No Service Tax on Sale/ Purchase of Property on a Principal to Principal basis: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench has held that there cannot be any service tax liability under the category “Real Estate Service” for the buying and selling of property on principal to principal basis.

The appellant-Firm is in the business of real estate trade. The main objective of the partnership firm is to carry on the business of purchase, sale, develop, take an exchange or otherwise, whether for investment or sale in any real estate including lands to carry on the business of builders, contractors, dealers in land, building and any other activity in connection therewith and incidental thereto. The appellants entered into an MoUs with Sahara India for acquiring three large parcels of land at three different locations under which, Sahara India, had agreed to pay an average rate per acre of land to be purchased by Sahara India, which land would be identified, divided and demarcated by the appellant firm together with necessary documents and other formalities.

The department demanded Service Tax from the appellant under the head ‘Real Estate Agent Service’ which defines a ‘real estate agent’ as a person who is engaged in rendering any service in relation to sale, purchase, leasing and renting, of real estate and includes a real estate consultant.

Before the Tribunal, the appellants contended that they are not real estate agents. It was also contended that they are not acting as an agent of Sahara India and is, in fact, transacting on a principal to principal basis and therefore, there can be no question of levying service tax on its business, alleged as service in relation to real estate.

The Tribunal, after analyzing the MoUs, noted that it is the nature of principal to principal basis, between the appellant and Sahara India, where Sahara India has entered into an agreement with the appellant for purchasing of land, in the manner specified in the MOU.

“As such the appellant is not acting as an agent of anybody or Sahara India and is not a real estate agent. The appellant is into buying/selling of property on a principal to principal basis. The appellant is not engaged in providing any real estate agent service, as alleged,” the Tribunal said.

It was further observed that “The words in the agreement – ‘difference if any’, is not the consideration for service, is evident from the words ‘if any’ itself, which clearly suggests that so-called consideration itself may or may not be there. This emphatically shows the absence of consideration for any alleged service. Further, it is not known at the time of the transaction as to what is the difference, which can only be known subsequently at the end of completion of the transaction envisaged under the MOU, emphatically shows that it is the nature of business profit. In the facts of the present case, as there is no provision for service, for lack of consideration, the question of its classification under the various clauses of Section 65(105) does not arise.”