011, the appellant had received a total amount of Rs.40,14,15,820/- as lease charges from the allotment on lease basis of various plots of land for commercial purposes, a SCN dated 19.3.2012 was issued to the appellant demanding Service Tax of Rs.4,13,45,830/- and proposing imposition of penalties and interest.

The Commissioner of Central Excise and Service Tax, Noida vide his order dated 16/07/2012 confirmed the demand and imposed penalties and interest.

In the matter of the Stay application filed by the appellant [in Appeal no. ST/3256/2012] before the CESTAT, the Bench waived the pre-deposit and granted a stay in the matter.

We reported the stay order thus -

ST - In relation to immovable property difference between 'renting' and 'leasing' is blurred - Ordinary meaning of 'renting' will not cover long term leasing - Developing township and maintaining municipal functions is not commercial activity of Govt. - GNIDA granted stay: CESTAT- See 2013-TIOL-44-CESTAT-DEL

Incidentally, subsequent to the issue of the aforementioned SCN dated 19.03.2012 by the DGCEI, the officers of the Central Excise Commissionerate, Noida initiated inquiry for the period from 2006-2007 to 2010-2011. Pursuant thereto, the officers viewed that the amount collected and shown by the appellant in their books of accounts from commercial, industrial and builder GHS lease, lease rent (annual), and also the amount received for processing and building plan fees, transfer charges, documentation charges and as misc. income would attract service tax under Section 65(105)(zzzz) read with Section 65(90a) of the Finance Act, 1994. On the amount collected during the period from 2006-07 (1.6.2007)to 31.03.2012 of Rs.14,60,25,26,232/- under the above heads from their customers/allottees, the department was of the view that service tax amounting to Rs.140,74,64,342/- would be payable.

And so, a SCN dated 17.10.2012 came to be issued and which was adjudicated by the Commissioner of Central Excise and Service Tax, Noida vide order-in-original dated 30.04.2013 by which he confirmed the service tax demandedand imposed penalties and interest.

The appellant had filed appeal before the CESTAT against this order too.

The Miscellaneous application for early hearing of the Appeal no. ST/59067/2013 along with appeal No.ST/3256/2012 was allowed as one of the contentions of the appellant was that the SCN dated 17.10.2012 which was adjudicated by the Commissioner vide order-in-original dated 30.04.2013 confirming service tax demand of Rs.140,74,64,342/- also included the service tax demand of Rs.4,13,45,830/- raised by the DGCEI vide show cause notice dated 19.03.2012, which was adjudicated by the Commissioner vide order-in-original dated 16.07.2012.

Both the appeals were heard on 29.05.2014 and thereafter on 03.06.2014 and 06.06.2014.

After going through the elaborate submissions and upon perusing the records the Bench framed the main points for decision and made the following observations -

(A) Whether in respect of giving vacant land on lease or licence basis for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce, service tax under Section 65(105)(zzzz) read with Section 65 (90a) of the Finance Act, 1994 is chargeable from 1.06.2007 or the same is chargeable only w.e.f. 1.7.2010 when clause (v) was added to Explanation-I to Section 65(105)(zzzz) and in this regard, wzhether long term leases of vacant land are excluded from the preview of section 65(105)(zzzz) read with section 65(90a).

++ The Tribunal in the case of New Okhla Industrial Development Authority Vs. Commissioner of Customs, Central Excise & Service Tax, Noida - 2014-TIOL-67-CESTAT-DEL has held that the giving of vacant land on lease or licence for construction of a building or a temporary structure at a later stage to be used for furtherance of business or commerce would become taxable only w.e.f. 1.7.2010 and not during the period prior to 1.7.2010.

++ In terms of Section 105 of the Transfer of Property Act, 1882, the term lease covers the lease for any period including lease in perpetuity.

++ Section 65(90a) while defining the immovable property does not make any distinction between the long term lease or short term lease and there is absolutely no provision to exclude the long term lease or lease in perpetuity from the purview of the expression renting of immovable property.

++ Therefore, all the leases of immovable property as defined in Section 65 (105)(zzzz) would be covered for service tax whether the lease is short term or long term or lease perpetuity.

++ This very issue has also been examined in detail in paras-5, 6, 7 and 8 of the Tribunal judgment in the case of New Okhla Industrial Development Vs. Commissioner of Central Excise & Service Tax , Final Order No.58664/2013 dated 11.12.2013 2014-TIOL-67-CESTAT-DEL.

++ Therefore, service tax demand would be sustainable only in respect of leases, whether long term or short term, of vacant land for the period w.e.f. 01.07.2010 where such leases of vacant land were for construction of building or structures for furtherance of business or commerce. No service tax would be chargeable in respect of such lease paid prior to 01.07.2010.

(B) Whether the service tax is chargeable only on the lease rent or also on one time premium amount charged in respect of long term leases?

++ Since the levy of service tax is on renting of immovable property& not on transfer of interest in property from lessor to lessee, service tax would be chargeable only on the rent whether it is charged periodically or at a time in advance.

++ Service tax under Section 65(105)(zzzz) read with Section 65(90a) cannot be charged on the premium or salami paid by the lessee to the lessor for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased.

++ In the show cause notice dated 19.03.2012 issued by the Addl. Director, DGCEI, New Delhi, service tax has been demanded only on the lease rent and not on the premium amount while in the subsequent show cause notice dated 17.10.2012 issued by the Commissioner of Central Excise and Service Tax, Noida, the amount of premium has also been included in the lease rent for the purpose of charging of service tax for which no valid reasons have been given. Therefore, the order-in-original dated 30.04.2013 confirming the service tax demand on the premium amount is not correct and to this extent, the service tax demand would not be sustainable.

(C) Whether service tax is chargeable on the processing charges, building plant approved for, transfer charges and on miscellaneous income such as map revision fee, map validation fee, forfeiture charges, penalty, restoration charges, documentation charges, etc. and also on the rent received from the staff to whom the residential premises is let out by the appellant?

++ By Finance Act, 2001, Section 65(105)(zzzz) was amended retrospectively w.e.f. 1.6.2007.As per the amended provisions effective from 1.6.2007, Section 65(105)(zzzz) covers not only the service of renting of immovable property to any other person for use in the course of furtherance of business or commerce but any other service in relation to such renting. Therefore, the services, which are in connection with the renting of immovable property for business or commerce, would also be taxable under this Section.

++ Therefore, processing charges for application for land allotment on lease basis would also be taxable.

++ However, the services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis have no nexus with the renting of immovable property for business or commerce, and as such, the activities in relation to the construction of building on the vacant land allotted on lease basis i.e. the charges of map approval, validation, map revision, malba charges, etc. would not attract service tax.

++ As regards restoration charges or penalty, which appears to be the penalty for violating the conditions of the lease, the same, in our view, cannot be said to be the consideration for lease and would not attract service tax.

++ As regards the rent/licence fee received by the appellant from their staff to whom the residential units has been let out, such letting out the residential units to the staff is not renting of immovable property for use in or for furtherance of business or commerce and hence, the licence fee/rent received from such letting out of houses of Noida Authority would not attract service tax.

(D) Whether the allotment of vacant land to builders for construction of residential complexes would attract service tax under Section 65(105)(zzzz) read with Section 65(90a).

++ Explanation 1 to Section 65(90a) defines the term for use in the course of or for furtherance of business or commerce as including the use of immovable property as the factories, office buildings, warehouses, theatres, exhibition halls and multiple use buildings. Thus, when the building constructed on a vacant land leased is purely as residential building, the same cannot be said to be a building to be used for furtherance of business or commerce.

++ Therefore, the allotment of land to a builder or a group housing society for construction of residential complex would not be covered by Section 65(105)(zzzz) read with Section 65(90a) as in such cases, it cannot be said that the vacant land given on lease is for construction of building to be used for furtherance of business or commerce.

++ Therefore, the service tax demand on the lease rent in respect of the allotment of vacant land to builders or group housing societies for the construction of residential complex would not be taxable. For the same reason, wherever such allotments have been made to institutions for construction of their buildings, to be used for non-commercial purposes, the same would also not be taxable.

(E) Rent received w.e.f 01.07.2010 from vacant lands leased prior to 01.07.2010 for commercial or industrial use - whether chargeable to ST?

++ This judgment ( Vazir Sultan Tobacco Co. Ltd. 2002-TIOL-215-SC-CX-LB where it is held that the goods manufactured prior to levy of duty but cleared thereafter would not be liable to excise duty) does not help the Appellant, as the levy of service tax is on the event of provision of a taxable service, not on the event of entering into agreement for provision of service.

++ Unlike manufacture of goods and clearance of manufactured goods which are one-time events, the provision of service in pursuance of an agreement for the same, may after starting the provision of service, continue for some time for several days, several months or several years, depending on the terms of the agreement and in between, a service which at the time of initiating the provision of service was non-taxable may become taxable.

++ Since the taxing event for service tax is provision of service, not the event of entering into an agreement for provision of service, the service provided from the date on which the same became taxable, would attract service tax, irrespective of the fact that at the time of entering into an agreement for provision of service, the same was not taxable.Therefore, the rent from lease of vacant lands for commercial or industrial use received during the period w.e.f. 01.07.2010 would be taxable even if the leases had been given during the period prior to 01.07.2010.

(F) Whether for demand of service tax extended period of 5 years from the relevant date under proviso to Section 73 (1) of Finance Act, 1994 would be invokable and whether penalty would be imposable on the Appellant under Section 76, 77 and 78 of the Finance Act, 1994.

++ The appellant is a body corporate of the Government of Uttar Pradesh for performing statutory functions in accordance with the provisions of U.P. Industrial Area Development Act, 1976 and one of its functions is the allotment of vacant land to various persons for industrial or residential purposes on long term lease basis. There is merit in the appellants plea that they were under bonafide belief that the allotment of vacant land to various persons on long term lease basis for construction of building for industrial purposes would not attract service tax under Section 65(105)(zzzz) .Therefore, in the circumstances of the case, longer limitation period of 5 years from the relevant date would not be applicable and the service tax demand would survive only for the normal period of one year from the relevant date, which would be quantified by the adjudicating authority. For the same reasons, this is also a fit case, where by invoking the Section 80 of the Finance Act, 1994 penalties under Sections 76, 77 and 78 have to be waived.

(G) Overlapping of duty Demand in the notices:

++ Though the order dated 30.04.2013 passed by the Commissioner in respect of a show cause notice dated 17.10.2012, at one place mentions that the service tax demand of Rs.140,74,64,321/- confirmed by this order, does not include the service tax of Rs.4,13,45,830/- demanded in the show cause notice dated 22.3.2012 issued by a ADG, DGCEI and adjudicated by the order-in-original dated 16.07.2012, from the order dated 30.04.2013, it is not at all clear as to whether the service tax demand confirmed vide order-in-original dated 16.07.2012 is not covered by this order.

++ It would be appropriate to direct the Commissioner to examine this aspect also in the course of de novo proceedings and give a specific finding on this aspect.

Conclusion:

++ Service tax demand confirmed by the order-in-original dated 19.07.2012 is upheld only for the normal limitation period and the same is to be quantified by the Commissioner. The penalty on the Appellant under Section 77 and 78 is set aside.

++ Order-in-original dated 30.04.2013 is set aside and the matter is remanded to the Commissioner for de-novo adjudication.

Both the appeals were disposed of.

(See 2014-TIOL-1741-CESTAT-DEL)