Service provided by the Project developer doesn't fall under Real Estate Agent, No Service Tax: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that the Service provided by the Project developer doesn't fall under Real Estate Agent and Service Tax is not demandable.

J P Infrastructure Pvt Ltd, the appellant is engaged in the business of providing real estate agent services for which they were not registered with the service tax department and not paying service tax. A search was carried out at the premises of the appellant and the statement of Shri Jayesh Talakshibhai Kotak, Director of the appellant’s company was recorded. 

During the course of scrutiny of development agreements, balance sheets and other documents about the three commercial construction projects i.e. (i) Iscon Mega Mall at Ahmedabad (ii) Iscon Mall at Surat (iii) Iscon Mega Mall at Rajkot and accounts ledger, it was found that the Appellant was having individual Development Agreements with the Landowners/ construction companies.

As per the development agreements, the developers/advisors are responsible for advertisement and marketing of the said commercial projects for inviting purchasers/buyers; advise the owner companies on the appointment of the contractors; purchase of raw materials and commercial viability of the project. They were entitled to remuneration at the rate minimum of 2.5% of the total construction cost for the services rendered during the scheme on yearly basis or as mutually agreed from time to time.

The appellant had not discharged the Service Tax liability for the amounts received by them, show cause notice dated 08.02.2010 was issued to the appellant by the department proposing the demand of service tax amounting to Rs. 41,94,185 /- along with interest and penalties. The allegations in the show cause notice were confirmed vide the Order-In-Original 18.10.2011 in which the entire demand of service tax was upheld along with interest. 

Mr Ramesh Nair, Member (Judicial) and Mr Raju, Member (technical) that all the agreements clearly have shown the activity of the appellant as a project developer and not as a real estate agent. The activity carried out by the appellant would, therefore, not fall under ”Real Estate Agent’s Service”.

 Further observed that, whether a service falls under a particular category or not will depend upon the nature of the service being provided and the legal interpretation of the documents, like contracts, agreements etc. entered by the service provider with their customers. A service will not become a particular service merely on the acceptance of the service provider.

The Tribunal set aside the impugned order and allowed the appeal. Shri Bishan R. Shah, Chartered Accountant appeared for the Appellant and Shri G. Kirupanandan, Superintendent appeared for the Revenue.

To Read the full text of the Order CLICK HERE
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