The Delhi High Court held that the changeability of the activity on facilitating land and other related activities to attract service tax under the head ‘Real Estate Agent’.
The respondent is engaged in the business of the real estate. A Memorandum of Understanding was entered into, between the respondent and M/s. Sahara India Commercial Corporation Ltd. for acquiring three parcels of land.
As per the said MOU, Sahara was to acquire the land, including the cost and development expenses, and the respondent was required to demarcate the land into blocks, purchase the land in contiguity block-wise, furnish title papers, etc. to enable purchase of the land, obtain permission and approval of the competent authority for transfer of the land, and to bear expenses thereof, and bring the owners of the land for negotiation, registration, etc, to the relevant places and bear all the attending expenses.
The MOU also stated that stamp duty and mutation charges would be borne by Sahara. Advances were received, by the respondent, from Sahara, for each site, a substantial part whereof was paid to the seller/prospective seller of the land.
The Revenue was of the opinion that the above arrangement rendered the respondent liable to pay service tax under the head “Real Estate Agent” service. On the ground that the respondent had not paid service tax, payable by it under the head “Real Estate Agent” service.
A Show Cause Notice was issued to the respondent on 22nd April 2010 by the Additional Director General, DZU, DGCEI, New Delhi, proposing a demand of service tax of Rs. l,55,10,433/-, for the period 1st October 2004 to 9th December 2005, along with interest and penalty.
The said Show Cause Notice was adjudicated, by the Commissioner, Service Tax, vide Order-in-Original dated 30th September 2013, whereby the aforesaid proposed demand of service tax of Rs. 1,55,10,433/- was confirmed under Section 73(1) of the Finance Act, 1994 (hereinafter referred to as along with interest under Section 75 and penalty under Sections 77 and 78 of the Finance Act.
The division bench comprising of Chief Justice and Justice, C. Hari Shankar pronounced the judgment based on an appeal filed by Revenue against Premium Real Estate Developers.
The bench observed that the Commissioner have erred in assuming that there is service provided by the appellant to Sahara India, by treating the MOU between the Commissioner that since the land cost is capable of being known, in the facts of the present case, the profit, if any, amounts to being the consideration for service, is completely erroneous.
The bench further observed that It has also been held in the said decision that when the Finance Act levies service tax, it only levy service tax on those activities which are for providing services simpliciter and it does not provide for levy of service tax on an indivisible transaction.
Upholding the decision of the tribunal and said that if the contention of the Department is to be accepted, it will result in an absurd situation holding the profit element of a purchase/sale transaction of land, as the consideration for alleged real estate service.
While dismissing the appeal the court stated that the Tribunal erred in not treating the respondent as providing “real estate agent” service, and in treating the transaction, between the respondent and Sahara, as one of trading.
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