99-Year Land Lease with One-Time Premium Is a Sale of Immovable Property, Not a Taxable Service: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that leasing out land for 90 years against a one-time premium constitutes a transfer of immovable property and is not subject to service tax.

Raipur Development Authority, the appellant, is a statutory body established under the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973. It entered into a development agreement with a private party, granting long-term lease rights over government-owned land in exchange for a one-time lease premium and annual ground rent.

The department issued a show cause notice alleging that the transaction was taxable under the category of "Renting of Immovable Property Service" and demanded service tax along with interest and penalties.

The appellant’s counsel argued that the lease agreement created rights akin to ownership over immovable property for a 90-year term and was a transfer of immovable property, not a taxable service. It was further argued that the one-time premium was not a consideration for a service but rather a charge for the transfer of land rights.

The revenue counsel argued that the transaction involved in leasing the land for commercial purposes amounted to renting and should be taxed accordingly.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that the development agreement effectively transferred the rights in immovable property and was not a service under Section 65B(44) of the Finance Act.

The tribunal ruled that the lease of land for a long duration in exchange for a one-time payment did not attract service tax. The appeal was partly allowed and the demand relating to service tax on lease premium, ground rent, interest, and CENVAT credit reversal was set aside.

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