ST - Real Estate Agency - AA agreed that cost of land cannot be included in gross value, yet he proceeded to confirm ST on entire sum received - balance of convenience is in favour of Appellant - Pre-deposit ordered of 5% of profit earned: HC
By TIOL News Service
NEW DELHI, SEPT 20, 2015: SAHARA India Commercial Corporation Ltd. (SICCL) was keen to set up residential townships in or around Allahabad and Jodhpur. At each of the locations, SICCL required around 100 to 150 acres of land. SICCL entered into MOUs with M/s. Sahara India (SI) which in turn entered into two separate MOUs for purchase of land in Allahabad and Jodhpur. The MOUs specified the extent of land to be purchased and the rate of land per acre at which SI would purchase land at each of the cities. The Appellant was entitled to difference, if any, of the amount actually paid for purchase of land to the original owners of land and the "agreed rate" between the Appellant and SI. In other words, the Appellant was entitled to the profit/loss on account of purchase and sale of the land.
The DGCEI issued a demand notice dated 22.10.2010 alleging that the appellant had provided taxable ‘Real Estate Agency' Services and, therefore, is liable to service tax.
The Adjudicating authority (AA) in his order 29.11.2013 held that the Appellant had provided taxable 'real estate' services. He, however, agreed with the contention of the Appellant that "the cost/value of land cannot be included in the gross value for levy of service tax". Nevertheless, while proceeding to determine the service tax payable, the original authority stated that in the absence of the Appellant providing the necessary details, the entire sum received by it would be considered as the taxable value for the purpose of computation of service tax. Inasmuch as the taxable value was taken as Rs. 9,62,98,304 and service tax liability, interest and penalty were determined on that basis for the period 1st January 2004 to 31st March 2008.
The CESTAT in its order dated 31.03.2015 directed the appellant to make a pre-deposit of 25% of the tax demanded along with proportionate interest.
Before the High Court against this order, the appellant, inter alia , submitted that the AA having agreed with the Appellant that the entire sum received by the Appellant for purchase of land could not form the basis for computation of the service tax, there was no logic in the AA proceeding to raise a demand of service tax of Rs. 98,22,427 calculated on the taxable value of Rs. 9,62,98,304. Inasmuch as the impugned orderrequiring the Appellant to deposit 25% of the said sum was unreasonable particularly considering that Section 35F of the Act as amended with effect from 6th August 2014 required a maximum pre-deposit of 7.5% of disputed tax.
Without prejudice, the appellant also submitted that even assuming that they had provided taxable service, the tax at 10% could be levied only on the commission/profit earned and not on the entire sum received by it for purchase of the lands. They handed over a calculation sheet which showed that a profit of Rs. 1,62,40,700 was made in respect of purchase of land at Jodhpur.
The counsel for the Revenue had nothing more to add beyond the order of the AA.
The High Court after considering the submissions observed -
++ Appellant has made out a prima facie case on the aspect whether the entire amount received by it pursuant to the MoUs would be considered to be the 'gross' or 'taxable value' for the purposes of computation of service tax liability. Indeed it appears that the AA agreed with the Appellant that the entire sum received by the Appellant for purchase of land could not form the basis for computation of the service tax. Yet when the AA's order dated 29th November 2013 is examined carefully it shows that the AA has computed the service tax demand as Rs.98,22,427 [service tax Rs.96,29,830/- plus Education Cess of Rs.1,92,597/-] calculated @ 10% on the taxable value of Rs. 9,62,98,304. This prima facie appears unsustainable since the total sum shown to have been received by the Appellant under the two MOUs, even as per the SCN, is around Rs. 10.79 crores [4+6.79]. It further appears that the interest and penalty have also been calculated on that basis.
++ It further prima facie appears that the AA overlooked the fact that even as per the SCN no land in Allahabad was purchased although the Appellant received Rs. 4 crores for that purpose. The Appellant's explanation that it returned the said sum to SICCL in the form of shares of two of its group companies does not appear to have been considered. A further question that would arise is whether the entire profit generated from the purchase of land in Jodhpur can be taken to be value of the taxable services, if any, rendered by the Appellant. Those questions cannot obviously be examined at this stage but will have to await the final determination in the appeal before the CESTAT.
Holding that the Appellant has made out a prima facie case and that the balance of convenience is in their favour, without expressing any opinion on the merits of the case, the Court directed the appellant to make a pre-deposit of 5% of the profit earned of Rs.1,62,40,700/- i.e Rs.8,12,035/- on or before 15.10.2015 and upon compliance of the same directed the CESTAT to consider and dispose of the appeal.
(See 2015-TIOL-2178-HC-DEL-ST)
