The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the imposition of service tax on interest-free advances received for agricultural land acquisition and real estate projects must be re-examined due to the ambiguous terms of the Memorandum of Understanding (MoU).
Aerens Goldsouk Projects (Hissar) Pvt. Ltd., the appellant filed an appeal against the imposition of service tax of Rs. 86,90,088 along with interest and penalties under Sections 68, 73, and other relevant provisions of the Finance Act, 1994.
The case arose from inquiries by the Anti-Evasion Wing which alleged that the appellant failed to pay service tax on advances received for real estate projects and services rendered to Aerens Goldsouk International Ltd. (AGIL) during the period 2011-12 to 2014-15.
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The inquiry led to a show-cause notice issued in December 2016 demanding Rs. 2,16,74,956, of which Rs. 86,90,088 was confirmed by the adjudicating authority.
The appellant’s counsel argued before the CESTAT that the advances were interest-free loans for acquiring rural agricultural land, backed by a Memorandum of Understanding (MoU) with AGIL. The appellant’s counsel further argued that the MoU represented a financial arrangement without any service component.
The appellant pointed out there were deficiencies in the adjudication process, including double taxation of advances and revenue and failure to classify activities under specific taxable service categories.
The department counsel argued that the MoU was not legally valid citing lack of registration, incomplete signatures, and omission of important details like transaction amounts and timelines. The department counsel also argued that the advances were taxable considerations for services and pointed to a clause in the MoU that indicated payment of a fee for land acquisition services.
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The two-member bench comprising Dr. Rachna Gupta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member) reviewed the records, the MoU, and legal precedents cited by both parties. The tribunal observed huge deficiencies in the evidence provided by the appellant, particularly regarding the MoU’s validity and the lack of substantiating documents for claimed exemptions.
The tribunal ruled that service tax liability must be based on clear evidence of taxable services and not mere assumptions from financial statements. The tribunal remanded the matter to the original adjudicating authority for reconsideration, directing that the appellant be allowed to present all relevant documents to substantiate its claims.
The tribunal set aside the impugned order and allowed the appeal.
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